DEFA14A: Rithm Capital to Acquire Paramount Group for $1.6 Billion

Rithm Capital Corp. will acquire Paramount Group, Inc. for approximately $1.6 billion in cash, expanding its commercial real estate and asset management platform.

Summary

• Rithm Capital Corp. (Parent) will acquire Paramount Group, Inc. (Paramount) and its operating partnership through a two-step merger, with Paramount becoming a wholly-owned subsidiary of Rithm Capital.
• Paramount shareholders will receive $6.60 per share in cash for each share of common stock.
• Holders of Operating Partnership Common Units will receive cash equal to their conversion factor multiplied by $6.60 per unit.
• The total cash consideration for Paramount shareholders is approximately $1.6 billion.
• Paramount's outstanding stock options will be canceled for no consideration.
• Paramount's restricted shares and Operating Partnership LTIP/AOLTIP units will convert into the right to receive cash at $6.60 per unit/share, with performance-based units vesting at the maximum level.
• The transaction is expected to close in late Q4 2025, subject to Paramount stockholder approval and other customary closing conditions.
• Paramount's Board of Directors approved the merger and recommends stockholders vote in favor of the transaction.
• Rithm Capital expects to fund the transaction with a combination of cash, liquidity from its balance sheet, and potential opportunities from co-investors.

Sentiment

Score: 8

Explanation: The acquisition offers immediate, fair value to Paramount shareholders and represents a strategic expansion for Rithm Capital into high-quality office assets in premier markets, with management expressing confidence in market recovery. However, Paramount shareholders forgo future upside, and there are standard merger-related risks.

Positives

• Paramount shareholders will receive immediate, full, and fair cash value of $6.60 per share.
• The acquisition provides Rithm Capital with a Class A office portfolio at scale in premier markets, specifically New York City and San Francisco.
• The transaction expands and diversifies Rithm Capital's commercial real estate footprint and asset management capabilities.
• Rithm Capital's management expresses strong conviction in the recovery of office market fundamentals in the target cities, citing improving rent rolls, a more favorable interest rate environment, and increasing demand.
• Paramount's Board and management believe Rithm Capital is an ideal partner, offering the financial scale needed to improve Paramount's fundamental operating performance.
• Retention bonuses have been approved for key executives, including Albert Behler ($1,134,000), Peter Brindley ($577,500), and Ermelinda Berberi ($475,000).
• The executive severance plan has been amended to provide enhanced benefits for certain executives if their employment is terminated without cause within 12 months following a change in control.

Negatives

• Paramount's outstanding stock options will be canceled for no consideration.
• The fixed cash consideration of $6.60 per share means Paramount shareholders will not participate in any potential future upside of the combined entity.
• A termination fee of $59.7 million is payable by Paramount under certain circumstances, such as terminating the agreement for a superior proposal or if the Board changes its recommendation.
• Any dividends paid by Paramount to maintain REIT status prior to closing would result in an offsetting decrease to the merger consideration.

Risks

• Risks associated with Paramount's ability to obtain the required stockholder approval and the timing of the closing of the proposed transaction.
• The risk that a condition to closing would not be satisfied within the expected timeframe or at all, or that the closing of the proposed transaction would not occur.
• The outcome of any legal proceedings that may be instituted against the parties and others related to the merger agreement.
• The risk that stockholder litigation in connection with the proposed transaction may affect the timing or occurrence of the proposed transaction or result in significant costs of defense, indemnification, and liability.
• Unanticipated difficulties or expenditures relating to the proposed transaction, including the impact on each of Rithm's and Paramount's respective businesses.
• The response of business partners and competitors to the announcement of the proposed transaction.
• Potential difficulties with Paramount's ability to retain and hire key personnel and maintain relationships with tenants and other third parties as a result of the proposed transaction.
• Potential difficulties in employee retention as a result of the announcement and pendency of the proposed transaction.
• Changes affecting the real estate industry and changes in market and economic conditions, including tariffs, geopolitical tensions, and elevated inflation and interest rates that may adversely impact Paramount or its tenants.
• Trends in the office real estate industry, including telecommuting, flexible work schedules, open workplaces, and teleconferencing.
• Increased or unanticipated competition in the real estate market.
• The uncertainties of real estate development, acquisition, and disposition activity.
• Maintenance of REIT status.
• Fluctuations in interest rates and the costs and availability of financing.
• The ability to enter into new leases or renew leases on favorable terms.
• Dependence on tenants' financial condition.

Future Outlook

Rithm Capital expects the acquisition of Paramount Group to serve as a springboard for building out its commercial real estate and asset management platform, expanding its owner-operator model. Management expresses strong conviction in the recovery of office market fundamentals in New York City and San Francisco, anticipating improving rent rolls, a more favorable interest rate environment, and increasing demand. The transaction is projected to close in late Q4 2025.

Management Comments

• Michael Nierenberg, CEO of Rithm: "We believe the acquisition of Paramount is a generational opportunity that will serve as a springboard to build out our commercial real estate and asset management platform and expands our owner-operator model."
• Michael Nierenberg, CEO of Rithm: "The Paramount portfolio is situated in cities where we have a strong conviction in the recovery of office market fundamentals, including improving rent rolls, a more favorable interest rate environment, and increasing demand."
• Martin Bussmann, Lead Independent Director of Paramount: "We are incredibly proud of the high-quality portfolio we’ve built and believe strongly in its intrinsic value."
• Martin Bussmann, Lead Independent Director of Paramount: "Together, the Board and management team have found an ideal partner in Rithm, which offers the financial scale needed to improve our fundamental operating performance."
• Martin Bussmann, Lead Independent Director of Paramount: "After an extensive process and evaluation of a range of strategic alternatives, we are pleased to have reached this agreement which will deliver immediate, full and fair value to our shareholders."

Industry Context

The acquisition reflects a strategic move by Rithm Capital to expand and diversify its commercial real estate footprint, particularly in Class A office properties located in key urban markets like New York City and San Francisco. Rithm Capital's stated conviction in the recovery of office market fundamentals suggests a belief that the challenges faced by the office sector (e.g., telecommuting, flexible work schedules) are abating or that high-quality assets in premier locations will outperform. This transaction positions Rithm Capital to leverage its asset management expertise in a potentially recovering segment of the real estate market, contrasting with broader concerns about the future of office real estate.

Comparison to Industry Standards

• Paramount's portfolio consists of 'Class A office properties in New York City and San Francisco,' which are generally considered prime, high-value assets within the commercial real estate sector, often commanding higher rents and attracting more stable tenants compared to lower-tier properties or less desirable locations.
• Rithm Capital's management expresses 'strong conviction in the recovery of office market fundamentals' in these specific cities, implying an expectation that these premier locations and asset quality will outperform broader industry trends, which have seen challenges due to factors like telecommuting and hybrid work models.
• The acquisition is intended to 'bolster Rithm's asset management business' and leverage its 'owner-operator model,' suggesting a strategy to actively manage and create value from these assets, potentially outperforming passive investment strategies in the current market environment.
• No specific comparable companies, projects, or their results are detailed in the filing to benchmark Paramount's performance or the acquisition terms against industry standards.

Corporate Governance

Legal Proceedings

• The filing identifies a risk of legal proceedings that may be instituted against the parties and others related to the Merger Agreement.
• The filing also notes the risk of stockholder litigation in connection with the proposed Mergers, which could affect timing or occurrence or result in significant costs of defense, indemnification, and liability.

Related Party Transactions

• Agreements, arrangements, or understandings between Paramount Group, Inc. (or its properties/assets) and other persons, other than those exclusively among the Acquired Companies, are in existence and required to be disclosed under Item 404 of Regulation S-K. These are referred to as 'Company Related-Party Agreements.'
• Paramount Group, Inc. will use commercially reasonable efforts to terminate identified Company Related-Party Agreements on or prior to the Closing, effective upon the Closing, if requested in writing by Rithm Capital Corp.

Stakeholder Impact

• Shareholders of Paramount Group, Inc. will receive $6.60 cash per share, providing immediate liquidity and a fixed return, but foregoing future growth potential in the combined entity.
• Certain executives of Paramount Group, Inc. will receive retention bonuses and enhanced severance benefits, providing financial security in connection with the change in control.
• Continuing employees of Paramount Group, Inc. will receive comparable base salary/hourly wage, target short-term incentive opportunities, and aggregate retirement, health, welfare, and fringe benefits for at least 12 months post-closing, with recognition of prior service credit.
• Tenants of Paramount's properties may benefit from improved fundamental operating performance under Rithm Capital's ownership, though no direct impact is specified.
• Investors in Rithm Capital Corp. are expected to see an expansion and diversification of Rithm's commercial real estate and asset management platform, potentially creating new opportunities and driving value.

Next Steps

• Paramount will prepare and file a preliminary proxy statement on Schedule 14A with the SEC.
• Paramount will mail the definitive proxy statement and a proxy card to stockholders entitled to vote at the special meeting.
• Paramount will establish a record date for, duly call, give notice of, convene, and hold a Stockholders Meeting to obtain Stockholder Approval.
• Rithm Capital's management will host an investor conference call on September 17, 2025, at 8:30 A.M. Eastern Time to discuss the transaction.
• The transaction is expected to close in late Q4 2025.
• Paramount and the Surviving Entity will use reasonable best efforts to cause the delisting of Paramount and its common stock from the New York Stock Exchange and deregistration under the Exchange Act after the merger.

Key Dates

Recommendation

For Paramount Group, Inc. shareholders, the definitive agreement to be acquired for $6.60 per share in cash provides a clear exit at a price deemed fair by the company's financial advisor. Given the fixed cash consideration, there is limited upside potential beyond the offer price, making a 'hold' recommendation appropriate for those awaiting the closing to capture the agreed-upon value. For Rithm Capital Corp., this is a strategic acquisition to expand its commercial real estate and asset management platform. While management expresses confidence in the value creation, a comprehensive assessment of Rithm's financial position post-acquisition and its integration strategy would be necessary for a 'buy' or 'sell' recommendation for Rithm's stock based solely on this filing.

Keywords

Real Estate Investment Trust, Merger, Acquisition, Office Properties, New York City, San Francisco, Rithm Capital Corp., Paramount Group, Inc., Commercial Real Estate, Asset Management, Class A Office, Stockholder Approval, Cash Consideration