Jacques Cornet - ICR Albert Behler - Chairman, President and CEO Wilbur Paes - EVP, CFO and Treasurer Peter Brindley - EVP, Leasing.

Nick Yulico - UBS Blaine Heck - Wells Fargo Vikram Malhotra - Morgan Stanley Rob Simone - Evercore ISI Kim Hong - Bank of America Rich Anderson - Mizuho Vincent Chao - Deutsche Bank.

Good day, ladies and gentleman. Thank you for standing by. Welcome to the Paramount Group First Quarter 2018 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, May 3, 2018.

I would now like to turn the call over to Jacques Cornet with ICR..

Thank you, operator, and good morning. By now, everyone should have access to our first quarter 2018 earnings release and the supplemental information. Both can be found under the heading financial information, quarterly results in the Investor section of 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 first quarter 2018 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 Peter Brindley, Executive Vice President, Leasing. Management will provide 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. We are off to a good start to the year with another strong quarter of operating and financial performance. As a result of our continued execution, we have increased the lease rate and occupancy rate of our portfolio.

Additionally, our operating metrics continue to get stronger as core FFO and same-store NOI result both cash and GAAP have increased meaningfully from the prior year.

Before turning the call over to Peter, to cover leasing and to Wilber to cover our financial results in more details, I’d like to spend a minute on the markets including the progress we have made to date. In New York, underlying fundamentals remain strong with solid office using job growth and record low unemployment.

We were and continue to remain very constructive on New York. Our portfolio in New York has concentrated in Midtown, a market, which has its strongest quarterly new leasing activities since 2015. While net absorption for the overall Midtown market was negative, it was actually positive in the submarkets where our assets are primarily located.

Another interesting fact is that while last year’s first quarter leasing was concentrated on the far west side, this year’s activity has been heavily weighted in the core Midtown submarkets, but more importantly, activity is being driven by the financial services sector.

JPMorgan’s decision to stay in Midtown was another positive development for the market. Our focus in New York has been on our 2 large block availabilities at 1325 Sixth Avenue, and 31 West 52nd Street. Yesterday evening, we announced that McGraw-Hill Education has signed a 16-year 136,000 square-foot lease and will call 3256th Avenue its new home.

We are very excited to add a high-quality company like McGraw-Hill Education to our tenant roster. The signing of this lease more than fully back fills the vacancy left by ING and brings leased occupancy in the building to 95.4% from 80.9% at quarter end.

At 31 West 52nd Street our lobby renovation and marketing plan has been tremendously well received. We call -- we had 167,000 square feet of vacancy as we began the year. During the quarter and existing financial services tenant expanded and extended their lease for a term of over 10 years.

The expansion was on the lowest floor of our availabilities, leaving us with the top 6 floors or just about 142,000 square feet. Peter will discuss this lease and the activity on this remaining space in more detail.

In Washington, D.C, the market is showing pockets of strength most notably, in the highest quality best located buildings, such as those in our portfolio. We remain well positioned with one of, if not the best, portfolios in the market. The quality of our portfolio has resulted in the leased occupancy that continues to grow quarter after quarter.

We made additional progress at 2099 Pennsylvania Avenue this quarter, and the building is now 90.6% leased, bringing our DC portfolio to 96.5% leased. In San Francisco, the market remains strong as tech tenants continue to expand and rental rates continue to increase, albeit in the low single digits.

And we keep executing in this environment, taking advantage of the strong market fundamentals. At One Front Street we leased another 30,000 square feet to 2 existing tenants where they expanded their footprints in the building at tremendously positive marks.

Since acquiring the building less than a year and a half ago, we have now executed on over 400,000 square feet of leases or about 60% of the building and are constantly achieving mark-to-market increases ahead of our underwriting.

At 50 Beale Street we signed leases for about 58,000 square feet of vacant space, increasing lease occupancy in that building by 880 basis points bringing it to over 91% leased. Since our acquisition of the asset last July, we have increased leased occupancy by 13.2%, tremendous progress.

Overall, for the portfolio, while leasing that increases occupancy is certainly important and can be easily measured. One aspect of our progress that often gets overlooked, is our ability to manage future lease expirations.

Think about it, using One Front Street, as an example, when we acquired the property in December 2016, the leased occupancy was 99.4%. Today, leased occupancy at One Front is up of near 10 basis points, but we have executed leases for over 400,000 square feet, de-risking future role. That same holds true for our entire portfolio.

In fact, for the entire portfolio in the past quarter, we eliminated over 14% of our 2019 and 2020 lease expirations and currently the average lease expiration in our portfolio through 2020 is only about 4% annually creating a very steady investment as the other leases we have signed start to become cash paying.

The whole team here takes a great sense of pride in the significant and tireless work we have done over the past few years to add tremendous value to our portfolio. We remain frustrated that our stock price is still yet to reflect this significant progress.

The NAV gap has persisted and while we are not unto on island by ourselves, it doesn’t make it better. That said, we will leave no stone unturned in looking for ways to bridge the gap. Two topics that have been prevalent lately in our discussions with investors are share buybacks and asset sales.

On the share buyback question, we acknowledge and understand how attractive our shares look at current prices both from an implied yield and the price per square foot perspective. If you were to execute a buyback, as we have stated in the past, we would only do so on a leveraged neutral basis.

In simple terms, that means selling assets and using the net proceeds to buy back shares. On the asset sales question, it is important that investors understand that we always evaluate our portfolio for assets in which we may be able to capitalize on the NAV gap between public and private market values.

Only assets where we have fully executed our business plan and created value, would be potentially sold. Additionally, we need to make sure that we fully consider the tax consequences.

Ultimately, when we allocate capital whether for share buybacks, with using leverage or redeploying in higher-yielding investments, our focus is to achieve the best risk-adjusted returns for our shareholders.

We run our business for the long-term shareholder value creation, we are executing consistently on our business plan, quarter in and quarter out. With that, I will turn the call to Peter to give additional insights on our leasing..

Thank you, Albert, and good morning. We are off to a strong start in 2018. During the first quarter, we leased approximately 285,000 square feet at positive cash mark-to-markets of 17.8%.

We have carried that momentum into the second quarter with the execution of McGraw-Hill Education, a 136,000 square-foot tenant who is moving from the Penn Station submarket to 1325 Avenue of the Americas. With this most recent transaction, our portfolio is 95.2% leased. Let’s review the first quarter highlights by market.

Our New York portfolio was 92.7% leased at quarter end, and when you account for the McGraw-Hill Education deal, is now 94.4% leased. During the quarter, we leased 145,000 square feet at a cash mark-to-markets of over 10%. The portfolio is now very well positioned with less than 1% expiring this year.

Our remaining availabilities are poised to capitalize on the healthy demand for high-quality assets and sort-after locations. We continue to be encouraged by the interest in our properties as evidenced by the number of tours and by the number of proposals currently being negotiated, particularly with the reinvigorated financial services sector.

Tenants have increasingly been focused on superior products in highly accessible locations, which bodes well for our New York portfolio. This dynamic was evident in the first quarter when Midtown’s core submarket experienced strong leasing velocity.

In fact, Midtown’s first quarter leasing velocity exceeded last year by 25%, which is noteworthy given 2017 produced a most new leasing since 2006. Turning now to our two vacant blocks of space at 1325 Avenue Americas and 31 West 52nd Street.

At 1325 Avenue of the Americas as previously mentioned, we have now leased the entire block of space formerly occupied by ING, with the completion of the McGraw-Hill Education deal. The building is now 95.4% leased. At 31 West 52nd Street, the lobby renovation is underway and is expected to be completed by year-end.

As previously mentioned the market has responded favorably to the new lobby design. We began the quarter with the 167,000 square feet vacant on the top seven floors and has since extended an existing tenant on two floors and expanded their footprint onto the entire 23rd floor, the lowest floor in the block.

In addition, we are in advanced negotiations with several other perspective tenants, which contemplate a good portion of the remaining space and look forward to continued progress in the second quarter. Shifting to Washington, D.C, we ended the quarter with a portfolio at 96.5% leased, up a tick from that 96.1% at year-end.

We continue to outperform in the market benefiting from the location of our assets, the quality of our properties and our product mix. We have no meaningful expirations over the next three years and remain very well positioned.

In San Francisco, our portfolio is 97.7% leased, up from 96.4% at year-end, as we had a productive quarter of leasing at all three properties. The leasing fundamentals in San Francisco remain healthy as tech tenants continue to grow, and the majority of new supply continues to get leased.

At One Front, a significant portion of the leasing over the past year has come from existing tenants that continue to expand our footprints in the building. This trend held once again in the first quarter as two existing tenants expanded in the building.

The asset is currently 99.5% leased, and we continue to make progress toward reducing much of the near-term role. At 50 Beale, we made good progress this quarter by completing two full-floor deals and increasing the lease of occupancy in the building to 91.4% up from 82.6% at year-end.

We added two great TAMI tenants to those rosters this quarter, and did so ahead of our underwriting. We expect to be able to show continued progress going forward. Finally, One Market Plaza, is an iconic asset that is constantly in high demand and is currently 97.7% leased with a de minimis amount of leased role in 2018.

During the first quarter, we extended two existing tenants, and added a new financial services tenant in the tower, achieving nearly 60% mark-to-markets across all 3 deals. With that, summary, I will turn the call over to Wilbur to discuss the financial results..

Thanks, Peter. We had a solid start to 2018. Our core FFO for the quarter was $0.23 per share, up 0.01$ or 4.5% from the prior year’s first quarter.

Now while that is impressive, what’s more impressive is that the prior year’s first quarter included $6.3 million of FFO earnings from Waterview and 2.9 million of one-time fee income net of taxes in connection with the 60 Wall transaction.

In fairness, the current year’s first quarter includes 1.5 million of FFO earnings from the acquisition of 50 Beale. That nets to 7.7 million or $0.03 a share in the prior year’s first quarter that’s not in the current year. Excluding this $0.03, first quarter 2018 core FFO per share is actually up a whopping 21% from the prior year’s first quarter.

This increase was once again driven by sector-leading same-store cash NOI growth of 15.2%. comprised of increases of 15.7%, in New York, 32.5% in DC, and 9.1% in San Francisco. Same-store gap NOI growth was a robust 6.6% comprised of increases of 8.5% in New York, 12.2% in DC, and 1.7% in San Francisco.

With the first quarter same-store cash NOI, up 15.2% and a current full year 2018 assumption being between 7% and 10%, the resulting implication is that same-store cash NOI for the rest of the year should decelerate. While this is mathematically true, I’d like to put this in perspective.

Recall that the first quarter of 2017, was the trough and same-store cash NOI growth thereafter for the next three quarters was 14.4%, 21.3%, and 14.8% respectively bringing full year 2017 same-store cash NOI growth to 10.6%.

The deceleration in same-store cash results for each of the next three quarters will be measured over and above those levels, and the 7% to 10% range for 2018 is over and above the 10.6% we delivered in 2017.

For now, we are reaffirming our full year 2018 core FFO guidance, which is expected to be between $0.92 and $0.96 per share or $0.94 per share at the midpoint.

As we stated on our last call, this represents an increase in core FFO earnings of $0.05 per share or 5.6% over 2017, and assumes increases in same-store cash NOI of 7% to 10% and increases in same-store GAAP NOI of 6.5% to 9.5%. Turning to our balance sheet.

In January 2018, we extended and expanded our revolving credit facilities providing us with tremendous flexibility and additional liquidity. The new facility matures in January 2022 and has two six month extension options.

The capacity was increased by 200 million to 1.0 billion and interest rate and facility fee were reduced by 10 basis points and 5 basis points respectively. Also during the quarter, our Board of Directors increased the quarterly cash dividend on our common stock by 5.3% resulting in an annual dividend of $0.40 per share.

The regular quarterly cash dividend of $0.10 per share for the first quarter was paid on April 13, 2018. We ended the quarter with over 1.2 billion in liquidity, comprised of $224 million of cash and restricted cash, and $1 billion of availability under our new revolving credit facility.

Our outstanding debt at quarter end was $3.1 billion at a weighted average interest rate of 3.6% and a weighted average maturity of 5.3 years. 86% of our debt is fixed and has the weighted average interest rate of 3.6%. The remaining 14% is floating and has a weighted average interest rate of 3.5%.

We have no debt maturing until the fourth quarter of 2021, and beyond that, our maturities are well laddered. Lastly, we have updated our schedule of free rent burn off, which can be found in the investor debt on our website. The schedule is as of March 31, 2018 but it also includes the effect of the just announced McGraw-Hill lease.

Including the impact of this newly signed lease, we have $67.5 million of annualized cash rents that are yet to contribute to cash NOI. With that, operator, please open the line for questions..

Ladies and gentlemen we’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Nick Yulico with UBS. Please go ahead with your question..

Albert, just appreciate the commentary you had on thoughts on the share buyback, potential asset sales to fund that. There has been some reports that you do have a few of the DC assets on the market for sale.

How are you thinking about the potential to sell those assets and can you just remind us do those assets have any of the tax issues you had alluded to or no -- not all the assets were stepped up on a tax basis at the IPO.

So if you were to sell the DC assets, do you have -- are you able to get maximum proceeds, not have a tax issue and are you thinking about using those proceeds to fund the buyback?.

As we basically said in our prepared remarks already, we always evaluate our portfolio for assets where we are able to capitalize on the gap between private and public, and that’s what we are doing here in DC potentially.

And hope you understand that we are not trying to speculate at this point in time what we are doing in case some of these assets are trading..

And then, just following up on that I mean you have $200 million remaining on the buyback authorization as you thought by the board that you would first look to implement that? Or is there a consideration of perhaps creating an even larger buyback authorizations? What are the latest thoughts from the board on that matter?.

Yes.

As we said in the remarks as well, we have it authorized at this point, and we do not believe that small buybacks portions make sense, so we will -- we have a board meeting coming up here relatively soon and we will always bring it up in those board meetings, and depending upon the outcome of potential asset sales, we -- definitely we will reevaluate that as well..

Okay. Last question is on New York leasing. You have gotten a lot of the leasing releasing now addressed since the IPO I guess the one piece that’s still coming up over the next couple of years is the Barclays lease expiration at 1301 Avenue of Americas.

Could you give us the latest thoughts on how you’re thinking about that space? And as I believe the rents there that are being paid are pretty close to market rents today so do you feel pretty confident on, if Barclays were to leave, being able to backfill that space?.

Yes. I think, Nick, it’s too early to really comment on this, but our team has constantly -- consistently leased large blocks of space over many years, and sometimes with these in-advance expirations. There have been discussions with potential parties who are looking for large blocks spaces.

And the leases currently below-market, you were saying it’s at market, we think it’s a little bit below-market, and Peter can chime in here.

We have discussions, but it’s too early to really talk about it in detail, but it’s space, it’s really in high demand, tenants are looking for larger blocks, and that’s where we had a lot of success over the last 18 months.

Peter?.

Yes. Nick as I said before, it’s fluid with Barclays, unsure at this point, what they will ultimately do. I will say it for space that we’re not formerly marketing. We have received a number of inquiries, which is not surprising the availability rate on 6th Avenue was below the Midtown broader availability rate of 11.2%, it’s actually below 10%.

And it appeals to tenants looking for large floor place that can ultimately identify in a significant way, and so unsurprisingly we’re receiving quite a bit of interest. I think there will be an opportunity for us here ultimately, but at this point, it’s premature to say much more than that..

Our next question comes from the line of Blaine Heck with Wells Fargo..

Albert or Peter, I was hoping you can talk a little bit more about the deal at 1325.

What was the rent spread there versus what ING was paying? And then any color on what attracted McGraw-Hill and drove them to move from where they were into your space?.

Well, we don’t want to go into details on rent spreads. This is a space that has been in the lower part of the building, and we are very excited about McGraw-Hill coming to 1325. They have been very excited about that opportunity as well. That’s why they’ve committed to a very long term.

I’m happy to say that the concession are aligned with the market and the rents are in line with our budget.

So we are very excited about the success here, and so we’re happy to report it last night, Peter?.

Nothing more to add to that..

What do you think it was that attracted them and drove them to move from where they were into that space?.

So the building really does stand for enormous efficiency as column free, has very nice ceiling heights, 12.5-foot ceiling heights. It’s highly accessible, and it really serves the best of both worlds between the East side of Midtown and the west side of Midtown.

So I think it’s ideal location and its ability to appeal to, in this case, a creative user in terms of how the think about their build out was ultimately what compelled them to move forward at 1325..

Got it. That’s helpful. And then, Wilbur, appreciate the color on the deceleration in same-store, but if could dig a little deeper, I guess, the guidance implies about 6% on average throughout the year.

Are there going to be any major variations from quarter-to-quarter this year? And then given the information you provide on free rent burn off, it looks like could see another acceleration in 2019.

Is that fair?.

Yes. I think that’s -- let me take the 2019 part first. With respect to 2019, I think that’s fair, you can obviously do the math we showed you the free rent burn off coming in ‘19 versus the amounts that would be recognize at ‘18, you have the midpoint of our guidance for 2018.

We have on details on expiration so -- and that would imply that they should be continuously strong same-store growth in 2019. That said, with respect to the first part of your question, you know, we don’t give quarterly guidance, but it would imply a mid- to upper single-digit continuation for the each of the next 3 quarters.

If you look at the history, we have been fairly conservative with our estimates on guidance, and we’ve continued to under promise and over deliver. So I’ll leave it at that..

And our next question comes from the line of Vikram Malhotra with Morgan Stanley..

Albert, just wanted to better understand sort of the commentary around recognizing, obviously, the discount where you feel NAVs today and sort of the buyback comments. I remember may be a quarter or two ago, you sort of outlined your view of that buybacks are not efficient.

So I just want to clarify are you now -- is your commentary now -- does that imply that you are actually going to be engaging in buybacks assuming you get more board approval and the proceeds workout efficiently? Or are there other uses of say asset sales that you may make?.

You know -- it’s when we look at buybacks, we look at various different parameters. We -- they are different alternatives we can buy back stock, we can do different and we always look at it at different times, it really depends on where we are trading, and we are looking for the best rick adjusted returns for our shareholders.

That’s basically the -- in a nutshell that’s what we are doing..

So there won’t be say if you recycle assets in DC, you might look at other opportunities in other markets.

Could that be a potential use?.

It could be a potential use as well, I mean you might recall, we sold Waterview in order to buy One Front about 18 months ago, so we’re looking at all the different options. We want to be opportunistic, and create shareholder value in the long term. That’s our approach to this business..

Okay, and then any update or timing around the club deal that you announced? Where do we -- any milestones we should be looking out for?.

It’s a -- thanks for bringing that up. This is -- we call it auto club -- we call it auto Fund 9, the club that you were asking about. We use it more like a financing opportunity for potential acquisitions. So we have various different options, we can do a 1031. A 1031 has to be done 100%. So we would on own an asset that we would buy 100% ourselves.

And we have that optionality. So it basically increases our portfolio opportunity so if you were to buy something today in a very expensive market, we would be very, very careful with investing Paramount equity. So we have the opportunity with Fund 9 to invest just 10%, and go up to 51%.

And we’re looking at the returns of each potential acquisition where that makes more sense to buy the asset potentially 100% for the public company or whether it makes sense to put it in this Fund 9..

And Vikram just to add to Albert’s comments in terms of milestones. As we have pointed out previously there is no appetite to go out and invest this capital. This is a pocket that was raised for potentially deploy in the future should market conditions warrant that. And that’s what we’ve maintained.

So we don’t have any milestones invested, not looking to put this money out. And there is no such sense of urgency on our part or the investor’s part to be able to put this money to work..

Okay. That’s helpful.

If I can just clarify next quarter, we won’t be able to see or we won’t 1325 lease economics in the stats, right? Because that was a space that was vacant for over a year, is that correct?.

That is correct.

So the ING space and again, Peter said that 136,000 square feet more than backfills the ING space so there will be a portion of that, that would be second generation space for which you’ll see stats on, and then there will be the large chunk of it, which will be first generation and when I say you want these stats, you’ll obviously see stats, you won’t necessarily see the mark-to-market, which really apply on the second generation.

That said, obviously, Peter has commented about the activity that we see on 31 West as well, if something gets done there in the second quarter, that also will not be theoretically show up in the second generation stat and we’ve always maintained that we have an embedded 40-plus percent mark-to-market spread there.

So rest assured, we will provide you guys with the appropriate level of color when those leases are executed..

That’s fine.

Just be helpful to get a little more specificity, because these were the four big large block spaces that everyone is looking to get -- for you to get leased up so just getting a bit more on the economics would be helpful?.

It will be there..

Our next question is from the line of Rob Simone with Evercore ISI. Please proceed with your questions..

Just a quick one for me, and Albert, maybe this is a little bit more conceptual, but if you kind of [indiscernible] to your New York City portfolio and maybe ignore 1325 and 31 West 52nd because there either in the process of leasing up or undergoing renovation.

Of the remaining assets in your New York portfolio, which submarkets or which assets are you kind of most bullish on? I think, is there most potential upside there or may be the strongest or conversely weakest market growth for those submarkets?.

Rob that’s a question that deserves a very long answer so we basically have to go through the entire portfolio, and I’m happy to take that one-on-one maybe.

But we see a lot of opportunity in our assets and for each market it’s different and for each submarket it’s different, and there’s opportunity clearly, at 712 Fifth Avenue, we have that retail piece that is totally under market rented but it’s long-term locked in. We -- but also on the office side, we have opportunities there.

We have opportunities in 1633, and what I have said in the past quite often when a portfolio is even pretty close to 100% leased, and we are trying to get this portfolio, as I mentioned before, before the company has been public, we have been at a very high percentage always leased because of the quality of our assets and because of where they’re located in the market.

And that’s our goal to get these assets leased at that level, and you still can prune the assets and improve the returns over time because there are always tenants who want to shrink or want to grow and that’s an opportunity for a landlord to improve shareholder returns.

So I think across the board, we are blessed with great assets, here in Midtown New York, and they’re opportunities in all of them, and that’s I think, where I would like to leave it..

And then just a quick follow-up if I could for Wilbur. Kind of longer-term you guys had always pegged and maybe this is pre 50 Beale, the stabilized kind of run rate annual cash NOI at about $400 million plus or minus.

And I guess with the recent leasing you’ve done and with the change in the interest 50 Beale, is that still the bogey or is that number kind of move long term for you guys?.

No. Rob, I think that’s the still the bogey if you went back last quarter, we did put out that simple bridge where we sort of revalidated the 400 if I recall correctly I want to say the number was like 412. So we put that out once a year when we provide guidance for the time.

The reason we do not provide quarterly because there’s ebbs and flows and ins and outs that take place at that number, but that is still a bogey..

And your next question comes from the line of Jamie Feldman with Bank of America..

This is Kim Hong on for Jamie.

It seems like you guys are close to meeting the midpoint of your leasing target for ‘18, and it’s pretty early on in the year, but do you think you’ll surpass the target this year and in which market do you expect will drive the progress?.

Yes, Kim. We -- the good news of McGraw-Hill came out last night so that’s a big lease of 136,000 square feet that gets us very close to our bogey as you called it. We would evaluate this leasing goal again, and hopefully, we have some good news next quarter.

We didn’t want to change it at this point in time, so -- but we are -- we have a culture in the company that prefers to over deliver and under promise, so hopefully, there’s some good news in the pipeline there..

And can you talk about the distribution level, and what it would look like once the portfolio is fully -- is full based on the lease design? I’m just trying get a sense how much you would raise if you would raise if you decide to raise..

So, Kim, just so I understand your question.

Are you talking about the dividend and the FAD level? Is that where your question is heading?.

Yes..

Okay. Well, if you look at FAD payout ratio, I want to say it is roughly about 72% this quarter.

Recognize that FAD payout ratios quarter-to-quarter will fluctuate, but the trend has been there, that if you went back a year or two, we were elevated in terms of the FAD payout ratio because we had a tremendous amount of leasing to do, and a lot of the leasing has not become cash paying yet.

So as we’ve executed on our business plan, cash flow is continuing to grow, which is what got the board comfortable in raising the dividend.

So we continue to execute on our plan, which will undoubtedly result in additional cash flow [Indiscernible] and the potential for an increase dividend while still keeping the FAD payout ratios at a level that we’re very comfortable with..

Okay. And the last one is, Albert, I know you touched upon this a little earlier, but about the asset prices in New York.

I think you said it was a little on the higher side, but do you think you’ll execute on any acquisitions this year?.

Well we’re always looking at acquisitions, but very cautiously, and we have only pulled the trigger twice over the last three years since we have been public and those acquisitions have been very accretive and successful for our investors. They have not been in New York. We are looking at New York expedition as well, we like the New York market.

I know many others don’t like it at this point but we think there’s a lot of value here. And they haven’t been that many opportunities quite honestly, and because of the -- and we are in the market also with our mezzanine fund business, so we know the transactions that are happening.

A lot of the market participants are rather recapitalizing, then selling their assets because after taxes the returns for investors are still very attractive by recapitalizing instead of selling.

Because the financing is extremely attractive, even so long term rates might have gone up a bit, but the spreads are still shrinking, and the market is extremely competitive.

So if a market participant wants to make a decision whether to sell or to recapitalize, the recapitalization route has been very attractive in 2017, and that’s also -- I mean, had made a major impact on the slowdown of transactions in ‘17.

In ‘18, we see a little bit of an uptick in transactions but pricing is still very strong, as I’d mentioned, before. And we are looking only for opportunities. So for us we will not be doing something that doesn’t make shareholder -- sense for our shareholders long-term..

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

So I would like to get back to 1325 and McGraw-Hill.

You said that it more than took over for the ING space, I thought ING was in for 150,000 square feet, and 6 floors, 5 through 11, this is 5 through 9 plus a little bit of 12, at what -- am I -- are my notes wrong on that?.

I think it might be -- there might be a slight disconnect. The ING space was roughly 135,000 square feet, a portion of 1 floor was released last year so that’s what the remaining 115,000 square feet is [indiscernible].

And I think if again went back to our invested debt, we talked about 282,000 square feet of availability in this large 2 blocks, 115,000 from ING and the remaining 167,000 that Albert and Peter alluded to with respect to 31 West. So that’s the math..

Okay. Got you. And I like to also go back to a response that you gave to a previous question to Albert, and frankly, I guess the narrative here really sounds like it’s getting better. When I think of New York City as being the swing factor for your stock. But to not be able to give pricing on the McGraw-Hill, is a bit of a disappointment to us.

And I’m just curious why you can’t do that? I mean anybody, even I could lease space if you told me I could set up rate of my choosing.

So you have good mark-to-market across your portfolio but in this specific circumstance, you’re not willing to talk about the mark-to-market, is there a disclosure issue that you’re holding back on? Or what is it that won’t kind of give us that punch line to the joke? Not a joke, you know what I mean..

Yes, Rich I said it’s within budget. So I basically said that’s right in line, so we are very satisfied with the result of this lease. So that’s what I said, it’s line with market, and the concessions are in line with market, and the lease is being in line with our budget..

Okay, so what was your budget? I mean I would love to know if -- that there is a roll up, roll down, in line, I think that would be really good kind of complete the conversation..

It’s a roll up compared to what ING was paying there before..

This -- just for a different perspective. This lease was done literally yesterday when we announced it. We’re still running through all of the math, but Albert’s point is there is a roll up, and you will see the stats when we report next quarter so there is no sense of hiding the disclosure. Anything, we’ve been as transparent as possible.

In fact, I’d go as far as to say if you were to compare our disclosures and the level of transparency we provide relative to the rest of our brethren in the office space it’s probably second to none..

Okay, I’ll look for that next quarter, that is fine. And then a bigger picture is just -- I’m looking for a theme to leasing, you mentioned financial services was -- has been a driver this quarter and into this year.

But then, TAMI was -- is a big player in 1633, I think 40% or 50% of the tenancy there with some of the leasing that you’ve done, do you have a sense if there is -- the market is asymptoting to some sort of theme? Or do you think is still going to be a pretty diversified situation as it has often did in the case of Paramount?.

I think it’s very diversified and we are really in a good position that we have assets since we mentioned before that basically cater to financial services and very diversified the TAMI tenants. And we have seen activity in the financial services and uptick, and that we took advantage of. But we are also seeing TAMI tenants being active in our market.

So it’s very hard to frame what you are, I think describing as a scene, more of this I think the good thing is that employment is positive in the New York market, and we are at record low unemployment at 4.1%. And the job growth has been the stats for 2017 have revised upwards to 28,000 jobs.

And the protection for 2018 are 20,000 or so positive, and that should be boding well for a strong office market for New York..

Okay. And then last question. 1325 and 1301 both midblock assets, do you find pricing -- would you able to quantify how much more per square foot if you’re able to do it when you have a corner location like 1633 versus a midblock location.

How much more of a rent pop can you get if you’re able to isolate that specific force?.

Yes, I don’t think it’s fair to define 1325 and 31 West as midblock assets. 1325 is one of the best column three office, developments has been in the past always since we bought it in 1999, in the time of the predecessors has been always highly leased like 95% to 100% leased. The ING situation was an atypical one.

ING has been actually through its predecessor ABN AMRO, one of the early tenants in that building, they have been staying there, they wanted to change their work environment that they couldn’t do in place in that asset. They moved actually to a location very close to 1325 on 6th Avenue. So the asset as such has attracted always good tenancy, 1325.

And so has 31 West 52nd Street. Both of them are relatively modern assets and 31 West has its own plaza in front of it. It’s in front of the Museum of Modern Art. And hopefully, you will see in a quarter what kind of brands it can demand at the top of the building.

So it’s in the office seen here in New York, it’s considered one of the better buildings in Midtown..

Rich, I would just add that to your question on rent, I mean we do provide the portfolio rents that are in each of these buildings. And you’ll see 1325 is commanding in the mid-60s. The in place rents in mid-60s for that building and then at 1301, it’s in the upper 70s. And we’ve done deals as recent as the end of last year at $90 a foot. So....

I get it. I’m just trying to isolate that very specific kind of part of the conversation, but I understand what you’re saying. I appreciate the color..

[Operator Instructions] Our next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed with your questions. .

Albert just want to go back to the comment about unlocking value, the two things discussed REITs, sales and share buybacks, which is pretty much the standard playbook. I was just curious as you think about different ways to unlock value if any other strategies, options or ideas that come up outside of those two main topics..

No. These are really the two main topics that we also have outlined in our earnings yesterday. So we are focusing on that. As I mentioned before, when assets are getting to the top of the value creation that the management team can create, we always look at all of the options we have.

We are all investors in the Paramount stock ourselves so we want this -- we want our shareholders to be benefiting from the value created..

And then just most of the questions have been answered here at this point, but it sounds like the financial tenants are coming back to the market, that’s pretty much universally been touted, and Midtown as well. And I was just curious concessions have been a question or concern for investors.

I know it’s only 1 quarter, but the concessions for the quarter seem pretty good relative to recent quarters. And I was just curious if you actually seeing any change in [indiscernible]..

We have not seen a dramatic change from this time last year, I would say. In concession, I would say that if anything I would categorize in a stabilized, relative to what we’ve seen over the past years. And we’re very confident in saying that we’ve seen them stabilize. So at this point, nothing more beyond that..

And the stats when quarter-to-quarter within our own portfolio will vary based on the level of renewal activity versus new activity..

We have reached the end of our question-and-answer session. I’d like to turn the floor back to Albert Behler for closing comments..

Thank you all for joining us today. So as always we are looking forward to providing an update on our continuous progress when we report our second quarter results in August. Goodbye..

This concludes today’s teleconference. You may disconnect your lines at this time. We thank you for your participation..