Jacques Cornet - ICR Managing Director Albert Behler - Chairman, CEO & President Ted Koltis - EVP, Leasing Wilbur Paes - EVP, CFO & Treasurer.

Rob Simone - Evercore ISI Vikram Malhotra - Morgan Stanley Jamie Feldman - Bank of America/Merrill Lynch Jed Reagan - Green Street Advisors Rich Anderson - Mizuho Securities Vincent Chao - Deutsche Bank.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, August 04, 2017.

I'll now turn the call over to Jacques Cornet with ICR..

Thank you, operator, and good morning. By now everyone should have access to our second quarter 2017 earnings release and the supplemental information? Both can be found under the heading Financial Information Quarterly Results in the Investor section of the Paramount website at www.paramount-group.com.

Some of our comments today 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 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 second quarter 2017 earnings release and our supplemental information.

Hosting the call today, we have Albert Behler, Chairman, Chief Executive Officer and President of the Company; Wilbur Paes, Executive Vice President, Chief Financial Officer and Treasurer; and Ted Koltis, Executive Vice President, Leasing. Management will provide some opening remarks and we will then open the call to questions.

With that, I'll turn the call over to Albert..

Thank you, Jacques. And good morning, everyone. Thank you for joining us today. As you can see from our release yesterday evening, we had a very successful quarter of operating performance and we continue to make progress on the leasing front.

Our core FFO was $0.23 per share and we've started to see some of the benefits of our previous leasing efforts as same store cash NOI for the quarter were up 14.4% compared to the same period last year. Given the strong results, we are raising our 2017 core FFO guidance as well as our expectations for 2017 same store cash NOI growth.

Wilbur will cover this in greater detail. Let me begin my remarks with leasing which remains our primary focus. As I said over our previous two calls, 2017 will be a more even year when it comes to leasing. During the second quarter, we leased over 290,000 square feet a very strong positive cash mark to market of nearly 20%.

This quarter's leasing was slightly ahead of last quarter bringing our leasing effort to over 577,000 square feet for the first six months of the year. And we've started the third quarter on a very strong note by leasing another 106,000 square feet at 1633 Broadway.

Our year-to-date leasing volume is now over 680,000 square feet which is slightly shy of the 750,000 square feet leasing goal we set out for the entire year. Based on our year-to-date activity and the deals in pipeline, we are increasing our full year goal to 1 million square feet.

While Ted will provide more details on leasing, I want to take a minute to give you my observations on each of our markets beginning with New York. As I just mentioned, in July we completed 106,000 square feet lease at 1633 Broadway.

This lease cover two of the formal Deloitte floors on 35 and 36 which now leads with the remaining 106,000 square feet on floors 37 and 38. With this signing lease occupancy at the building is now above 90% and we are poised to increase it further. At 3106 Avenue, leased occupancy increased by 230 basis points this quarter to 93.7%.

During the quarter we signed 41,000 square feet lease for the 12th floor. And while the space was not one of former Commerzbank floors, it was previously vacant.

We still have 61,000 square feet of Commerzbank vacancy to deal with and currently have a proposal out for that entire space, which would bring the leased occupancy in the building to over 97%.

Turning to 13256 Avenue, w are working to chip away at the 140,000 square foot block of ING space that came to us earlier this year and currently have a 24,000 square foot lease out for signature. Over the last few years, a lot has been said about the 6 Avenue submarket loosing its cache. The facts however tell a different story.

If you look at 2017 leasing activity in midtown, three of the five largest deals were on 6 Avenue. Leasing activity along the 6 Avenue corridors has remained solid and we've been very successful. Since our IPO in November of 2014, we've leased over 820,000 square feet at 13016 Avenue and 13256 Avenue.

These leases have a weighted average lease term of about 13 years and they executed with high quality tenants that move to 6 Avenue many from other submarkets. We continue to see solid and persistent demand for 6 Avenue space. And we will continue to grab our fair share of it.

Turning to 31 West 52nd suite, as we mentioned on our last call, two floors aggregating about 52,000 square feet expired in July. Leased occupancy in the building is now around 78%. These floors which are adjacent to the exiting vacant block provide us with 167,000 square feet of space at top of the building.

With its boutique and discerning tenant base along with a unique design, 31 West has been fully leased over the last 10 years. And it has never had any real vacancy. This presents us with a terrific opportunity.

We are also in the final design phase of our lobby upgrade which will add to the opportunity to create significant long-term value at this asset. In Washington DC, same store leased occupancy kicked up another 80 basis points and our portfolio is 94.6% lease.

We continue to outperform the market and expect to see additional progress at 2099 Pennsylvania Avenue and Liberty place. With another tremendous leasing quarter in San Francisco, where we leased 159,000 square feet at cash mark to market of over 55%.

109,000 square feet of this activity took place at One Market Plaza where we signed three leases with starting rents of over $100 per square foot. Activity like this continues to support our view that this is the best asset in the market.

Remaining 50,000 square feet of leasing took place at One Front where we are executing our leasing strategy quicker than forecasted when we originally purchased the building. It is only seven months into our acquisition and we are nearly half way through the five year lease exploration opportunity we had when we bought the building.

Since the acquisition, we have completed 230,000 square feet of leasing with cash mark to market of over 30%. Turning to the balance sheet. During the quarter, we completed a $300 million refinancing of 712 Fifth Avenue. This financing represents the final portion of the comprehensive refinancing efforts that we started about 20 months ago.

This has resulted in lowering our average interest rate by 190 basis points from 5.4% to 3.5% to date. In addition, our maturities are well laddered we have not debt maturities until 2021. In July, we increased our ownership interest in 50 Beale Street to about 31%, up from 3%.

This property is a 661,000 square foot Class A office building located in San Francisco, south financial district just adjacent to the Transbay terminal. The transaction values the building at $517.5 million or about $780 per square foot just shy of the best square foot values at which we acquired One Front Street about seven months ago.

At a time, where we continue to see others in the San Francisco market willing to pay in excess of $1200 per square foot for stabilized buildings, with no immediately clear way to add value, we look for value at opportunities.

The building which is currently 78.2% leased, included the assumption of $228 million of existing debt, accordingly we funded approximately $80 million for our share of equity capital. Lastly, subsequent to quarter end, the Board of Directors authorized a $200 million share buyback program.

We view the authorization as another tool available to us as we remain opportunistic and balanced in our approach to allocating capital. With that, I'll turn the call to Ted to give additional insights on our leasing. .

Thanks Albert and good morning. Our leasing efforts in the quarter net of expiration resulted in a sequential increase in same store leased occupancy of 70 basis points from 90.2% at March 31 to 90.9% at June 30. We continue to show steady progress with leasing and as Albert said, we are upping our leasing target for the year to 1 million square feet.

Throughout the portfolio, we are seeing good activity where we have space to market which right now is primarily in New York and San Francisco. Let's look at it market by market. We'll start in New York. The leased occupancy of our New York portfolio increased by 40 basis points driven by the lease up of vacant space at 1301.

And is poised to increase further with the 1633 lease announced subsequent to quarter end. At 1633 Broadway, with a lease we signed in July, we are now halfway through leasing up the former Deloitte block space with a 37 and 38 floors remaining.

With the July activity leased occupancy is now north of 90% and interest for the remainder of that space remains healthy as we are exchanging proposals and continuing with showing to wide variety of user types.

Also during the quarter, we signed the lease for our new retail tenant Princi, as we talked about last call; Princi is a joint venture between Starbucks and an Italian Bakery that has been very successful in Europe.

At 1301 Avenue of the Americas, during the quarter we signed a long-term 12 year lease with a Boutique Financial Services company for approximately 41,000 square feet on the previously vacant 12th floor that Albert discussed. Most of the remaining available space is in the tower on floors 41 and 42 as well as part of 38.

And we are in advanced proposal stage for these remaining floors and expect that more leasing to announce the next time we speak. These last two floors plus include the final portion of the Commerzbank space. Closing on these floors will take the building's lease occupancy up over 97% with no significant expiration until 2021.

At 1325 Avenue B Americas, preparation and white boxing of the former ING space is due to be complete by the fall. Though many showing continuing to look at this space and it's as is condition as well, we currently have a lease out for signature on 24,800 square feet on the 10th floor.

And we continue to feel good about this space offering as an attractive price point from more valued tenant in the midtown market. Especially given the strong activity along Sixth Avenue as this certainly in a different price point compared to our other opportunities.

At 31 West 52nd Street, including the recent July expiration that Albert referred to, we have about 167,000 square feet available across the top seven floors. This building is distinctive in the couple of ways. First, it is in design. We think of it as a boutique type large office building of the highest quality.

Second, given its prime location between Fifth and Sixth Avenues, 31 West attracts a fairly selective tenant base. Our objective is to maintain that nature of the building that attract this tenant type and as Albert mentioned, we are moving ahead with a lobby upgrade. Activity remains healthy and tours and proposals are ongoing.

Touching on a Washington DC, our DC portfolio is 94.6% leased, and increased by 80 basis points on same store basis over the prior quarter driven by additional leasing at Liberty Place and 1899 Pennsylvania Avenue. We do not have much available space and so there is not much need to report on the leasing front. It is a same story.

We have a great assets, no meaningful expiration in the next four years and only one full floor available on the portfolio at 1899 Pennsylvania Avenue and we remain well positioned in the market.

In San Francisco, our portfolio is full at 98.2% which is up 230 basis points from the prior quarter as we continue to renew and extend expiring leases at One Front Street. During the quarter, at One Market Plaza, we had some early renewals and signed leases for a total of over 109,000 square feet at market leading rates.

Just to elaborate on the point Albert made about some of our leases over $100 per square foot. We think the ability to sign leases at these rates over an extended period of time as we've been able to do set one market apart in San Francisco. And it is indicator of the underlying value inherent in this asset.

At One Front, we continue to execute on the opportunity. During the second quarter, we signed almost 50,000 square feet of renewals at cash mark-to-market of nearly 70%. We've also been pleased with an average of lease term of 8.5 years on these renewals.

And we continue to have discussions with the remaining tenants that have expirations on the horizon. Nevertheless, for the rest of this year, we anticipate sign renewal activity to moderate given the timing of the remaining rule is dated a bit further out, but it is certainly been active first seven months of ownership.

Given this leasing success in San Francisco, we've eliminated over 60% of our 2018 lease expirations in this market since year end. And we now face approximately 45,000 square feet of expirations in 2018. With that summary, I'll turn the call over Wilbur who will discuss the financial results. .

Thanks Ted. We had what I would characterize as a very strong quarter highlighted by solid financial and operating metrics. Our core FFO for the quarter was $0.23 per share and was driven by sector leading same store performance.

Over the past couple of quarters we had been highlighting that the first quarter of 2017 would be an inflection point in our cash NOI. And at the beginning of the second quarter, we anticipate tremendous same store growth as free rent from past leasing efforts begins to burn off.

Our second quarter results certainly validate those expectations as our same store cash NOI grew 14.4% when compared to the same period last year. As a reminder, same store cash NOI does not include lease termination income.

Cash NOI which include lease termination income as well as cash NOI from properties that were acquired of disposed in the comparable period grew by 18.2% over the same period last year.

As Albert touched upon earlier, based on our results for the first half of the year, as well as our outlook for the remainder of the year, we are raising our full year 2017 core FFO guidance to a range of $0.86 to $0.90 per share from our prior range of $0.83 to $0.87 per share.

That represents a $0.03 per share increase from the midpoint of our prior guidance of which $0.02 results from improved operation and $0.01 is from the acquisition of 50 Beale Street in July.

In addition, we are increasing our same store cash NOI assumption to be between 8% and 11% or 9.5% at the midpoint of our range versus our prior assumption of 7.5% at the midpoint. The second quarter was also very eventful in terms of transaction activity. Let me spend a minute on some of these items as well as the related accounting nuances.

On May 3, we closed on the sale of Waterview for $460 million which resulted in the financial statement gain of $110.6 million.

We retained net proceeds of approximately $457 million and used the net proceeds to delever our balance sheet by repaying approximately $371 million of debt including the $200 million outstanding under our revolving credit facility.

On May 5, our consolidated residential fund sold 80% of the fully entitle land at 75 Howard, a high end residential condo project in San Francisco. In connection there with the fund recognized a $23.4 million net gain of which our share net of income taxes was $1.7 million.

Because this gain resulted from the sale of non depreciable real estate we have included it in the NAREIT defined FFO but have excluded it from our core FFO. On June 13, we completed a $300 million refinancing of 712 Fifth Avenue, our 50% owned joined venture. The new 10 year interest only loan is fixed at 3.39%.

The venture retained approximately $40 million after repaying the existing $247 million loan reserves and closing cost, which was distributed to partners on June 30.

Because of 712 Fifth Avenue was one of the assets that was not stepped up to fair value at the time of our IPO, our historical basis in the asset became negative by approximately $50 million as a result of the $20 million distribution we received. In accordance with GAAP, we were required to treat the excess distributions as income.

So while this income is once again included in NAREIT defined FFO, we have excluded it from our core FFO. And lastly, on July 17, we increased our economic interest in 50 Beale Street to 31.1%. This was done through a series of transactions which included a direct ownership by Paramount and an indirect ownership through a newly formed joint venture.

What it means from an accounting standpoint is that 50 Beale which was previously owned by certain Paramount funds and accounted for as an investment in non consolidated funds will now be consolidated into our financial statements from the date of acquisition. And the 68.9% that we do not own will be reflected as non controlling interests.

Turning to our balance sheet. We ended the quarter with about $1.1 billion in liquidity comprised of $297 million of cash and restricted cash and $800 million of availability under our revolving credit facility. With the refinancing of 712 Fifth Avenue now behind us, we've completed our refinancing strategy and fortified our balance sheet.

Think about it. Over the last 20 months or so we have refinanced over $3 billion of debt and lowered our weighted average cost of debt capital by about 190 basis points. Our outstanding debt at quarter end was $3.04 billion at a weighted average interest rate of 3.5% and a weighted average maturity of 6.1 years.

We've tackled all of our near-term maturities and have no debt maturing until the fourth quarter of 2021. And beyond that our maturities are well laddered. 87% of our debt is fixed at a weighted average interest rate of 3.6% and the remaining 13% is floating at a weighted average interest rate of 2.9%.

Lastly, in our continued effort to improve our best in class transparent disclosure, we've increased disclosure surrounding same store activity in our supplemental package. In addition, we've included a schedule of free rent burn off in our investor deck.

Both of these items are available on our website and we hope you find the added information helpful. With that operator please open the line for questions. .

[Operator Instructions] Thank you. Our first question comes from the line of Rob Simone with Evercore. Please proceed with your question..

Hey, guys, good morning. Thanks for the questions. Ted, I was wondering if you could maybe share some composition back around the types of tenants that are currently exchanging proposals on 1633. And then as a follow up -- after that I have follow up on the buyback for Albert..

Sure, Rob, good morning. So 1633 with again that building I have talked about this in the past, I mean that building sees a real a wide variety of tenants but I think what we've seen mostly recently as more kind of business services and creative type tenants.

Tenants that are kind of in newer technology type uses so that's been the bulk of our activity there. I'd say less so in the traditional financial service and law firms that we've seen in the past gravitate to 1633. It's definitely more of a creative type tenant use.

So we have a few -- we have a number of tenants that toured in and number of proposals that they are looking at the remaining space. .

Great. Thanks Ted and Albert on the buyback. I know this has been frequently discussed topic, I was just wondering if you guys could maybe share what change in the Board's thinking and approving the program now. .

We have been discussing that as I mentioned before on quarterly basis. And the buyback has been approved by the Board. But only use it on a leverage neutral basis and as cash earnings grow the Board's view is to provide management with call additional options that would be available. .

Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question..

Thank you, guys. And congrats on getting 1633 the leases done there. Just a quick question on the lease.

Can you just share any economics and just broadly what you are seeing in the proposals both on TI free rent and just maybe what the roll up was on 1633?.

So the deal at 1633 has -- is a mid 70 start on that deal we announced and we just completed prior -- I mean after the second quarter. I think that overall the proposal that we've been getting and I mean we've been we talked about for that block of space that we think it is a high 70s low 80s type ask and then the deal somewhere close to there.

So the markets I think has supported that type of ask and we are getting results out of that. .

Okay.

And then just is sort of the TI free rent or they kind of in line with what we've been seeing recently?.

They are in line with what we are seeing recently. I mean I think they are not really much different than they were been since about the same time last year I'd say. .

Okay. And so just remind me the 70 start, what -- where was the rent on expiration after of the Deloitte space. .

It was in the upper 70s on a fully escalated basis that was the expiring rent. But bear in mind Vikram that this space now has been vacant for more than 12 months. So when it does appear next quarter it will not show up in the mark-to-market statistics. .

Yes, that's fair. And then just one more question. The million square feet goal, I am assuming that - so that includes the renewals in the back half of the year or that include any known move outs or any kind of early renewal. .

Yes. It includes the entire package for the entire portfolio, Vikram. We want to be cautious in what we put out there. So we are very confident with the projections. We have a good number of tenants. I know what you are focusing on.

We have a good number of tenants looking at the existing vacancies and the team has done a great push at 1301 especially but also 1633. And we are focusing on 1325 and 31 West. So these are the two last assets and after that in 2018, 2019 and the following years we have very few expirations.

So are very excited about this opportunity and we want to make the best for our shareholder summit. .

And Vikram just to add to Albert's point and then your question on the non move out, we included for the rest of the year is 52,000 square feet that's moving out of 31 West, Albert highlighted that in his prepared remarks as well. So that's the only known move out that we have talked about. .

Our next question comes from the line of Jamie Feldman with Bank of America/ Merrill Lynch. Please proceed with your question. .

Great, thank you. Congrats also for the leasing progress. So I guess the change in the leasing pipeline up to 1 million is that incremental space to the portfolio or is that adding renewals that you think you get done earlier. .

Yes. We just answered the question a minute ago, Jamie. You might have not heard when Vikram was on. It's across the portfolio, its renewals and new space. It's all included..

Okay. You guys have the debt on 2 Herald Square.

Can you talk about maybe an update on what you are thinking there and how that's playing out?.

It's really not a company investment. It's an investment of our mezzanine fund and a preferred equity investment there. That's the only comment we would like to make at this point. .

Okay. And then shifting gear to San Francisco. Can you maybe talk about I mean I know rents have kind of moderated there, rent growth has moderated but with some of the larger developments getting leased up, there is talk that maybe they can start moving again.

Can you just talk about your thoughts on rent growth in that market over the next year or so?.

Sure. I mean they have moderated. It has been just around 2% year-over-year. So that's the first time that I think we haven't been a double digit for the last three years. But certainly the market remains very supply constrained.

I mean with availability creeping down maybe below 8% in that market and with what we are hearing is just more and more of the larger box and certainly Spec Construction being leased up prior to even delivering -- certainly if you are a large tenant looking for space in the CBD, you really don't have a lot of choices.

And those larger deals could drive rents higher. We definitely think that could happen. I mean we could see it maybe grow a little bit higher than just a 2% that we've seen year-over-year. .

Okay.

And then thinking about the share buyback, do you -- is this also a sign you are seeing fewer investment opportunities on the acquisition front?.

No. That's not -- it really correlated. This is a decision by the Board as I had mention before. Its quarterly discussed and a quarterly basis. We will be however very cautious with any potential acquisitions as we had mention before because of assets are trading.

We are only looking at really accretive opportunistic investments in all three markets if we would do any investments what so ever. .

Our next question comes from the line of Jed Reagan with Green Street. Please proceed with your question. .

Hey, good morning, guys. I guess maybe just following up on that question.

Can you give initial yield on 50 Beale and what kind of stabilize yield you think you can eventually achieve there? And is there any color on the leasing profile in terms of expected near term move out or in place rent versus market rent?.

Yes. Currently the asset Jed is leased 78.2%. So the going in cash basis not really that meaningful, it's in the 3s but the all in stabilize should be somewhere between 6% and 7% similar to One Front, it's an asset in a great location that has upside for the future. And it was owned a majority wise by fund that is managed by Paramount.

And there was an opportunity that some of fund investors wanted to divest from the asset they have to achieve a decent return. And we see some substantial upside for the future but longer term. And we are in the market for all spaces currently vacant and we have very good showings. And Ted might add to this. .

Sure. As Albert said 78.2% lease so we have a block of space of just over 100,000 square feet in the low rise of the building and you may have heard my comment earlier, I mean 100,000 foot block in the CBD are rare right no unless you are willing to go into new construction and of course that's a bit more of premium.

I mean as Albert said we think this is similar to One Front. So rent in place -- rent is somewhere in the mid 50s, we think they should be in the low to mid 70s. At the end of day upon release and that still stands at a discount to what a new product is. And yet this sits on Mission Street between Fremont and Beale.

So anyone who knows San Francisco knows that's very centrally located. .

Thanks. And when do you think you could stabilize that asset so that sort of 6% to 7% range and then maybe for Albert just kind of bigger picture strategically, I mean does the acquisition signal any kind of thought of geographic shift or so changing the long term mix of how you want your portfolio situated. .

To your first question we think this can be near to mid term stabilized because we have a good activity as I mentioned before. It's really not saying anything about where we want to focus our entire portfolio. As I mentioned before, we wanted to be opportunistic in all our investment approach.

So we would be looking at acquisitions potential in New York and San Francisco as well as in Washington DC. But also as I had mention before, we are not very acquisitive at this point in time where the market is. We are looking for value opportunities all the time.

And when we find low hanging fruits as I call it like this one, we want to be willing and we are ready to pick it up. But we are very cautious about future investments. .

Okay, appreciate that. In terms of the share buyback program, do you have target share price or discount to NAV where you think the buyback make sense and maybe just generally how compelling you think the opportunity is as you sit here today. .

Yes, we have this quarterly discussion whether we wanted to -- with the Board whether the buyback should be initiated and but there is no price set for initiating it. .

Okay, fair enough. Just last one for me. The million square feet leasing guidance indicates maybe another 400,000 or so lease in the rest of the year.

I mean any sense of how much of that you anticipate coming from New York versus your other markets?.

I would say the majority will come out of New York for sure. .

Our next question comes from the line of Rich Anderson with Mizuho. Please proceed with your question. .

Thanks, good morning.

And 331 West 52nd Street, I think you mentioned 52,000 of known move asset, is that in a 167 that's currently available or is that an addition to?.

That is the 167,000. It used to be 115 and you got two floors back that are contiguous to 115 which now creates 167,000 square foot block. .

Okay, thanks. Just want to clarify.

In terms of the 1633 leasing, you mentioned mid 70s on the starting rent, I recall the Deloitte paying above 80, so maybe check my math on that but the second sort of related question is you mentioned the activity on Sixth Avenue been strong still how much of that is a function of just a downtick in the asking rent that is maybe formulating some incremental interest in Sixth Avenue..

Well, there is no real downtick with regard to -- that's not what we said and that's not what we mean to say. And here at 1633, this was rent that was in the high 70s not in the low 80s. When Deloitte Touche left the space and that's more than a year ago.

So and that was space at really had a major uptick just recently before Deloitte left because it extended by about two years before they left the building. And I think the landlord was in an extremely strong position at that point and that's not really what a normal market transaction would have generated for that space.

With regard to Six Avenue, it's not that we still see Six Avenue being active, Six Avenue is very active and we get very good pricing on the deals that we did..

Okay, fair enough. And then on 50 Beale, so that seems to have come together fast. I was just looking back at your previous comment last quarter and you were saying you weren't kind of very active in the acquisition market.

So would you agree that kind of together quickly? And second related question does your increased ownership and consolidating the assets and all that give you more flexibility to address the vacancies there than the prior ownership?.

Well, 50 Beale was an asset that was owned by -- the majority was owned by fund, and the fund investors have limited partners decided that they had made a very decent return and they wanted to exit the fund and we se long term upside in this asset and that's why we saw an opportunity to basically invest bigger equity stake in 50 Beale because and Ted has talked about this just a minute ago, the market the neighborhood is really improving substantially, there is a lot of activity and 50 Beale is a terrific building with good bones, it's column free asset developed by the Bechtel company.

And we see more upside potential that wasn't available before. .

But you feel more obviously you are mathematically more in control but does you have a greater opportunity to lease up now that you are at 31% versus 3%?.

No. It really doesn't make any difference. I mean we had full discretion as a general part now of the fund before. And it will impact the leasing either way. .

Okay, fair enough. Then I had probably asked this form of this question, you kind of answer it already but just want to make it absolute certain the investment there is it a reflection of you are trying to dilute or diversify away from New York, it is just an opportunity that came up, period end of story not a broader thesis where Paramount is going.

.

Yes, that's correct. We invest opportunistically. This was an opportunity that arose and we took advantage of it. And it might happen in one of the other assets in New York. So as I call it a low hanging fruits are the one that where you know the assets very well and you want to take advantage if it's available.

I mean the basis is very attractive at $780 a square foot in a market where you have assets trading but there is no upside, sometimes $1,200 and more than $1,200 a square foot. We think that's a great opportunity for the investors. .

Okay.

And in the buyback what's the likelihood that you'll actually have some activity there in the third quarter?.

I don't like to comment on that question. .

Our next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed with your question. .

Hi, good morning, everyone.

I know if this have been a topic on many of the calls here but just want to get your thoughts in terms of the investment flows into New York but also your other market San Francisco as well and you have yet to observe any pull back in Chinese flows and whether not you think other regions will be able to pickup the slack if does slowdown. .

Well, we haven't seen any pull back in; there might be a little slowdown on the Chinese side as we can read in the paper as well. But there is a lot of interest in investments in our kind of assets especially in the three markets, the gateway markets that we are invested in.

And it's coming across the board from different parts of the world and there is no slowdown. .

Okay. And then just maybe Wilbur the question on the guidance for cash same store NOI going up here pretty nicely.

I guess at this point we would expect to see sort of GAAP increases as opposed to cash just given timing of leases coming online but I guess to extent this is more driven by renewals or something like that .I was just curious if you can give some color on what's driving that upside?.

Sure. As we mentioned it before a lot of the same store cash NOI growth is really driven by the past leasing efforts in 2015 and late 2014 where these leases have started to become cash paying now.

The increase in guidance was ahead of our own expectations in terms of same store cash NOI growth because we also achieved some operating expense saving which is contributing to that increase and the last piece of that is you could have at that time we put out our guidance originally, you had certain lease expiration that could have been renewed short term that could again be incremental to cash NOI for 2017.

.

Our next question is a follow up question from Rob Simone with Evercore. Please proceed with your question. .

Hey, guys. Thanks for the follow up. Wilbur, just a housekeeping question for you. On the residential development fund in 75 Howard, I notice that they are actually balances in both the consolidated and unconsolidated funds at this point.

So just trying to get a sense of like where the majority of the earnings stream or all the earnings stream is going to show up going forward. .

So that's -- it's a very astute observation.

It's a trick quarter because from an accounting standpoint that transaction happened mid quarter, going forward the way you should think about it is essentially the fund now owns a 20% investment because they sold 80% that investment is deconsolidated and accounted for as an investment in unconsolidated -- our investment in joint ventures, unconsolidated joint ventures.

So you'll see that in our unconsolidated joint venture section but the way to think about is PGRE's ownership is 7.4% of the 20%. So the economic interest that PGRE has is about 1.5%. So it's really insignificant what be contributing towards earnings in anyway. .

Our next question a follow up question from Jed Reagan with Green Street. Please proceed with your question. .

Hey, on the OpEx savings you referenced Wilbur, can you talk a little bit more about the sources of that and should we think about that as maybe sort of one time in nature or those kind of permanent locked in savings. .

Sure, Jed. It's a combination of things. We had a savings driven primarily by lower utility cost this quarter. Part of it, it has to do with timing of RNM as well, so it's a mix bag really. .

Okay, thank you. And then I know you guys haven't provided disposition guidance per se I believe you are exploring a JV sale and at least one of the assets early this year, just wondering if that's something you are still exploring either partial or whole interest in selling an asset in the coming quarters. .

Well, we are always evaluating opportunities and so we -- that's always on the agenda for us. And if an asset has really appreciated over what we can achieve through our day to day operations, we are looking at potentially doing a joint venture sale of an asset. .

Mr. Behler, we have no further question at this time. I'd now like to turn the floor back over to you for closing comments. .

Great. Thank you. Thank you all for joining us today. We look forward to providing an update on our continuous progress when we report our third quarter results in November. Thank you. .

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your line at this time. Thank you for your participation. And have a wonderful day..