Paramount Group Inc (PGRE) 2020 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Third Quarter 2020 Earnings Conference Call. (Operator Instructions)

Please note that this conference call is being recorded today, October 29, 2020. I will now turn the call over to Rob Simone, Director of Business Development and Investor Relations.

Thank you, operator, and good morning. By now, everyone should have access to our third quarter 2020 earnings release and the supplemental information. Both can be found under the heading Financial Information, quarterly results in the Investors Section of the Paramount website at www.paramount-group.com. Some of our comments will be forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, including, without limitation, the negative impact of the coronavirus COVID-19 on the U.S. regional and global economies and our tenants' financial condition and results of operation.

Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2020 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 of 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, Rob, and thank you, everyone, for joining this morning. We hope that everyone is staying safe and healthy. We at Paramount, are back in the office in accordance with the city and state guidelines. I'm very proud of my team's resilience and commitment to Paramount. Core FFO for the third quarter was $0.22 per share and was once again impacted by straight-line write-offs in the quarter. Notwithstanding this, our core FFO results were roughly in line with consensus among our analysts.

Since the onset of the pandemic and the uncertain outlook, our results are demonstrating the strengths of our assets and their resiliency during this crisis. We continue to benefit from having a high-quality portfolio of trophy assets with a blue-chip tenant roster and very limited exposure to retail. Our collections have remained solid and consistent and have not materially changed from our pre-COVID levels. In fact, portfolio-wide rent receipts were 97.5% in the third quarter, up 110 basis points from 96.4% in the second quarter. Wilbur will cover this in our financial results in greater detail. Our most important initiative during the quarter was to continue to engage with our tenants who remained focused on their return to work initiatives and the reintegration of the workforce.

We now have several months of experience operating in this environment. The feedback from tenants thus far has been extremely positive. From our vantage point, individuals who arrive to our buildings are feeling safe and secure in a healthy environment. We will continue to execute and advance our health measures to keep up with the science in an effort to ensure that we are holding ourselves to the highest standards of workplace safety and comfort.

That being said, while several tenants are continuing to gradually return to their offices, the vast majority of them are planning for an early 2021 return. We will continue to keep you updated on what we are seeing in the field. On the leasing front, we remain laser-focused on our available space. As highlighted previously, this is primarily comprised of the 500,000 square feet, Barclays Block at 1301 Sixth Avenue and the 130,000 square foot block at 31 West 52nd Street. Peter will provide additional details on what we are seeing in the market.

This quarter, as was the case last quarter, most of the activity was once again driven by renewals. Tenants in general remain cautious waiting for better clarity surrounding the current environment before making longer-term decisions with respect to their space needs. Most of the renewal discussions are for terms ranging from 1 to 3 years, and that trend is evident in our own leasing results this quarter. We ended the quarter with leased occupancy of 95.6% on a same-store basis.

Notwithstanding the current leasing environment, we have an amazing success story at 712 Fifth Avenue. We have signed a long-term 16-year lease with iconic luxury jeweler, Harry Winston. Let me provide some background. Harry Vinson currently leases about 19,000 square feet at 718 Fifth Avenue, which is a retail property that we manage. Our 50% joint venture partner at 712 Fifth Avenue also owns 50% of 718 Fifth Avenue, and the remaining 50% is owned by a third party.

As part of the transaction, we essentially demised a portion of the 712 space that is immediately adjacent to the 718 space and opened the walls between those 2 spaces thereby combining the 2 spaces into 1 fully integrated and seamless space. This innovative combination of the 2 spaces provides Harry Winston with approximately 37,000 square feet of prime retail space at arguably the most desirable corridors on Fifth avenue. This unique deal involved multiple stakeholders and to say it was complicated, would be an understatement. There was no leasing broker involved in this deal and it was conceived and executed by a few senior executives at Paramount. Executing a transaction of this prominence in the current environment, reflects the creative efforts of both the Paramount and Harry Winston teams, and we are delighted to welcome Harry Winston to 712 Fifth Avenue.

The result of the Harry Winston expansion, we have now leased 23% of the available retail space at 712 Fifth Avenue for essentially over 80% of the previously fully escalated rent of the prior tenant. The 60-year lease provides for a weighted average initial rent of $437 per square foot. Much like we did here at 712 Fifth Avenue, and on numerous occasions in the past, I'm confident that we will achieve great success leasing our current availabilities at 1301 Sixth Avenue and 31 West 52nd Street. We pride ourselves on being creative in our thinking and unrelenting in our pursuit.

Turning to the transaction market. Volume remains very low and bid offer spreads remain wide. The market remains in a period of price discovery. Opportunistic buyers are looking for bargains, but sellers aren't reducing their asking prices. The cost of debt capital is at historically low levels and with liquid debt markets, would-be-sellers are opting to refinance instead. How this plays out and for how long is unknown and will depend on how global economy emerges from this current crisis. It is our view that core assets that are well leased with a blue-chip tenant roster and longer weighted average lease terms will do a lot better in this market than transitional assets that require buyers to assume lease-up risk and add incremental capital.

As you know, in early March, we entered into an agreement to sell our last remaining asset in Washington, D.C. 1899 Pennsylvania Avenue for $115 million. As previously announced, the transaction is scheduled to close during the fourth quarter. We continue to work towards completing the transaction in that time frame. During the third quarter and into October, we opportunistically repurchased close to 3 million shares at a weighted average price of $6.77 per share or $20 million in the aggregate.

Wilbur will give details. Of course, our numbers -- of course, our #1 priority is reintegrating current tenants in a safe and healthy manner. We continue to be incredibly creative and innovative as we focus on extending lease expirations and continue to engage with prospective tenants. We are focused on ensuring, we maintained sufficient liquidity, which amounted to $1.3 billion at the end of the quarter, and we remain well capitalized and positioned for the long term.

With that, I will turn the call to Peter.

Thanks, Albert, and good morning, everyone. During the third quarter, we leased more than 104,000 square feet at a weighted average starting rent of $73.48, which rent figure excludes the previously mentioned new lease we completed with Harry Winston for approximately 18,000 square feet at 712 Fifth Avenue. The majority of our third quarter activity was renewal based and served to further reduce lease roll in 2020 and 2021. At quarter end, we were 95.6% leased on a same-store basis, down 10 basis points quarter-over-quarter. Our New York and San Francisco portfolio now has a modest 46,000 square feet expiring at share over the remainder of the year. Looking ahead to 2021, we remain laser-focused on the lease-up of our 2 largest expirations, which include the Barclays space at 1301 Avenue of the Americas and TD Bank space at 31 West 52nd Street, which together comprised 629,000 square feet or approximately 67% of our 2021 lease expirations.

Beyond that, our lease roll is manageable with approximately 8% expiring per annum on a square footage basis between 2022 and 2024, the direct result of our ongoing strategy to pre-lease space and derisk future lease role. While these 2 blocks of space remain among our top priorities in the near term, it has become increasingly apparent that manageable lease role and the portfolio comprised of best-in-class credit tenants will serve us well as we work through these difficult times.

Turning to our markets. In Midtown, third quarter leasing activity of 2 million square feet, excluding renewals, was 51% below the 5-year quarterly average and down 33% year-over-year according to CBRE. Renewals of approximately 1.1 million square feet were executed during the quarter, accounting for a disproportionately high percentage of total leasing velocity, consistent with our overall portfolio. The leasing mix typically shifts toward renewals during any downturn and as expected, tenants have largely chosen to take a wait and see approach toward relocating, expanding or making significant investments in new and longer-term space commitments.

With that being said, the number of new space inquiries and in person tours has increased over the past several months. In fact, the virtual tours we gave during the second quarter have, in many instances, led to both subsequent in person tours and negotiations, which are currently underway.

Our New York portfolio is 95.1% leased on a same-store basis, down 20 basis points quarter-over-quarter. During the third quarter, we leased approximately 52,000 square feet, including 18,000 square feet to Harry Winston. This lease transaction was extraordinary due not only to the pandemic, but also to the intricacy of the deal itself, which required the coordination of multiple stakeholders and the expertise of numerous disciplines within each organization. We are proud to include Harry Winston as a tenant at 712 Fifth Avenue.

As we have stated previously, 1301 Avenue of the America remains our primary focus as we market the Barclays Block of space. Our offering is even more compelling in today's environment given certain attributes, such as walkability to major transit hubs and our ability to create a private welcome center that affords not only an enormous branding opportunity on the corner of 52nd Street and Sixth Avenue but also a way for a large tenant to control both access and the overall experience for their employees and guests. Additionally, we are marketing the TD Bank space at 31 West 52nd Street, a trophy property that appeals to the most discerning of tenants. We continue to actively present both buildings through virtual presentations and in person tours and look forward to updating you on our progress.

Turning now to San Francisco. San Francisco realized limited leasing activity during the third quarter, contributing to a 270 basis point quarter-over-quarter increase in total vacancy as per JLL. Similar to what we are experiencing in New York, tenants have focused on renewal transactions, particularly short term in length and have largely taken a wait and-see approach toward relocation, expansions and longer-term space commitments.

Despite this pause in the market, we remain long-term believers in the resiliency of the San Francisco market. Unlike prior cycles, the San Francisco market is anchored by mature large-cap tech, financial services and the life sciences firms, all of which will lead the way out of the recession.

On another positive note, the Mayor's office recently announced at nonessential offices would begin to reopen on October 27. As we have seen in New York, increased physical occupancy results in increased new leasing activity. Our San Francisco portfolio is 96.8% leased on a same-store basis down 10 basis points quarter-over-quarter. During the third quarter, we leased approximately 52,000 square feet at a weighted average term of 5.2 years with initial rents averaging $75 per square foot.

The San Francisco portfolio also has limited near-term role, resulting in a portfolio well positioned to manage through the pandemic.

With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Thanks, Peter. Yesterday, we reported core FFO of $0.22 per share, which was $0.01 below consensus. The current quarter's core FFO included noncash write-offs of straight-line rent balances aggregating $0.05 per share and $0.01 per share of fee income from the Harry Winston lease. These items had a net negative impact to core FFO of $0.04 per share. Excluding these items, core FFO would have been $0.26 per share. As expected, our same-store results for the third quarter were once again negatively impacted by the pandemic and more specifically, by our election not to utilize the relief provisions provided by GAAP as it relates to lease modifications. As I highlighted in my prepared remarks last quarter, we are essentially recording revenue from tenants whose rents have been deferred or abated on a cash basis. We believe our approach is certainly more conservative and 1 that better represents the true cash NOI generated by the business in the current period.

This was the primary driver in our same-store cash NOI growth being negative 1.8%. As Albert highlighted earlier, our portfolio-wide collections during the third quarter continued to remain solid at 97.5%, and office collections have improved to 99%, while collections from non-office tenants have deteriorated slightly to just over 50%. As a reminder, our collection percentages are reported before any COVID-related lease modifications. Unlike some of our peers who report this metric taking into account COVID related modifications. In the quarter, we executed 10 leases covering 104,000 square feet at mark-to-markets of 3.6% on a cash basis and 9.5% on a GAAP basis. Mark-to-markets in New York were negative 2.4% cash and negative 3% GAAP. Mark-to-markets in San Francisco continued to be solid at 11.1% cash and 27% GAAP.

Turning to our balance sheet. We ended the quarter with over $1.3 billion in liquidity, comprised of over $530 million of cash and restricted cash and $800 million of capacity under our revolving credit facility. In the third quarter and into October, we repurchased 2.9 million shares at a weighted average price of $6.77 per share or $20 million in the aggregate. Our outstanding debt at quarter end was $3.83 billion and includes $200 million that was borrowed under our revolver.

Other than the borrowings under our revolver, all of our debt is secured and nonrecourse. This debt has a weighted average interest rate of 3.1% and a weighted average maturity of 5 years. 83% of our debt is fixed and has a weighted average interest rate of 3.4%. And the remaining 17% is floating and has a weighted average interest rate of 2%. We have no debt maturing until the fourth quarter of 2021 and beyond that, our maturities are well laddered. With that, operator, please open the lines for questions.

(Operator Instructions) Our first question comes from Vikram Malhotra with Morgan Stanley.

My first question really pertains to say the new retail lease (inaudible) congratulate Dan. I know it's a very, very difficult environment in (inaudible) the background. Could you maybe give us a little bit more color on the metrics? Maybe number one, what this implies for rental value that's played? And any color you can give us on free range providers.

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Our next question comes from Blaine Heck with Wells Fargo.

Great. So clearly, I think the biggest question and focus for you guys continues to be the Barclays backfill at 1301. And I appreciate all the commentary on that in the prepared remarks, but can you give a little more color on how much current activity you guys have there, whether you've seen any noticeable change in interest, either positive or negative at that space since last quarter? And again, maybe just discuss your level of willingness to be flexible on rents or concessions in order to get a lease signed and a tenant in there.

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And it looks like Blaine cannot hear us. Operator?

The line is live.

Can you hear us?

I got you guys now. Can you hear me?

Yes. We can hear you. We were -- Blaine, we were in a discussion with Vikram, maybe we can go back to that, operator, and then we catch up with you, Blaine.

Yes, that's fine. Sorry.

Vikram, are you back?

Vikram, your line is live.

Vikram, are you back on?

I am back. Can you hear me?

Yes, we can hear you now. But I think the line was disrupted, and we had another call in from Blaine. So did you -- did you hear what I said?

I did not. Your voice didn't come through.

Okay. Let me start again. First of all, tremendous achievement, as I said in my prepared remarks of the teams, the Harry Winston, but especially also the Paramount team in putting this together. The entire -- it was not only a lease deal that was done without a broker, it was a very complex with 3 different ownerships and construction that had to be solved and resolved between the ownership.

So to your question, it is about 23% of available space, of the retail space, that got covered by this lease. If you look at the -- if you visually look at the asset, the retail space consists of 3 townhouses. And it's -- the townhouse to the far right. If you're standing in front of the asset, in front of the building that is connected to 718. So it's a smaller space of the entire opportunity for the future. And it is about -- has about 17 to 18 feet of frontage. And as I said, about 23%, 24% of the entire space.

Okay. And just to clarify, so what does this imply for rent levels at grade? And can you give us any color on how much free rent was provided?

Well, it's a complex -- there are a couple of floors, in total 4 floors, plus basement space. And it's -- we reported that it's $437 per square foot on average, and that's basically the figure that covers the entire space that was taken.

And maybe just to add, Vikram, I mean, when you look at the entire space, at grade and fronted the 9100 square feet, okay? And what this lease did is give up effectively 1,800 square feet at grade. So that's 20 -- less than 20% of your available space at grade that was done. So it leaves you with a vast majority of the space at grade that's left to lease. So we, as Albert said, this is a tremendous outcome. When you take the rent and you average it out across the floors, we don't want to get into specific figures at what's on grade and what's on the other floors, but that should give you a lot of color to imply what rents could have been.

Got it. Okay. And just -- and can you give us a sense of maybe just versus pre-COVID how the free rent period may have changed?

I would think this is pretty much a pre-COVID kind of execution. I think the figures you know that the retail markets in New York were suffering already before COVID hit. And it's a very, very strong execution.

Back to Blaine Heck with Wells Fargo. Blaine?

Hey, sorry. Can you hear me now?

Yes.

Okay. Great. So I'm not sure if you guys heard my question, but just real quickly, it was on 1301, I appreciate all the commentary in the prepared remarks, but maybe if you guys can give a little bit more color whether you've seen any noticeable change in interest, either positive or negative, since last quarter. And then again, maybe just discuss your flexibility on rents and concessions in order to get a lease signed and a tenant in there?

Yes. Really, since last quarter, nothing much has changed. You might recall that initially, we had planned on leasing some of the square footage in 2020, even before the lease with Barclays would expire. I took that goal off when COVID hit because of all the impacts that ensued it. So the activity has been pretty much the same. Actually, it sparked up a little bit by end August and Peter is doing virtual tours and but the impact on rent hasn't been significant compared to last quarter. So it's -- we are confident that we get a lease done. It might take longer for sure because tenants are not really in a rush to make decisions because they want to see how the pandemic really plays out. And I think that's understandable and that's a situation at 1301.

Okay. That's helpful. Albert, you mentioned in your prepared remarks that most of the leasing in the market is sort of renewals for 1 to 3 years, and maybe this is more for Peter. But I'm wondering how those are treated, are they treated as extension and the terms are essentially unchanged? Or are you guys actually negotiating new rents and maybe even concessions as part of those deals, even though they're much shorter than usual?

Yes. It's very much the same. It reminds me of 2008, 2009 when tenants -- some of them intended to potentially take more square footage or move into another building. They delayed all those kind of decisions, and we're looking just for an extension to see how the business environment would develop over the next 12 to 24 months, and that's the same situation here. So we are normally not giving concessions and just extending the lease the way it is.

And Blaine, you can see that in our statistics. If you look at the leasing activity and the statistics that we put out this quarter, I mean, TIs and leasing commissions per square foot per annum were less than $0.50. So as a percentage of initial rent, that was right around 0.5%. So that's not necessarily a market kind of deal, but in instances where we're pushing out near-term lease expiration short term, it's -- you're not getting a big pop necessarily in rent, but you're saving tremendously on the concession side.

Right. So Blaine, you're granting them flexibility of short term. And as a result, you have greater pricing power in exchange. So that's generally what we have seen, as you've now heard, which are fewer concessions and generally holding firm on the rents.

Great. That's helpful. Last question for me, Wilbur. We appreciate your conservative approach to cash same-store NOI and excluding the revenue from deferred rents. But given that most of your competitors are booking that rent within the quarter as they expect to recover it in a short amount of time, I was wondering if you guys had calculated it that way for maybe a little bit more of an apples to apples comparison with your peers?

Sure, Brian. I appreciate it. I think just to be clear, you're referring to the same-store cash NOI growth this quarter, which was negative 1.8%. And we treated that the way some of our peers are doing it, and reported that in cash NOI, that negative 1.8% would be a positive 2.5%. So there's a 430 basis point swing effectively impacting our results.

Next question comes from Jamie Feldman with Bank of America Merrill Lynch.

Congratulations on getting the Winston deal done. I guess as we think about that space, now that, that lease is done, were there other tenants that were looking at the space also that kind of needed to see how that played out that you're still talking to? Or you have to go and kind of beat the trees again?

Well, you have activities on that other space, which -- it's a large -- unusually large space for Fifth Avenue and at that rent levels, there are not that many tenants around. Peter and his team have been pursuing the kind of different options, and we are still pursuing those. So I'm very, very satisfied with this outcome because it's very unusual to find a tenant like Henri Bendel, previously, who took over 80,000 square feet in 1 space. And I think the way it's laid out now, it is very attractive for a potential 1 or 2 other tenants in that same category or similar category.

Yes. Jamie, based on the space that Harry Winston took, we've effectively left ourselves with a very regular shaped retail space that I think, gives us enormous flexibility in terms of who we ultimately appeal to. So if you look at the space that Harry Winston took, I think we're left with what is a very attractive and marketable piece of space. And so we, of course, didn't reveal our negotiation to any other prospective tenant. But we are thinking about the requirements that we're now discussing and thinking about how we can piece it together in a sensible way with what we're left with by way of the balance of the space.

So how does the remaining space breakout by like square footage by floor? Or is it all -- did you say first floor or street level?

The ground floor equated to the -- Harry Winston has leased what equates to approximately 20% of the ground floor space. And then ...

No. I was just going to say, you have basically 7,300 square feet at grade that's left over.

And nothing on other floors. It's just a grade?

No. No. It's on other floors, too. Basically, you have to look at this townhouse. There's 4 floors, and it has a basement. So you have another 60,000 square feet to lease or to occupy. And you can be flexible, whether the top floors are office space connected to the retail and so it is very, very -- gives a lot of optionality to the use. And I think with some of these modern schemes, and lifestyle, luxury tenants, I think, that's, and in that prime location on 56 and Fifth, there's opportunity. But I don't want to rush into saying this lease is going to be done now. The rest of the space is going to be leased within the next 6 or 12 months. So we have to see how this market plays out. As you know, retail traffic is down across the board. So -- but this first step is a tremendous step in the right direction.

Yes, absolutely. So you said 7,000 at grade, and how much is in the basement and then how much is on the upper floors that's left?

Jim, we can get you that detail off-line. I don't think we want to bog down the call with going flow by flow as to what's on grade and what's on basement and what's on the first floor. But suffice it to say, this is an 80,000 square foot block of space. We leased 18,000 square feet, you're left with the remaining 61,000, 62,000 square feet, 12% of that is on grade, and we can take the rest off-line and give you those details.

Got it. Okay. And then can you talk about the marketing plan for the TD space? I know you've spent a lot of time on Barclays.

Sure. The space comes back in April of next year. The building shows beautifully. We have lit up, if you will, all of these floors, and we have virtual tours that we have been sharing with tenants, which have, as I've said previously served as a precursor to in person tours. We have some good activity, all things considered on these floors currently. In some cases, we are trading paper.

And so our approach is no different than that of what you have seen from Paramount as it pertains to all the large blocks of space we've leased up previously. We're getting in front of every requirement in the market and with the brokerage community, as you would expect. And our material, I think, reflects the opportunity really very nicely. So whether it's an in-person tour or my team is conducting it virtually, we think we have been highly effective in sharing this unique opportunity with the market.

Okay. And then how would you characterize the pipeline for the interest?

We -- I would say that new leasing activity, as you have seen, is down, but I would say, generally, as it relates to this building, this is 1 of our more active properties. I would say, in the last 2 weeks, we've had 4, 5 in person tours, which I would categorize as very strong.

Okay. Great. And then I guess, just thinking about capital needs. I know you guys are -- have good liquidity. But with some of these expirations coming and then some of the CapEx you have to put in. Can you just talk about maybe over the next 12 months or so, how you think about your capital needs versus your current liquidity?

Sure. I mean, again, we spent an enormous amount of time going through our capital plan in 2020 in our effort to preserve liquidity. When we look at forward to 2021, we're going through that process as we speak. We consistently update that. We are very, very mindful of the upcoming lease expirations that are known move outs, which equate to 630,000 square feet between Barclays and TD Bank. And we'll continue to look at that as we move into 2021. Obviously, we have an asset in the sale in the market that will serve us with additional liquidity. And so that's basically the way we're approaching liquidity needs going into 2021.

Okay. You can't give more granular numbers. So I guess I'm thinking about the CapEx needs you have some -- with these big spaces?

The CapEx needs is going to be largely at whatever TI, it's going to be a function of the TIs you're giving to the tenants to lease-up that space, right? So we don't believe any of these spaces that are coming due and that we have to lease-up is away from market TI, if you will.

The question is, the market is in a price discovery for what concessions mean today. Concessions are elevated. We expect that to remain elevated. But even if you were doing a market deal and you say concessions are up 10%, you can figure out that math as to where we think concessions lie.

Now again, that's also assuming you lease-up all of the 630,000 square feet in 2021. So the answer is very complicated because it depends on how much of that you tackle in 2021 and how much TIs that you give in connection with those deals, but it is not going to be an above-market TI. There's not a lot of base building CapEx, there's not a lot of landlord work that we need to do to those spaces that would cause the capital needs to be in excess of what we otherwise would have incurred.

Jamie, both assets have been extensively renovated, the lobbies and elevator over the last couple of years. We take great pride in keeping our assets in first-class condition, as you have seen, I think, witnessed from the couple of tours we had over the last couple of years. So I think we are in a good position. And I think after the pandemic, the pendulum might be swinging more towards location and not necessarily towards the latest and greatest of an asset to be developed on new buildings. I think it will be more important where is the building located, how it can be accessed by employees and visitors. And I think our assets being close to major traffic accesses and being in Midtown, around Sixth and Fifth will have an advantage. We see that already with the tourists of potential tenants.

Okay. That's helpful. And then last for me, how do you think about your dividend coverage assuming -- I guess, you don't get these lease-up next year, what do you think your dividend coverage would look like?

I think we don't want to we -- we are not giving guidance at this point. I think it's too early. And Jamie, I hope you appreciate that, that we don't want to go into that question at this point.

Our next question comes from Steve Sakwa with Evercore.

Albert, I was hoping you could talk a little bit about just the capital allocation, the buyback program. How you're thinking about additional asset sales in today's market, given where the stock is currently trading?

Yes, Steve, thank you. We have been in the market this year. We sold 10% of 1633 at a tremendous price per square foot. And we will not sell anything at squeezed pricing or heavily diluted asset pricing. We know that these assets are in tremendously strong shape and good position. So we have been saying in the past that we would be considering selling an asset or parts of an asset if we have developed our lease-up story and so it looks like, as I mentioned in my prepared remarks, like core assets are where investors want to be. And it's too early to say whether we are pursuing anything at this point. But I think that investors, I can see that investors, I can see that, from other markets that we are watching in Europe, especially, investors are really focused on core and long-term stability and decent returns.

So we are clearly pursuing it, but I can't give you any kind of specifics with regard to timing and size of potential asset sales or joint venture partnership sales. But you have seen that we used to buy back the approved buyback program. We currently have another $80 million. So far, we bought $320 million worth of shares back, and we have $80 million available. And as we said before, we want to buy back shares on an opportunistic level but leverage neutral.

Well, right. I guess just a follow-up and maybe sort of to speak in to Jamie's question. The leverage on at least the net debt-to-EBITDA today is high. And likely to go higher with some of these leases burning off with Barclays and in TD. So at least short term, that leverage number is going to go higher. So I'm just trying to get a sense for how willing you are to spend the balance of the $80 million on the buyback or re-up the program if you're not more aggressive on asset sales?

Yes. We -- I think we would look at this opportunistically. Steve, it's too early to say. We are watching the leverage levels. We are clearly careful about that. And it's really too early to say. So we want to do this strategically, and -- but we understand what you're asking about.

And Steve, the only thing I'd add is, I mean, you quoted leverage on a net debt-to-EBITDA level. And obviously, there's different ways to look at leverage, where Class A trophy portfolio on our operator. If you look at our leverage from a loan-to-value perspective, I mean, we're in the low 40s in the worst-case scenario. So the net debt-to-EBITDA metric, obviously, will -- it will increase given the near-term lease expiration that you're seeing in 2021. Having said that, as Albert said, we will look to buy shares opportunistically, largely everything that we've executed thus far has been on a leverage-neutral basis. We have bought back 320 at an implied price per foot of, call it, $625, $630 a foot, and we're selling assets largely north of that. So we believe our capital allocation strategy is sound, while being very mindful of leverage.

Okay. And then just last question, Peter, maybe just compare and contrast, San Francisco, New York. I realize San Francisco has been really locked down much longer than New York has. And it seems like the city is just beginning to allow some workers to come back. But how much -- I guess, I'm trying to really figure out is when does the San Francisco pipeline begin to kind of build and if companies are still allowing employees to work from until the middle of next year, does that just kind of keep San Francisco much more behind other markets in the short term?

Yes, Steve, I think, look, San Francisco was set back relative to New York, as you know, mid-July, the Mayor of San Francisco announced and indefinite us to the original reopening plans and effectively closed all nonessential offices, which most recently effective October 27 was reversed and now nonessential offices are allowed to reopen.

But for that reason, I think San Francisco lags New York. And 1 of the things that we subscribe to entirely is that physical occupancy will generate new leasing activity. And when you think about the occupancy level in our portfolio here in New York relative to San Francisco, we are considerably ahead of San Francisco in that regard currently. So no question relative to New York, San Francisco is lagging. But I think the good news here is that earlier this week, nonessential offices was allowed to reopen. And then speaking with my colleagues in San Francisco, and others, everybody is really very eager to get back to the office. So I suspect we'll see occupancy levels in our buildings in San Francisco start to increase quickly, but that's a critically important component to activating new leasing activity, which has been impacted as a result of this decision that was made back in mid-July. So I think the next several months will be very telling in terms of what lies ahead in 2021 for San Francisco.

Our next question comes from Daniel Ismail with Green Street.

Great. Can you tell us what you're seeing in terms of opportunities from your fund business as well as refresh us on how industrial interest is in the fundraising aspect of that business?

Sure. The -- we think that the opportunities will get better with regard to investing we have a mezzanine fund #10 that is looking for opportunities. And we -- over the last couple of quarters, there were some opportunities but it's really not as attractive as 1 would believe.

The markets are extremely liquid. And there's a lot of capital that's looking for investments. And there's no obvious distress yet, I would say, because of where interest rates are, the long-term rates are very attractive and will stay more suavely at those levels for quite some time with the support of the Fed that they want to keep the rates at a relatively low level. So we expect that the opportunities for the mass fund investment will get better in 2021. And we are looking at opportunities there. So we have dry powder available.

On the fund raising side, we, of course, are a little bit inhibited by the difficulties traveling and seeing investors. But there is interest, especially for safe mezzanine debt opportunities as well as special situations. So it's getting better because the pension funds and some of these large investors have capital inflows, and they have to make sure that it gets invested.

Great. And then with the ballot measures in California being voted on next week. Just a 2-part question. I guess, one, thoughts on -- updated thoughts on in terms of what it means for your portfolio? And then two, as you think about capital allocation, if some of those measures would pass, particularly few of the more business unfriendly measures in San Francisco, does that change your thinking in terms of potential new acquisitions or dispositions between your New York and San Francisco portfolios?

Sure. Danny, again, one, on Prop 15 that you're referring to, obviously, it's on the balance in November. We're watching it closely like is everybody else in that market, and polling right now is split down the middle into whether that passes or not. Having said that, the impact to our portfolio is going to be the least relative to anybody else in that market, at least in the public sector, for sure. Because these assets were recently acquired. And a lot of the analysts have put out reports as to what they think that means.

Now when you look at it, the thing to remember is the fact that we have the ability to pass on whatever impact there is, in resulting from that to our tenants. And so the net impact to PGRE or when you think about it from an earnings drag is going to be negligible.

That said, in terms of the other part of your question with respect to appetite to investing in that market. Look, we've transformed our strategy to be a [bi-coastal] REIT. Our focus has always been to invest opportunistically. There is no formula or program to say we want to be X invested in San Francisco and Y invested in New York. That's been the model, and we will continue to follow that path opportunistically, does not deter us from making an investment decision at this point based on what we are seeing.

(Operator Instructions) Our next question comes from Omotayo Okusanya with Mizuho.

I just wanted to go back to the Harry Winston lease. Just kind of based on some of the information you gave us, the back of the envelope map seems to be suggesting that beliefs on the grid level retail space, at least the rent per square foot is better than the Bendel lease, but we're still kind of coming out with numbers that seem much lower than what you kind of see the brokers quoting, what kind of street retail is in that part of Manhattan. So I'm just -- are we on the ball with that? And if so why do a deal at much lower than kind of what the brokers are quoting as market rate?

No, I think we are wrong on that. The Henri Bendel lease was about $100 or $106 to be precise per square foot on the entire space. And this is about 87% of what we have received for the entire space that Henri Bendel had. And as we've mentioned on this call, it's -- we can lease another 60,000-plus square feet and an only lease so far 18,000 square feet on the ground floor, which is the most valuable, by far, the most valuable part of the lease. We have even more. So it's about 24% of the ground floor that's currently leased to Harry Winston. So 87% of the previous rent is already covered with this lease.

Yes. Albert, I think maybe I misspoke, versus the Bendel, the numbers look much better. I guess the question I have is versus what brokers are quoting as what market is for Street retail versus what I get from my math as implied rent per square foot on the Street retail that you just leased to Winston. There seems to be --

Yes, but you have to combine it. This is not just retail. It's on 4 floors, and a lot of that space is in the back of the property. So it's very hard. We are happy to address it in a separate call maybe with you to walk you through it in more detail. But it's several floor space and the Street retail is the smallest part.

I think what you'll find is that is absolutely not true. The comment you are making with respect to what is according in the market today for Street retail, relative to what you can imply, that 1,800 square feet at this space was leased up, you will find that, that is absolutely not true.

Thank you. I would like to turn the floor over to Albert Behler for closing comments.

Well, thank you very much for being here, and we are looking forward to the next call on our next meeting. Stay safe.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.