Jacques Cornet - ICR Albert Behler - Chairman, Chief Executive Officer and President Michael Walsh - Executive Vice President, Chief Financial Officer and Treasurer Ted Koltis - Executive Vice President of Leasing Vito Messina - Senior Vice President, Asset Management Wilbur Paes - Senior Vice President and Chief Accounting Officer.

Nick Yulico - UBS Jed Reagan - Green Street Advisors James Feldman - Bank of America Brad Burke - Goldman Sachs Sumit Sharma - Morgan Stanley Tom Lesnick - Capital One Securities Rich Anderson - Mizuho Securities.

Greetings and welcome to the Paramount Group Incorporated Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to turn the conference over to your host, Mr. Jacques Cornet. Thank you, you may begin..

Thank you, operator and good morning. By now, everyone should have access to our fourth quarter and full year 2015 earnings release and supplemental information. Both can be found under the heading Financial Information, Quarterly Results on the Paramount website at www.paramount-group.com in the Investors section.

Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements, which are usually identified by the use of the words such as will, expect, should or other similar phrases are not guarantees of future performance.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and therefore you should exercise caution in interpreting and relying on them.

We refer all of you to our recent SEC filings, including our most recent Form 10-K as updated by our subsequent quarterly reports on Form 10-Q for a more detailed discussion of the risks that could impact our future operating results and financial condition.

We encourage investors to review our regulatory filings including the Form 10-K for the year ended December 31, 2015 when it is filed with the SEC. During today’s call, we will discuss 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 measures is available in our fourth quarter 2015 earnings release and our supplemental information.

Hosting the call today, we have Albert Behler, Chairman, Chief Executive Officer and President of the Company; Michael Walsh, Executive Vice President, Chief Financial Officer and Treasurer; Ted Koltis, Executive Vice President Leasing; Vito Messina, Senior Vice President, Asset Management; and Wilbur Paes, Senior Vice President and Chief Accounting Officer.

Management will provide some opening remarks and we’ll then open the call to questions. With that, I will turn the call over to Albert Behler..

Thank you, Jacques, and good morning. We appreciate everyone joining us today. We ended 2015 with a very strong quarter, led by another terrific leasing effort. We accomplished a lot here in 2015 in our aim to drive future NOI growth and value creation in our portfolio. Here are some of the highlights.

First, we not only met but significantly exceeded our leasing goal of 1 million square feet for 2015. During the fourth quarter we leased nearly 650,000 square feet of space bringing our full year leasing activity to 1.4 million square feet.

This resulted in an increase in our overall lease percentage to 95.3% at year end, up 240 basis points from the third quarter and 140 basis points from the prior year. Second, we achieved very strong positive cash mark to market of 17.3% for the quarter and 15.6% for the year.

Third, we completed a $1 billion refinancing of 1633 Broadway with an earn out potential of an additional $250 million that not only extends our debt maturities and reduces interest cost, but also enhances the strength of our balance sheet.

As of December 31, 2015 our pro rata share of debt had a weighted average interest rate of 4.4% down nearly 100 basis points from a year ago. And fourth, we continued to maintain a disciplined acquisition strategy and enhance the value of our portfolio by purchasing the remaining 35.8% of 31 West 52nd Street that we did not previously own.

This exposition gave us the ability to recapture the best space in the building to unlock a significant mark-to-market opportunity that would not otherwise have been available to us for the next ten years. We are very proud of our achievements in our first full year as a public company and look to do more of the same in 2016 and beyond.

Our leasing efforts have been extraordinary and if you look at our supplemental package you will notice that over the next five years on average we only have about 4.6% of our total square footage rolling with no more than 5.5% in any given year.

Over half of our 2015 leasing or nearly 750,000 square feet took place at our two largest buildings in New York. At 1633 Broadway we leased over 425,000 square feet in 2015 with nearly 290,000 square feet in the fourth quarter.

While we have another 220,000 square feet or just over 8% of the building set to expire in 2016, our recent leasing success together with the Plaza redevelopment which is now becoming more visible has positioned us well to address the upcoming expirations.

At 1301 Six Avenue, we leased over 320,000 square feet in 2015 of which over 53% was completed in the fourth quarter bringing the leased percentage of this building to 97% up from 85.4% a year ago. Much of this leasing has also addressed the upcoming Commerzbank lease expiration.

Of the 288,000 square feet Commerzbank currently leases over half has already been preleased to other tenants prior to their expiration. The remaining space will be vacated this year and we are confident our continued momentum at this 97% leased building will help us capitalize on this opportunity as well.

In San Francisco, we leased 270,000 square feet in 2015 with cash mark to markets of over 50%. Now that we have addressed our near term lease expirations, we have less than 5% of the building expiring through the end of 2017. The credit quality of our technology tenants at this building is second to none with over 95% being investment grade.

The newly renovated lobby looks great and will only become more appealing as the new store fronts and shops continue to open. All of this leasing activity and positive high double digit mark to markets have positioned us well to continue to drive future cash NOI growth. Let me just put this into perspective.

We currently have over 1,350,000 square feet that are either in a pre rent period or related to signed leased not yet commenced, so they are non cash paying. This equates to over $87 million of contractual pro rata annualized rent that will come online overtime through early 2017.

Mike will later provide further details on this amount as well as the timing. While the stock market has been very volatile in recent weeks, we remain confident in our business.

From our perspective, actively owning and managing real estate portfolios in our markets for more than 20 years we have successfully managed through all phases of multiple cycles. As we always do, when there is a global unease, we are very diligent in efforts to monitor and compare the broader sentiment to what we observe each day in the trenches.

As we begin 2016 we remain confident in our ability to lease our best in class phase and are well positioned to execute on our goals. We will continue to proactively manage our portfolio with a focus on enhancing shareholder value. With that overview, I will turn the call over to Vito to discuss the leasing activity during the quarter..

Thank you, Albert. In the fourth quarter we leased 647,828 square feet at a weighted average initial rent of $79.80 per square foot and an average term of 13 years. Tenant improvements and leasing commissions were $7.46 per square foot per annum or 9.4% of initial rents, in line with 2015 leasing activity.

Overall our portfolio wide leased occupancy was 95.3% as of December 31 as compared to 92.9% at September 30. The change was driven primarily by leases at 1633 Broadway, 1301 Avenue of the Americas and 1325 Avenue of the Americas.

Of the 647,828 square feet leased during the quarter, 443,336 square feet represented leases on second-generation space for which we achieved a positive mark to market of 17.3% on a cash basis and 19.4% on a GAAP basis.

The majority of our fourth quarter leasing activity or 478,451 square feet was in New York at a weighted average initial rents of $78.90 per square foot at an average term of 14.2 years. Tenant improvements and leasing commissions were $7.54 per square foot per annum or 9.6% of initial rents.

Of the 478,451 square feet leased in New York, 360,341 square feet represented leases on second-generation space for which we achieved a positive mark to market of 11.3% on a cash basis and 13.2% on a GAAP basis. Turning to Washington DC.

The portfolio remains 90.3% leased as of December 31, 2015 unchanged from last quarter, go up 150 basis points over the last year with only 6000 square feet of lease explorations through year end 2018. In San Francisco, our property was 98.4% leased as of December 31, 2015, unchanged from last quarter but up 160 basis points over last year.

During the fourth quarter we leased 169,377 square feet at a weighted average rate of $85.01 per square foot. Included in this amount was 59,575 square feet of leases on [Indiscernible] and storage space for which market rates were significantly lower than the remainder of our office space.

Excluding this space rental rates on the remainder of the office space averaged over $100 per square foot. Of this quarters leasing, 82,995 square feet represented our share of second generation leases for which we achieved a positive mark to market of 49.6% on a cash basis and 54% on a GAAP basis.

Tenant improvements and leasing commissions remained low in this market at $6.40 per square foot per annum or 7.5% of initial rents. All of the leases signed during the fourth quarter reduced the 200,000 square feet of leases previously disclosed as being set to expire primarily at the end of 2016.

At this point we have less than 27,000 square feet expiring in San Francisco through 2016 and less than 78,000 square feet of expirations through the end of 2017. With that, I will turn the call over to Ted who will provide an update on what we are seeing in each of our markets..

Thanks Vito. We certainly ended the year with strong leasing momentum. As many of you know with our portfolio the first quarter is seasonally the slowest quarter of the year but we do continue to see good tour activity. In Manhattan availability in the Midtown market remains at 10.4%. Heading into 2016, our attention in New York is unchanged.

We continue to work mostly on the releasing of our available space at 1633 Broadway and at 1301 Avenue of the Americas. At 1633 Broadway we have a 2000 square foot block of [Indiscernible] currently occupied by Deloitte which will be vacant in April of this year. As mentioned in the past, larger blocks can take some time to lease.

At 1301 Avenue of the Americas, coming off of a strong fourth quarter which included 173,000 square feet of leasing we continue to see good activity given our large block availability. As previously detailed, we have approximately 125,000 square feet on the top five floors of the building coming vacant in June of this year.

Arguably the best block of space belong to Sixth Avenue. Recent news around certain high profile tenants remaining on Sixth Avenue is also good news for the sub market. Along Fifth Avenue, the market remains strong for high quality view [ph] space.

We continue to take advantage of that strength by setting high water marks for starting rents at the top of 712 Fifth Avenue. Turning to Washington DC, with not much space available we continue to stay disciplined in leasing and focused on improving rental rates and acquiring the best tenants.

Vacancy is about 12% in the market moderately lower than a year ago. Deals in Washington DC have been labored and negotiations time consuming, but we are confident that the competitiveness of our space will result in solid leasing activity.

We are in advanced discussions on several spaces across our portfolio in DC which will positively impact our occupancy in 2016.

Finally, in San Francisco from our perspective availability remains very low and thus the market remains very healthy with not much space to lease we still had a productive quarter and we are pleased that we continued to achieve initial rents starting over a $100 per square foot demonstrating the quality of our asset and the strength of the San Francisco market.

Over 60% of our 2015 San Francisco leasing activity or nearly 170,000 square feet took place in the fourth quarter highlighted by 100,000 square foot early renewal with capital research group as well as Google leasing one additional floor bringing them to over 300,000 square feet of the building which represents approximately 19%.

With the completion of the lobby in retail redevelopment, we have one of the best assets and a very strong market. With that, I will turn the call over to Mike who will discuss the financial results in more detail..

Thanks, Ted. Turning to the financials. Our core FFO was $0.21 per share for the fourth quarter and $0.81 per share for the full year in line with the midpoint of our guidance. FFO for the quarter was $0.29 per share and includes $21 million for our share of unrealized gains on interest rate swaps.

Today, we will describe four items that have the largest impact on our fourth quarter financial statements and the results of these changes. We will then add commentary necessary to understand and quantify our long-term growth in cash NOI and end with details of our 2016 earnings guidance.

First, as Albert described, is the completion of the refinancing of 1633 Broadway. This $1 billion seven-year loan bears a cash interest rate of 3.59% and a GAAP rate of 3.87%. The loan can be increased at our option by $250 million to $1.25 billion, if certain performance deferrals are met.

To-date, we have drawn $14 million to fund releasing cost of the building. Incremental draws bear interest at LIBOR plus 175 basis points. Second, we closed on the acquisition of our former joint venture partner share of 31 West 52nd Street. In addition to cash utilization, we also assumed our partner share of property levels debt of $148 million.

Third, $193 million of interest swaps at 900 3rd Avenue and 31 West 52nd Street expired during the fourth quarter which lowered our interest expense at these properties as a portion of the above market fixed rate debt is now gone floating.

Lastly, during the quarter we acquired one of the entities in our PGRESS fund for $12 million brining our total investment to 25%. This transaction caused us to reclassify the fair value of the underlying deferred equity investment from real estate fund investments to preferred equity investments.

The fund which currently yields 10.3% as two remaining investments with an average maturity of June, 2018 and the income will be included in the interest and other income net line in our financial statement. As a result of this quarter’s operations and the items just described, we ended the year with $145 million of cash.

In addition, we have $780 million of availability under our revolving credit facility. Our share of outstanding debt of $2.6 billion is $255 million greater than the last quarter primarily due to the purchase of 31 West 52nd Street and the refinancing 1633 Broadway.

This refinancing combined with the expiration of the swaps has reduced our weighted average interest rate 96 basis points from 5.35% to 4.39%. We have no debt maturities in 2016 and three maturities in 2017 totaling $898 million. As with 1633 Broadway, we work to refinance these maturities well in advance of their expirations.

Our leverage metrics remained conservative with overall net debt to total enterprise value of 34.5% and net debt to adjusted EBITDA of 6.9 times. Our portfolio ended the quarter at 90.3% occupied, 80 basis points lower than the prior quarter mostly due to planned lease expiration at 1633 Broadway.

Our share of non-cash straight-line rent and net above and below market lease revenues was $21.6 million. $14.6 million of this quarter’s straight-line rent was attributable to free rent.

Continuing on Albert’s comments regarding the cash impact and timing of recently signed leases, we’re in a transitionary time in our leasing cycle where we have 1,354,000 square feet of tenants or 13% of our total square footage that are either in a free rent period or have a signed lease that has not yet commenced.

Providing more color on the timing of the cash rents commencement, at year end we have 857,000 square feet of leases in free rent period. On a pro rata basis this is 747,000 square feet representing $51 million of annualized free rent. Over 90% of these leases will begin paying cash by January 1, 2017.

In addition to these leases in free rent periods, we have 497,000 square feet of signed leases that have not yet commenced. On a pro rata basis this is 488,000 square feet. These leases will provide an incremental $36 million to our annual revenues once the leases commence and the associated free rent period burn off.

Over 95% of this $36 million will be cash paying by the end of the first quarter 2017. Combining lease [ph] tenants in free rent periods and leases signed but not yet commenced results in an additional $87 million of contractual cash rent coming on line in the near term.

While we are providing this additional information today we’re not suggesting you should add $87 million to our 2016 cash NOI guidance to arrive it at 2017 run rate. As we renew or release our modest 2016 and 2017 lease explorations we will likely incur non-cash rent periods due to free rents and/or down time associated with these leases.

However, we want to highlight the tremendous progress we’ve made locking in cash flow growth by leasing space. Moving to the components of our 2016 earnings guidance provided in the press release. Our pro rata share of GAAP NOI is projected to be $10 million to $15 million greater than 2015 or flat to up 1.5% on a same-store basis.

Our pro rata share of cash NOI for the fourth quarter was $75.3 million, bringing our full year 2015 cash NOI to $308 million. During the timing of our cash commencements, we project our share of 2016 cash NOI to be $10 million to $15 million lower than the 2015 amount.

Again, we would like to highlight the $87 million of contractual cash rent that is scheduled to come on line in the coming quarters. In 2015, we generated $10 million of fee income and an additional $14 million of fee and fund income through adjustments to our non-controlling interest totaling $24 million.

Our 2016 guidance assumes a decrease in our fee and fund income of $6 million to $8 million primarily due to unrealized gains and promote on our fund investments in the second quarter of 2015 and fees associated with the purchase of 670 Broadway in the fourth quarter 2015 that are non-recurring in nature.

We expect our G&A expense excluding the first quarter of 2015 severance cost to increase $8 million to $10 million based on currently budgeted amount. 70% of this increase is due to non-cash equity compensation charges.

As a new company that to-date only has one tranche in equity compensation, amortization included in 2015 and this will increase annually until it reach a full run rate. The remaining increase is due to cost associated with the transformation from a private to public entity.

Taking into account my earlier comments regarding our debt portfolio we estimate interest expense will be $7 million to $11 million lower than 2015. All other core FFO items not addressed are projected to be in line with our 2015 results.

Aggregating all of these items we are providing full year 2016 core FFO guidance of between $0.80 and $0.84 per share. As we described, signed leases not yet cash paying will contribute an annualized $87 million of cash rents in the near term.

This combined with our modest lease expirations over the next five years provides a clear path to strong cash flow growth. With that operator, please open the lines for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Ross Nussbaum with UBS. Please proceed with your question..

Thanks. It’s Nick Yulico here with Ross.

Mike on the guidance, I was just hoping you could give a bit on parameters on how we should be modeling occupancy for the portfolio through the year and sort of ending 2016 occupancy from a GAAP standpoint?.

Good morning, Nick and Ross..

How you’re doing guys? I would look at it that we’ve given some good guidance on our GAAP NOI and based on the expiration schedule that we have in the supplemental, there’s some known move outs that will occur during the second quarter and later during the year.

So, we’re at 90% now and with some minor improvement, as we said our same-store is flat to up 1.5%. That would imply a minor change from flat to up a little bit..

Okay. That’s helpful. And then, you talked about the $87 million of cash rent in the future. If I look at this simplistically, your 2016 and 2017 lease expirations add up to about $85 million all together for those two years.

So, I mean essentially sort of bearish scenario if you just didn’t lease up anything that was expiring this year or next year, you’d basically have sort of flat annualized -- your 2015 cash NOI would be similar to your 2017 cash NOI? Is that a fair way to look at it?.

I think that, I mean, I would look at what we gave you, and it provides the information to understand the transitionary period there are portfolios in. We do have the expirations in 2016 and we also have some in 2017 that will have some downtime.

But I think there will be renewals and there will new transactions that are done, so I think that you need to look at that more on a portfolio basis than a binary we do nothing..

Got it. And then can you just remind us lastly about the 2017 lease explorations, what are the sort of the major buildings there, I think it’s mostly New York, I think 900 Third might be one of the assets that has one of the larger expirations? Thanks everyone..

Yes. So, 900 Third we have three floors that are expiring in 2017. But the largest expiration we have in 2017 is at 1325 Avenue of the Americas. It got [ph] the base of building, the ING space floors five and six and then partial seven and eight through 11, so that’s about 150,000 feet there in a block of space.

But we’re already talking to tenants about that space and actually have some advance discussions on a portion of it..

Thanks everyone..

Thank you..

Our next question is from Jed Reagan with Green Street Advisors. Please proceed with your question..

Good morning, Jed..

Good morning guys. One of your competitors talked recently about Midtown tenants especially in the financial services sector getting more cautious on the leasing so far this year and general sort of set an expectation that job growth and leasing Manhattan would flow later this year.

To what extent, have you seen any signs of that impacting your portfolio and I guess, what’s your outlook for Midtown over the next year?.

Yes. Let me start and then Ted will try in. It’s really too early to draw any conclusions on 2016. We have a very strong end of 2015. And the public market of course has been challenging in the beginning of 2016, but our underlying trends have not shifted.

And as you know, we are long term investors and we have dealt with these kinds of situations before. And as you know also the first quarter is seasonally the slowest for our portfolio. We normally the bulk of our leasing at the fourth quarter of the year, but the team is very, very active currently.

Ted?.

Yes. I can’t say we continue to have study number of showings. So prospects at all our properties where we have vacancy, and so really lease six weeks so far of this year, we haven’t seen anything that suggest anything unusual given what we’ve seen in other years in the first quarter and the level of activity..

Okay. Thanks.

And how is your leasing pipeline looking in Manhattan currently, can you and especially on the delay in Commerzbank space, if you can give a little bit more color on the backfill prospects there? And then just overall do you think the 1 million square foot leasing target for 2016 is a realistic goal as you set for 2015?.

It’s really, Jed, there’s no 1 million target for 2016 we had that goal for 2015 but we had two strong leasing years. We don’t have really that much space expiring and we are pretty well leased in our properties and we only have 560,000 square feet expiring this year.

And we have active showings at 1301 sixth Avenue and as we mentioned in our remarks we already preleased some of that Commerzbank space and are currently as you know 97% lease in that property.

At 1633, the majority is a Deloitte & Touche space at four floors which are the best floors in the building, top floors and there is activity on those floors as well. As you know as well, these large tenant requirements a normally get active [Indiscernible] and tenant lease to space.

So, you shouldn’t expect that they will be released immediately when Deloitte & Touche lease that space..

Yeah. Agreed. I mean, we did four deals last year over 100,000 square feet. So, we are certainly used to doing larger tenant transactions. We know they take a little bit longer sometimes and more complex deals.

But the space that we have at 1301 and at 1633 are both large tenant type blocks of space and the ones that are out there, we are seeing them nicely..

Okay. Great.

And any update on the retail space at 1633 and maybe prospects for getting a deal done there this year?.

We are certainly hopeful we will get a deal done there this year. As we have said in the past, we are very selective about what’s going on there. We’ve also mentioned that with the construction that’s going on, we feel everyday that goes by as we see that progress. We feel we have a better and better product to put out to the market.

So the combination of being selective and having a better product as time goes by and certainly also the retail market continued to get stronger, we feel we are in a pretty good position to make a great deal there and when we have that information we will share it with you guys..

Great. Thanks so much..

Our next question comes from James Feldman with Bank of America. Please proceed with your question..

Good morning, Jamie..

Thank you and good morning.

So, Mike, can you talk a little bit more about what’s included in your guidance for some of the largest expirations in 2016?.

I think Ted can talk to this better than I can. But some of the larger expirations we already know are known move outs. The biggest ones are in the second quarter of 2016. So those will go vacant..

I mentioned this in our prepared remarks. Over at 1633, it’s a Deloitte space for us 35 to 38. It’s about 200,000 square feet. We know that Deloitte is moving out of that space. Over at 1301, the bulk of the availability there coming available as a Commerzbank space.

Commerzbank has subleased all of their space as well, so no opportunity there to renew them as a direct tenant. And as a result and we know that a lot of that space what we’d love to, but anyways since we’ve leased up half of it already. What’s left of it is coming back to us..

Okay.

I guess what I’m asking, so the space that expires, you are not assuming any leasing by year end or any NOI contribution, or even if on a GAAP basis?.

So as you look at the expiration schedule that’s more of an exposure schedule. As we’ve said and we’ve footnoted, we’ve leased about half of that space. So that is part of the original comments that we made. All the remaining space we are assuming that that will go down and be down for a period of time.

We are not saying exactly when we think we will release it..

Okay. And then I know you guys on prior calls have given really good color on just the volume of large leases out there. And so as you think about the Deloitte space, the Commerzbank space and even the ING space and then 1301 less 52nd.

Can you just talk about like maybe the number of discussions you are having, or just how that pipeline feels right now versus maybe this time last year?.

I’d say it feels very -- I’d say it’s pretty similar to what we were last year. I think what was unusual for us last year is we did a 100,000 foot deal in the first quarter last year over at 1301. And I think that that’s a bit of an anomaly.

I mean that’s not something that we usually see and expect is the deals of that size getting done so soon in the year. So, I think what we are seeing now and where we are at, we have good activity still from a variety of different types of tenants at each of our large blocks of space.

And as I have mentioned earlier, I think we already have some of our expiring space that we’ve released also, even if that were in the process of releasing over at 1325 even. So, we are looking forward and being proactive on space that’s coming up even further down the road and not just what’s coming up now in the next three to six months..

Okay.

And then I know you guys said 1.4 million square feet leased last year, do you know how much of that was new space versus renewal?.

The renewal and expansion of existing tenants was about 65%. New tenants across the board was about 30%, 28% thereabouts, as far as new tenants. And then there was just some -- we proactively shifted some tenants from one building to another and that was about 6%..

Okay. And then my last question on the debt loans through the fund.

Just maybe if you could talk about your view of the mezzanine loan business right now and appetite for risks and what kind of yields you could get versus thinking about where we might be in the cycle and the risks to those loans?.

We see a lot of -- we have a lot of activity, Jamie there but we are very selective. As you know, we are only looking at mezzanine debt for our funds that where properties would be ultimately with also owned and managed.

So, we are very selective and the activity has increased because it looks like some of the debt providers are little bit more selective. And then the CMBS market is more restricted than it was in the last year and that’s good for our business..

Okay.

Do you worry about the credit risk, increasing credit risk here? How do you think about that as you are balancing that with the ability to put capital to work?.

Well, we are very selective, as I mentioned before and we are looking at the ownership structure of the asset and the asset itself. It’s not clear, not only a financial underwriting. So, we look at the entire asset and we are not normally financing to very high levels. We normally don’t go beyond 75% to 80%..

Okay. All right. Thank you..

Sure. You are welcome..

Our next question comes from Brad Burke with Goldman Sachs. Please proceed with your question..

Hey. Good morning. Congratulations on the leasing progress this quarter and sorry if I missed this.

But I was just hoping for an update on how you are thinking about the embedded rent on expirations, how those compare against the market rates and then a bit of a follow-up to Joe’s question? Just looking for your view if you have one on how you think asking rents will trend in midtown this year?.

Well, I think as we reported, our cash basis, mark-to-market was 17.3% in the fourth quarter and for the entire year on about 900,000 square feet of second generation space, we were a little over 15.5%, 15.6%, very, very strong mark-to-markets for the quarter and for the year. And we continue to see a lot of leasing activity in 2016.

And as we’ve said time and time again, our mark-to-markets are going to be lumpy depending on individual leases and transactions and so on and so forth. But we feel good about where we are..

So, we should think about Q4 and 2015 as being a reasonable proxy for the remainder of the near-term lease expirations?.

I think we are looking to double-digit returns for mark-to-markets for 2016..

Okay.

And any color on what that would assume in terms of market rent growth?.

It really depends on the market. I mean, we are active in three markets in Manhattan and Washington and in San Francisco. San Francisco, I think has seen three wonderful years of tremendous growth rates so and we don’t have much of expirations there. We still believe that San Francisco will grow further.

Washington in -- the Washington DC market where all properties are right in the CBD that market is stabilizing, so we see some growth on rents there as well. We are quite optimistic that this market has turned its corner and at Manhattan, you would see single-digit improvement is our assumption at this point..

Okay. Thank you. And then just a last one for me, Mike.

I know you said you are going to focus on refinancing ahead of the maturities, so I was just hoping for an update on how you are thinking about incremental cost of debt, whether that’s changed at all since what we saw you are able to do at 1633?.

So, as we said, we expect to be in the market. We are looking at 31 West 52nd Street today. That was part of our acquisition of the asset, was to move a tenant and capture that space and also the ability to refinance the asset. So, we are looking at that today.

As far as rates go, we all know that the underlying indexes have come down, spreads have widened a little bit. But the all-in borrowing costs to us, we believe has remained fairly consistent over the past several months and we still look forward to the opportunity to reduce the interest rate on that one..

Okay. Thank you very much..

Okay. Thanks..

Our next question comes from Sumit Sharma with Morgan Stanley. Please proceed with your question..

Hi, everybody. Congratulations on a great quarter. So for my first question, when I ask something that no one’s asked before which is going to be about the retail lobby N1633 -- no, I’m just kidding. Okay. So market really is a question.

Historically, free rent concessions were at five to six months in general and Midtown Manhattan in 2005 to 2009 and they crept up in 9 to 10 months in Midtown and sort of stayed there while some of the others submarkets in New York City actually decreased.

Could you provide some insight as to how much of this is just a structural thing where nine months has now become kind of a market convention, or maybe it’s related to sort of instalment timeframes and so forth? And where do you see this number going forward in your leasing assumptions from here?.

Well, in general, I mean I think the biggest proxy really to understand what happens with concessions and even rents, really is to look at availability. And in Midtown with what we find is, where we are at now, just over 10% availability.

Really until we get into the single digits of availability is when you really start to see concessions being pushed down in a significant way and rents spiking in a significant way.

But where we are now and we don’t see that changing drastically in the near future is roughly in a market that sits just in low double-digit availability rate where tenants and landlords are both kind of jockeying at the table to get the best terms they can..

Okay. Understood. Thanks for the color. And in terms of -- I guess you made lot of meaningful progress on the leasing related heavy lifting, especially in the context of your goals after the IPO. So, I know it’s too early to call some mission accomplished and all of that.

But what do you view is next in PGRE’s evolution? I mean, with asset prices rising in D.C. and arguably peaking in New York City, do you see any opportunities to a, harvest assets in those markets or make any acquisitions? It’s entirely an additional question as you can see..

Yeah. Sumit, we still see value embedded in our portfolio and the prices have risen but demand for rents is going to follow. We see strong activities still from foreign buyers who are looking for Class A and trophy investments and investments in a safe haven environment.

So, while we are very cautiously ourselves looking at future acquisitions at this point in time, we think there is some more growth for our portfolio before we would look at selling an asset..

Okay.

And any opportunities from the fund side or any sort of assets that you have first, sort of a limited interest but first rights of refusal that sort of thing, specifically with reference to 60 Wall Street coming encumbered in 17-ish timeframe I believe?.

Yeah. But there is really nothing new to report here. We reported on that over the last couple of quarters but there is really nothing or news..

Okay. Thank you so much. One last question.

And if I missed this I apologize but with regards to 2017’s maturities, how much of the $900 million or so could be refinanced earlier in terms of, is it repayable or do you have swaps in place that could meaningfully decrease the interest expense on that?.

Well, we are looking at all of our debt maturities for 2017 and as you have seen with the refinancing of 1633 Broadway, we normally don’t like to wait until the end of the expiration of a debt position.

So, we are evaluating what the right timing is and as you know, we are in the market to refinance 31 West 52nd Street and we see a lot of activity still for assets that have our high-class profile for debt financings.

So, 31 West is something that we are really considering very seriously to refinance early and the other refinancing are of smaller scale and we will look at that more seriously in the second half of 2016..

Thank you so much for the color and answering my questions and congratulations on a great quarter. But I must confess you did close which breaks my heart. Okay..

Sorry, Sumit. Thank you.

[Operator Instructions] Our next question comes from the line of Tom Lesnick with Capital One Securities. Please proceed with your question..

Good morning, everyone..

Good morning, Tom..

I guess first on G&A.

Obviously, you explained an increase for 2016 but as you look out further in terms of scalability of the business, should we expect similar layering year-after-year or how should we think about G&A going forward?.

Hi, Tom. This is Wilbur. We obviously can’t comment beyond 2017. As you know, the equity comp is going to be discussed heavily with the Compensation Committee and we are going to be very, very prudent in managing our cost structure and see how the business goes..

Okay. I appreciate that. And then obviously with regards to the actual leasing CapEx in the quarter, it looks quite bit elevated relative to prior quarters.

Just wondering if there is anything significant or one-time in that and how we should be thinking about the cadence of leasing CapEx on a dollar basis going forward?.

Well, the quarter leasing CapEx was elevated. I think it was $42 million this quarter, largely in part because of the timing of cash payments for this CapEx versus the rent commencement according to GAAP. So the $46 million, if you go to Page 26 in our supplemental, you will see $25 million of that $46 million is being driven by lease commissions.

Another $10 million is being driven by tenant improvement, so it’s really timing..

Got it.

So, I guess what would you think of is kind of a more normalized run rate we could use for 2016?.

It will be lumpy. I look at the $25 million of leasing commissions we paid and we are just thrilled to actually pay those because it’s due to all of the successful leasing that we did, the way the tenants request their reimbursements because most of the tenants are funded. You pay for their own costs and as far reimbursement can be rather lumpy.

I think I would focus more on what Vito went through and the expenditures that we have and that that number will go down dramatically over the next few years, as the leasing commissions already paid on the maturity of the $1.4 million.

We will complete the build out and those tenants will actually move in and start paying cash rents and our expiration schedule, as Albert said averages around a little over 4.5% over the next several years. So that number will be coming down dramatically..

Got it. Appreciate the insight.

And then one just last one and sorry if I missed this, but was there a planned prepayment penalty with 1633 Broadway and if so, where does that show up in the accounting for 4Q?.

So, we had a cash prepayment penalty, Tom. The way that our GAAP financial statements work is our hedges are mark-to-market on a quarterly basis. So that when we repaid that it’s just really the liability on our financial statements and did not impact our bottom line.

In the future, the loan for 1633 is an effective hedge and any changes in fair value will flow through other comprehensive income..

Got it. That’s really helpful. All right. Thanks guys..

Thank you..

And next question is from Rich Anderson with Mizuho Securities. Please proceed with your question..

Hi. Mizuho. Thank you. So, Mike, if I could just ask you somewhat related to that last question.

Should we be in the process of modeling, looking at non-controlling interests and gain on swaps on a straight line rent as basically equivalent to 2015 for now until some of the noise kind of dies down?.

Hi, Rich. This is Wilbur. The non-controlling interest line will change drastically in 2016 versus 2015 for a couple of reasons. One, we acquired the non-controlling interest in 31 West 52nd Street, so that was vested to three quarters in 2015.

But that’s not going to be there in 2016, as you will notice in our supplemental we dropped off on Page 14 31 West as a consolidated joint venture. In addition, there is some new accounting pronouncement and you will see additional color when we file our 10-K regarding consolidation of fund investments.

Today when you see our real estate fund investments on our balance sheet, it shows up at a 100% with the non-controlling interest down to low. As a result of this new accounting guidance, we are going to be forced to deconsolidate a lot of our funds and it will be treated akin to an equity method joint venture investment.

So that will drastically change our financial. So, we think the non-controlling interest line time will get a lot simpler because the only thing it should have in there is one market partner..

Right. Okay. But I’m thinking about on a net basis.

So it will be addressed someplace else than your financial statements, right? So, I mean, just trying to connect the dots between NAREIT FFO and your core FFO, which is kind of tough to do with all these moving parts and maybe this is a comp guide?.

On a net basis, on an economic basis, we are going to be the same. The benefit that we get will be the same..

All right..

Rich, that’s why we highlighted the way we provided the guidance on a net basis. Aggregating our fund business and our fee income because I agree it is a bit confusing. But as Wilbur described, it becomes much simpler beginning the first quarter of 2016.

And Albert differenced between NARIET defined FFO and core FFO is typically just our interest of fair value adjustment on our interest rate swaps that are not effective..

Right. And what are you thinking about you know given some of the transactions you had for that number.

What are you thinking about there for 2016?.

I mean, we don’t want to predict where interest rates are going to go..

I know.

They fluctuate so much and just think about this. So 1633, because that hedge is effective. We had 3.87 and that’s our fixed rate. It’s just because of a private entity we didn’t need to identify these hedges, so the accounting is a little bit convoluted. As we refinance these assets we will identify these hedges going forward..

Okay. I’m looking forward to next quarter definite.

And then on a straight line basis, straight line rent what should we be assuming there?.

That’s the difference between the cash NOI guidance and the GAAP, NOI guidance that we gave..

Okay, okay. Excuse me, I must have missed that.

And then the loan on the Fund VIII loan, does this contribute the 700 Eighth Avenue, does this contribute further out onto your pipeline of you know potentially future equity ownership in that asset or how should we be thinking about that investment from that Fund?.

Well this is a different business basically. It’s a mezzanine debt business and you shouldn’t tie it into the activities, the basic activities of PTRE [ph] it’s a different business..

That could at some point down the road the transaction could happen and flip it into a different type of ownership format, is that not true or will you don’t consider any of the fund activities is something that could come your way down the road?.

Well we are a lender on these kinds of investments and that’s all positioned there and that’s the way we understand their business. It’s -- we are generating interesting -- interest income for our investors and they are cash [Indiscernible] undriven and we see a lot of transactions that way but we are clearly not a hostile lender..

Okay, fair enough.

And then lastly, you kind of eluded just a little bit, but you know if someone brought up some of the commentary it appears, is it about New York City, is there something that you can kind of put your finger on about the content or contributions of your portfolio that make you different and hence maybe somewhat less influenced by some of the events going on in New York city from an office demand perspective.

Do you think the makeup of your portfolio is different enough to reduce some of that volatility that maybe others are seeing?.

Well we have on average we have very long term leases and we have very few expirations after 2016. As we mentioned in our remarks we have between 4.5% to 5.5% expiring per annum over the next couple of years thereafter.

And I would venture to say that our assets are of higher quality as some of the assets in the industry and our management style is very proactive, so we want to make sure that we have done this over the last 25 years and longer that we try to take advantage of managing our assets directly that we control them and be proactive in serving the needs of our tenants.

So I think that helps us keeping our portfolio hopefully at very high occupancy levels..

Okay, right..

As we have seen in the past when you have high quality it’s easier to lease a high quality asset. There is always demand for something like that and that has worked out well for us..

Okay. Thank you.

You’re welcome..

There are no further questions. At this time, I’d like to turn the call back to Albert Behler for closing remarks..

Well thank you all for joining us this morning. We look forward to updating everyone on our progress when we report our first quarter results in May on this year. Thank you..

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time..