SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 001-37994
JBG SMITH PROPERTIES
________________________________________________________________________________
(Exact name of Registrant as specified in its charter)
Maryland | ||
81-4307010 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4747 Bethesda AvenueSuite 200 BethesdaMD | 20814 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant's telephone number, including area code: (240) 333-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, par value $0.01 per share | JBGS | |
New York Stock Exchange | ||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act) Yes
As of November 6, 2017,April 29, 2022, JBG SMITH Properties had 117,957,107123,548,107 common shares outstanding.
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2
ITEM 1. Financial Statements
JBG SMITH PROPERTIES Condensed Consolidated and Combined Balance Sheets September 30, 2017 and December 31, 2016 (Unaudited) (In thousands, except par value amounts) | |||||||
| September 30, 2017 | December 31, 2016 | ||||||
| ASSETS | |||||||
| Real estate, at cost: | |||||||
| Land and improvements | $ | 1,272,997 | $ | 939,592 | |||
| Buildings and improvements | 3,662,853 | 3,064,466 | |||||
| Construction in progress, including land | 906,680 | 151,333 | |||||
| 5,842,530 | 4,155,391 | ||||||
| Less accumulated depreciation | (982,454 | ) | (930,769 | ) | |||
| Real estate, net | 4,860,076 | 3,224,622 | |||||
| Cash and cash equivalents | 367,896 | 29,000 | |||||
| Restricted cash | 17,521 | 3,263 | |||||
| Tenant and other receivables, net | 50,474 | 33,380 | |||||
| Deferred rent receivable, net | 145,683 | 136,582 | |||||
| Investments in and advances to unconsolidated real estate ventures | 284,986 | 45,776 | |||||
| Receivable from former parent | — | 75,062 | |||||
| Other assets, net | 288,391 | 112,955 | |||||
| TOTAL ASSETS | $ | 6,015,027 | $ | 3,660,640 | |||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | |||||||
| Liabilities: | |||||||
| Mortgages payable, net | $ | 1,977,674 | $ | 1,165,014 | |||
| Revolving credit facility | 115,751 | — | |||||
| Unsecured term loan, net | 46,389 | — | |||||
| Payable to former parent | — | 283,232 | |||||
| Accounts payable and accrued expenses | 131,627 | 40,923 | |||||
| Other liabilities, net | 100,774 | 49,487 | |||||
| Total liabilities | 2,372,215 | 1,538,656 | |||||
| Commitments and contingencies | |||||||
| Redeemable noncontrolling interests | 567,001 | — | |||||
| Shareholders' equity: | |||||||
| Preferred shares, $0.01 par value - 200,000 shares authorized, none issued | — | — | |||||
| Common shares, $0.01 par value - 500,000 shares authorized and 117,957 shares issued and outstanding at September 30, 2017 | 1,180 | — | |||||
| Additional paid-in capital | 3,099,056 | — | |||||
| Accumulated deficit | (28,827 | ) | — | ||||
| Total shareholders' equity of JBG SMITH Properties | 3,071,409 | — | |||||
| Former parent equity | — | 2,121,689 | |||||
| Noncontrolling interests in consolidated subsidiaries | 4,402 | 295 | |||||
| Total equity | 3,075,811 | 2,121,984 | |||||
| TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | $ | 6,015,027 | $ | 3,660,640 | |||
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value amounts)
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
ASSETS |
| |
|
| |
|
Real estate, at cost: |
| |
|
| |
|
Land and improvements | | $ | 1,212,501 | | $ | 1,378,218 |
Buildings and improvements | |
| 3,968,601 | |
| 4,513,606 |
Construction in progress, including land | |
| 348,523 | |
| 344,652 |
| |
| 5,529,625 | |
| 6,236,476 |
Less: accumulated depreciation | |
| (1,216,402) | |
| (1,368,003) |
Real estate, net | |
| 4,313,223 | |
| 4,868,473 |
Cash and cash equivalents | |
| 189,140 | |
| 264,356 |
Restricted cash | |
| 30,073 | |
| 37,739 |
Tenant and other receivables | |
| 45,702 | |
| 44,496 |
Deferred rent receivable | |
| 151,024 | |
| 192,265 |
Investments in unconsolidated real estate ventures | |
| 461,444 | |
| 462,885 |
Intangible assets, net | | | 162,139 | | | 201,956 |
Other assets, net | |
| 71,385 | |
| 240,160 |
Assets held for sale | |
| 891,750 | |
| 73,876 |
TOTAL ASSETS | | $ | 6,315,880 | | $ | 6,386,206 |
| | | | | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | |
|
| |||
Liabilities: | |
|
| |
|
|
Mortgages payable, net | | $ | 1,613,082 | | $ | 1,777,699 |
Revolving credit facility | |
| 300,000 | |
| 300,000 |
Unsecured term loans, net | |
| 398,332 | |
| 398,664 |
Accounts payable and accrued expenses | |
| 108,436 | |
| 106,136 |
Other liabilities, net | |
| 106,929 | |
| 342,565 |
Liabilities related to assets held for sale | |
| 368,006 | |
| — |
Total liabilities | |
| 2,894,785 | |
| 2,925,064 |
Commitments and contingencies | |
|
| |
|
|
Redeemable noncontrolling interests | |
| 546,049 | |
| 522,725 |
Shareholders' equity: | |
|
| |
|
|
Preferred shares, $0.01 par value - 200,000 shares authorized; NaN issued | |
| 0 | |
| 0 |
Common shares, $0.01 par value - 500,000 shares authorized; 124,248 and 127,378 shares issued and outstanding as of March 31, 2022 and December 31, 2021 | |
| 1,243 | |
| 1,275 |
Additional paid-in capital | |
| 3,444,793 | |
| 3,539,916 |
Accumulated deficit | |
| (609,363) | |
| (609,331) |
Accumulated other comprehensive income (loss) | |
| 9,935 | |
| (15,950) |
Total shareholders' equity of JBG SMITH Properties | ��� |
| 2,846,608 | |
| 2,915,910 |
Noncontrolling interests | |
| 28,438 | |
| 22,507 |
Total equity | |
| 2,875,046 | |
| 2,938,417 |
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | $ | 6,315,880 | | $ | 6,386,206 |
See accompanying notes to the condensed consolidated and combined financial statements.statements (unaudited).
3
JBG SMITH PROPERTIES Condensed Consolidated and Combined Statements of Operations For the three and nine months ended September 30, 2017 and 2016 (Unaudited) (In thousands, except per share data) | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| REVENUE | |||||||||||||||
| Property rentals | $ | 116,458 | $ | 103,265 | $ | 316,899 | $ | 299,497 | |||||||
| Tenant reimbursements | 9,593 | 10,231 | 27,161 | 28,428 | |||||||||||
| Third-party real estate services, including reimbursements | 25,141 | 8,297 | 38,881 | 24,617 | |||||||||||
| Other income | 1,158 | 1,564 | 3,701 | 3,938 | |||||||||||
| Total revenue | 152,350 | 123,357 | 386,642 | 356,480 | |||||||||||
| EXPENSES | |||||||||||||||
| Depreciation and amortization | 43,951 | 31,377 | 109,726 | 98,291 | |||||||||||
| Property operating | 29,634 | 27,287 | 77,341 | 75,087 | |||||||||||
| Real estate taxes | 17,194 | 14,462 | 47,978 | 43,712 | |||||||||||
| General and administrative: | |||||||||||||||
| Corporate and other | 10,593 | 10,913 | 35,536 | 36,040 | |||||||||||
| Third-party real estate services | 21,178 | 4,779 | 30,362 | 14,272 | |||||||||||
| Share-based compensation related to Formation Transaction | 14,445 | — | 14,445 | — | |||||||||||
| Transaction and other costs | 104,095 | 1,528 | 115,173 | 1,528 | |||||||||||
| Total operating expenses | 241,090 | 90,346 | 430,561 | 268,930 | |||||||||||
| OPERATING (LOSS) INCOME | (88,740 | ) | 33,011 | (43,919 | ) | 87,550 | |||||||||
| (Loss) income from unconsolidated real estate ventures | (1,679 | ) | 584 | (1,365 | ) | (952 | ) | ||||||||
| Interest and other (loss) income, net | (379 | ) | 749 | 1,366 | 2,292 | ||||||||||
| Interest expense | (15,309 | ) | (13,028 | ) | (43,813 | ) | (38,662 | ) | |||||||
| Loss on extinguishment of debt | (689 | ) | — | (689 | ) | — | |||||||||
| Gain on bargain purchase | 27,771 | — | 27,771 | — | |||||||||||
| (LOSS) INCOME BEFORE INCOME TAX EXPENSE | (79,025 | ) | 21,316 | (60,649 | ) | 50,228 | |||||||||
| Income tax benefit (expense) | 1,034 | (302 | ) | 317 | (884 | ) | |||||||||
| NET (LOSS) INCOME | (77,991 | ) | 21,014 | (60,332 | ) | 49,344 | |||||||||
| Net loss attributable to redeemable noncontrolling interests | 8,160 | — | 2,481 | — | |||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO JBG SMITH PROPERTIES | $ | (69,831 | ) | $ | 21,014 | $ | (57,851 | ) | $ | 49,344 | |||||
| (LOSS) EARNINGS PER COMMON SHARE: | |||||||||||||||
| Basic | $ | (0.61 | ) | $ | 0.21 | $ | (0.55 | ) | $ | 0.49 | |||||
| Diluted | $ | (0.61 | ) | $ | 0.21 | $ | (0.55 | ) | $ | 0.49 | |||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - basic and diluted | $ | 114,744 | $ | 100,571 | $ | 105,347 | $ | 100,571 | |||||||
JBG SMITH PROPERTIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
REVENUE | | |
|
| |
|
Property rental | | $ | 131,598 | | $ | 122,241 |
Third-party real estate services, including reimbursements | |
| 23,970 | |
| 38,107 |
Other revenue | |
| 6,397 | |
| 4,941 |
Total revenue | |
| 161,965 | |
| 165,289 |
EXPENSES | |
| | |
|
|
Depreciation and amortization | |
| 58,062 | |
| 64,726 |
Property operating | |
| 40,644 | |
| 34,731 |
Real estate taxes | |
| 18,186 | |
| 18,310 |
General and administrative: | |
| | |
|
|
Corporate and other | |
| 15,815 | |
| 12,475 |
Third-party real estate services | |
| 27,049 | |
| 28,936 |
Share-based compensation related to Formation Transaction and special equity awards | |
| 2,244 | |
| 4,945 |
Transaction and other costs | |
| 899 | |
| 3,690 |
Total expenses | |
| 162,899 | |
| 167,813 |
OTHER INCOME (EXPENSE) | |
|
| |
|
|
Income (loss) from unconsolidated real estate ventures, net | |
| 3,145 | |
| (943) |
Interest and other income, net | |
| 14,246 | |
| 9 |
Interest expense | |
| (16,278) | |
| (16,296) |
Loss on the sale of real estate | |
| (136) | |
| — |
Loss on the extinguishment of debt | |
| (591) | |
| — |
Total other income (expense) | |
| 386 | |
| (17,230) |
LOSS BEFORE INCOME TAX (EXPENSE) BENEFIT | |
| (548) | |
| (19,754) |
Income tax (expense) benefit | |
| 471 | |
| (4,315) |
NET LOSS | |
| (77) | |
| (24,069) |
Net (income) loss attributable to redeemable noncontrolling interests | |
| (10) | |
| 2,230 |
Net loss attributable to noncontrolling interests | |
| 55 | |
| 1,108 |
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | | $ | (32) | | $ | (20,731) |
LOSS PER COMMON SHARE - BASIC AND DILUTED | | $ | — | | $ | (0.16) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | |
| 126,682 | |
| 131,540 |
See accompanying notes to the condensed consolidated and combined financial statements.statements (unaudited).
4
JBG SMITH PROPERTIES
(Unaudited)
(In thousands)
| Common Shares | Additional Paid-In Capital | Accumulated Deficit | Former Parent Equity | Noncontrolling Interests in Consolidated Subsidiaries | Total Equity | |||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2017 | $ | 2,121,689 | $ | 295 | $ | 2,121,984 | ||||||||||||||||||||
| Net income (loss) attributable to JBG SMITH Properties | — | $ | — | $ | — | $ | (28,827 | ) | (29,024 | ) | (1) | — | (57,851 | ) | ||||||||||||
| Deferred compensation shares and options, net | — | — | — | — | 1,526 | — | 1,526 | |||||||||||||||||||
| Contributions from former parent, net | — | — | — | — | 334,843 | — | 334,843 | |||||||||||||||||||
Issuance of common limited partnership units at the Separation | — | — | — | — | (96,632 | ) | — | (96,632 | ) | |||||||||||||||||
| Issuance of common shares at the Separation | 94,736 | 947 | 2,331,455 | — | (2,332,402 | ) | — | — | ||||||||||||||||||
Issuance of common shares in connection with the Combination | 23,221 | 233 | 864,685 | — | — | — | 864,918 | |||||||||||||||||||
Noncontrolling interests acquired in connection with the Combination | — | — | — | — | — | 3,987 | 3,987 | |||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (14 | ) | (14 | ) | |||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | 134 | 134 | |||||||||||||||||||
Adjustment to record redeemable noncontrolling interest at redemption value | — | — | (97,084 | ) | — | — | — | (97,084 | ) | |||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2017 | 117,957 | $ | 1,180 | $ | 3,099,056 | $ | (28,827 | ) | $ | — | $ | 4,402 | $ | 3,075,811 | ||||||||||||
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
NET LOSS | | $ | (77) | | $ | (24,069) |
OTHER COMPREHENSIVE INCOME (LOSS): | |
|
| |
|
|
Change in fair value of derivative financial instruments | |
| 25,095 | |
| 6,411 |
Reclassification of net loss on derivative financial instruments from accumulated other comprehensive income (loss) into interest expense | |
| 3,756 | |
| 3,741 |
Other comprehensive income | |
| 28,851 | |
| 10,152 |
COMPREHENSIVE INCOME (LOSS) | |
| 28,774 | |
| (13,917) |
Net (income) loss attributable to redeemable noncontrolling interests | |
| (10) | |
| 2,230 |
Net loss attributable to noncontrolling interests | | | 55 | | | 1,108 |
Other comprehensive income attributable to redeemable noncontrolling interests | |
| (2,966) | |
| (973) |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JBG SMITH PROPERTIES | | $ | 25,853 | | $ | (11,552) |
See accompanying notes to the condensed consolidated and combined financial statements.statements (unaudited).
5
JBG SMITH PROPERTIES Condensed Consolidated and Combined Statements of Cash Flows For the nine months ended September 30, 2017 and 2016 (Unaudited) (In thousands) | |||||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| OPERATING ACTIVITIES: | |||||||
| Net (loss) income | $ | (60,332 | ) | $ | 49,344 | ||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||
| Share-based compensation expense | 17,164 | 3,486 | |||||
| Depreciation and amortization, including amortization of debt issuance costs | 111,684 | 99,612 | |||||
| Deferred rent | (9,249 | ) | (10,772 | ) | |||
| Loss from unconsolidated real estate ventures | 1,365 | 952 | |||||
| Amortization of above- and below-market lease intangibles, net | (872 | ) | (1,012 | ) | |||
| Return on capital from unconsolidated real estate ventures | 1,149 | 1,020 | |||||
| Gain on bargain purchase | (27,771 | ) | — | ||||
| Loss on extinguishment of debt | 689 | — | |||||
| Unrealized gain on interest rate swaps | (467 | ) | — | ||||
| Bad debt expense | 1,808 | 618 | |||||
| Other non-cash items | 6,466 | 3,592 | |||||
| Changes in operating assets and liabilities: | |||||||
| Tenant and other receivables | (3,617 | ) | (2,177 | ) | |||
| Other assets, net | (32,884 | ) | (19,762 | ) | |||
| Accounts payable and accrued expenses | 19,077 | (4,091 | ) | ||||
| Other liabilities, net | (817 | ) | (19,427 | ) | |||
| Net cash provided by operating activities | 23,393 | 101,383 | |||||
| INVESTING ACTIVITIES: | |||||||
| Development costs, construction in progress and real estate additions | (115,922 | ) | (185,439 | ) | |||
| Cash received in connection with the Combination | 83,942 | — | |||||
| Restricted cash | (798 | ) | 3,234 | ||||
| Investments in and advances to unconsolidated real estate ventures | (1,441 | ) | (19,965 | ) | |||
| Repayment of notes receivable | 50,934 | — | |||||
| Other investments | (3,531 | ) | (1,935 | ) | |||
| Proceeds from repayment of receivable from former parent | 75,000 | — | |||||
| Net cash provided by (used in) investing activities | 88,184 | (204,105 | ) | ||||
| FINANCING ACTIVITIES: | |||||||
| Contributions from former parent, net | 160,203 | 32,955 | |||||
| Repayment of borrowings from former parent | (115,630 | ) | — | ||||
| Capital lease payments | (17,776 | ) | — | ||||
| Proceeds from borrowings from former parent | 4,000 | 39,000 | |||||
| Proceeds from borrowings | 407,769 | — | |||||
| Repayments of borrowings | (192,681 | ) | (8,871 | ) | |||
| Debt issuance costs | (18,686 | ) | (37 | ) | |||
| Contributions from noncontrolling interests | 134 | — | |||||
| Distributions to noncontrolling interests | (14 | ) | (7 | ) | |||
| Net cash provided by financing activities | 227,319 | 63,040 | |||||
| Net increase (decrease) in cash and cash equivalents | 338,896 | (39,682 | ) | ||||
| Cash and cash equivalents at beginning of the period | 29,000 | 74,966 | |||||
| Cash and cash equivalents at end of the period | $ | 367,896 | $ | 35,284 | |||
JBG SMITH PROPERTIES Condensed Consolidated and Combined Statements of Cash Flows For the nine months ended September 30, 2017 and 2016 (Unaudited) (In thousands) | |||||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION: (1) | |||||||
| Transfer of mortgage payable to former parent | $ | — | $ | 115,022 | |||
Cash paid for interest (net of capitalized interest of $2,285 and $3,690 in 2017 and 2016, respectively) | 45,354 | 37,540 | |||||
| Accrued capital expenditures included in accounts payable and accrued expenses | 17,633 | 15,206 | |||||
| Write-off of fully depreciated assets | (24,909 | ) | (87,220 | ) | |||
| Cash payments for income taxes | 3,681 | 1,087 | |||||
| Non-cash transactions related to the Formation Transaction: | |||||||
| Issuance of common limited partnership units at the Separation | 96,632 | — | |||||
| Issuance of common shares at the Separation | 2,332,402 | — | |||||
| Issuance of common shares in connection with the Combination | 864,918 | — | |||||
| Issuance of common limited partnership units in connection with the Combination | 359,967 | — | |||||
| Adjustment to record redeemable noncontrolling interest at redemption value | 97,084 | — | |||||
| Contribution from former parent in connection with the Separation | 174,639 | — | |||||
JBG SMITH PROPERTIES
Condensed Consolidated Statements of Equity
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | | | | | | Other | | | | | | ||
| | | | | | | Additional | | | | | Comprehensive | | | | | | |||
| | Common Shares | | Paid-In | | Accumulated |
| Income | | Noncontrolling | | Total | ||||||||
| | Shares | | Amount | | Capital | | Deficit |
| (Loss) | | Interests | | Equity | ||||||
BALANCE AS OF DECEMBER 31, 2021 |
| 127,378 | | $ | 1,275 | | $ | 3,539,916 | | $ | (609,331) | | $ | (15,950) | | $ | 22,507 | | $ | 2,938,417 |
Net loss attributable to common shareholders and noncontrolling interests |
| — | |
| — | |
| — | |
| (32) | |
| — | |
| (55) | |
| (87) |
Conversion of common limited partnership units ("OP Units") to common shares |
| 208 | |
| 2 | |
| 6,012 | |
| — | |
| — | |
| — | |
| 6,014 |
Common shares repurchased | | (3,341) | | | (34) | | | (93,114) | | | — | | | — | | | — | | | (93,148) |
Common shares issued pursuant to employee incentive compensation plan and Employee Share Purchase Plan ("ESPP") | | 3 | | | — | | | 286 | | | — | | | — | | | — | | | 286 |
Contributions from noncontrolling interests, net |
| — | |
| — | |
| — | |
| — | |
| — | |
| 5,986 | |
| 5,986 |
Redeemable noncontrolling interests redemption value adjustment and other comprehensive income allocation |
| — | |
| — | |
| (8,307) | |
| — | |
| (2,966) | |
| — | |
| (11,273) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 28,851 | |
| — | |
| 28,851 |
BALANCE AS OF MARCH 31, 2022 |
| 124,248 | | $ | 1,243 | | $ | 3,444,793 | | $ | (609,363) | | $ | 9,935 | | $ | 28,438 | | $ | 2,875,046 |
| | | | | | | | | | | | | | | | | | | | |
BALANCE AS OF DECEMBER 31, 2020 |
| 131,778 | | $ | 1,319 | | $ | 3,657,643 | | $ | (412,944) | | $ | (39,979) | | $ | 167 | | $ | 3,206,206 |
Net loss attributable to common shareholders and noncontrolling interests |
| — | |
| — | |
| — | |
| (20,731) | |
| — | |
| (1,108) | |
| (21,839) |
Conversion of OP Units to common shares |
| 119 | |
| 1 | |
| 3,918 | |
| — | |
| — | |
| — | |
| 3,919 |
Common shares repurchased | | (620) | | | (6) | | | (19,197) | | | — | | | — | | | — | | | (19,203) |
Common shares issued pursuant to employee incentive compensation plan and ESPP | | — | | | — | | | 249 | | | — | | | — | | | — | | | 249 |
Contributions from noncontrolling interests, net |
| — | |
| — | |
| — | |
| — | |
| — | |
| 9,671 | |
| 9,671 |
Redeemable noncontrolling interests redemption value adjustment and other comprehensive income allocation |
| — | |
| — | |
| (11,336) | |
| — | |
| (973) | |
| — | |
| (12,309) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 10,152 | |
| — | |
| 10,152 |
BALANCE AS OF MARCH 31, 2021 |
| 131,277 | | $ | 1,314 | | $ | 3,631,277 | | $ | (433,675) | | $ | (30,800) | | $ | 8,730 | | $ | 3,176,846 |
See accompanying notes to the condensed consolidated and combined financial statements.statements (unaudited).
6
JBG SMITH PROPERTIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
OPERATING ACTIVITIES: |
| |
|
| |
|
Net loss | | $ | (77) | | $ | (24,069) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
|
| |
|
|
Share-based compensation expense | |
| 12,904 | |
| 13,236 |
Depreciation and amortization, including amortization of deferred financing costs | |
| 59,162 | |
| 65,747 |
Deferred rent | |
| (3,706) | |
| (6,594) |
(Income) loss from unconsolidated real estate ventures, net | |
| (3,145) | |
| 943 |
Amortization of market lease intangibles, net | |
| (353) | |
| (458) |
Amortization of lease incentives | |
| 2,374 | |
| 2,345 |
Loss on the sale of real estate | |
| 136 | |
| — |
Loss on operating lease and other receivables | |
| 587 | |
| 501 |
Income from investments, net | | | (14,071) | | | — |
Return on capital from unconsolidated real estate ventures | |
| 2,879 | |
| 5,952 |
Other non-cash items | |
| (3,105) | |
| (633) |
Changes in operating assets and liabilities: | |
|
| |
|
|
Tenant and other receivables | |
| (1,793) | |
| 9,836 |
Other assets, net | |
| (1,367) | |
| 2,115 |
Accounts payable and accrued expenses | |
| (4,575) | |
| (842) |
Other liabilities, net | |
| 23,748 | |
| (1,577) |
Net cash provided by operating activities | |
| 69,598 | |
| 66,502 |
INVESTING ACTIVITIES: | |
|
| |
|
|
Development costs, construction in progress and real estate additions | |
| (52,686) | |
| (28,499) |
Proceeds from the sale of real estate | |
| 3,149 | |
| — |
Proceeds from the sale of investments | | | 17,796 | | | — |
Distributions of capital from unconsolidated real estate ventures | |
| 6,020 | |
| — |
Investments in unconsolidated real estate ventures and other investments | |
| (7,230) | |
| (1,016) |
Net cash used in investing activities | |
| (32,951) | |
| (29,515) |
FINANCING ACTIVITIES: | |
|
| |
|
|
Repayments of mortgages payable | |
| (1,178) | |
| (2,234) |
Debt issuance costs | |
| (531) | |
| (4,587) |
Common shares repurchased | | | (91,148) | | | (19,203) |
Dividends paid to common shareholders | |
| (28,665) | |
| (29,650) |
Distributions to redeemable noncontrolling interests | |
| (4,005) | |
| (5,785) |
Contributions from noncontrolling interests | | | 5,998 | | | 9,683 |
Net cash used in financing activities | |
| (119,529) | |
| (51,776) |
Net decrease in cash and cash equivalents, and restricted cash | |
| (82,882) | |
| (14,789) |
Cash and cash equivalents, and restricted cash, beginning of period | |
| 302,095 | |
| 263,336 |
Cash and cash equivalents, and restricted cash, end of period | | $ | 219,213 | | $ | 248,547 |
See accompanying notes to the condensed consolidated financial statements (unaudited).
7
JBG SMITH PROPERTIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD: | |
|
| |||
Cash and cash equivalents | | $ | 189,140 | | $ | 208,708 |
Restricted cash | |
| 30,073 | |
| 39,839 |
Cash and cash equivalents, and restricted cash | | $ | 219,213 | | $ | 248,547 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION: | |
|
| |||
Cash paid for interest (net of capitalized interest of $1,771 and $1,710 in 2022 and 2021) | | $ | 18,219 | | $ | 14,929 |
Accrued capital expenditures included in accounts payable and accrued expenses | |
| 60,044 | |
| 38,668 |
Write-off of fully depreciated assets | |
| 8,341 | |
| 39,920 |
Conversion of OP Units to common shares | |
| 6,014 | |
| 3,919 |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | |
| 546 | |
| 610 |
See accompanying notes to the condensed consolidated financial statements (unaudited).
8
(Unaudited)
1.Organization and Basis of Presentation
Organization
JBG SMITH Properties ("JBG SMITH") was organized by Vornado Realty Trust ("Vornado" or "former parent") as, a Maryland real estate investment trust ("REIT") on October 27, 2016 (capitalized on November 22, 2016)., owns and operates a portfolio of commercial and multifamily assets amenitized with ancillary retail. JBG SMITH's portfolio reflects its longstanding strategy of owning and operating assets within Metro-served submarkets in the Washington, D.C. metropolitan area with high barriers to entry and vibrant urban amenities. Over half of our portfolio is in National Landing in Northern Virginia, where we serve as the developer for Amazon.com, Inc.'s ("Amazon") new over 5 million square foot headquarters and where Virginia Tech's $1 billion Innovation Campus is under construction. In addition, our third-party asset management and real estate services business provides fee-based real estate services to Amazon, the Washington Housing Initiative ("WHI") Impact Pool, the legacy funds formerly organized by The JBG Companies ("JBG") (the "JBG Legacy Funds") and other third parties. Substantially all our assets are held by, and our operations are conducted through, JBG SMITH was formedProperties LP ("JBG SMITH LP"), our operating partnership. As of March 31, 2022, JBG SMITH, as its sole general partner, controlled JBG SMITH LP and owned 89.0% of its OP Units, after giving effect to the conversion of certain vested long-term incentive partnership units ("LTIP Units") that are convertible into OP Units. JBG SMITH is referred to herein as "we," "us," "our" or other similar terms. References to "our share" refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures.
We were organized for the purpose of receiving, via the spin-off on July 17, 2017 (the "Separation"), substantially all of the assets and liabilities of Vornado’sVornado Realty Trust's ("Vornado") Washington, DC segment, which operated as Vornado / Charles E. Smith, (the "Vornado Included Assets").D.C. segment. On July 18, 2017, JBG SMITHwe acquired the management business, and certain assets and liabilities (the "JBG Assets") of The JBG Companies (the "Combination"). The Separation and the Combination are collectively referred to as the "Formation Transaction." Unless the context otherwise requires, all references to "we," "us," and "our," refer to the Vornado Included Assets, our predecessor and accounting acquirer, for periods prior to the Separation and to JBG SMITH for periods from and after the Separation and Combination.
As of the completionMarch 31, 2022, our Operating Portfolio consisted of the Formation Transaction there were 118.0 million JBG SMITH common shares outstanding and 19.8 million JBG SMITH LP OP Units outstanding that were owned by parties other than JBG SMITH. As of July 18, 2017 and September 30, 2017, we, as its sole general partner controlled JBG SMITH LP and owned 85.6% of its OP Units.
We derive our revenue primarily from leases with officecommercial and multifamily tenants, includingwhich include fixed and percentage rents, and reimbursements from tenants for certain expenses such as real estate taxes, property operating expenses and repairs and maintenance. In addition, to our portfolio, we have a third-party asset management and real estate services business that provides fee-based real estate services to our real estate ventures, legacy funds formerly organized by JBG ("JBG Legacy Funds") and other third parties.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
| U.S. federal government | $ | 22,492 | $ | 27,594 | $ | 68,869 | $ | 74,939 | |||||||
| Percentage of office segment revenue | 22.6 | % | 30.5 | % | 25.3 | % | 28.5 | % | |||||||
| Percentage of total rental revenue | 17.8 | % | 24.3 | % | 20.0 | % | 22.9 | % | |||||||
Basis of Presentation
The accompanying unaudited condensed consolidated and combined financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited condensed consolidated and combined financial statements do not contain certain information required in annual financial statements and notes as required under GAAP. In our opinion, all adjustments considered necessary for a fair presentation have been included, and all such adjustments are of a normal recurring nature. All intercompany transactions and balances have been eliminated. The results of operations for the three and nine months ended September 30, 2017March 31, 2022 and 20162021 are not necessarily indicative of the results that may be expected for a full year. These condensed consolidated and combined financial statements should be read in conjunction with our Registration StatementAnnual Report on Form 10, as amended,10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the "SEC") and declared effective on June 26, 2017 as well as the final Information Statement filed with the SEC as Exhibit 99.1 to our Current Report on Form 8-K filed on June 27, 2017.February 22, 2022 ("Annual Report").
9
The accompanying condensed consolidated and combined financial statements include theour accounts and those of our wholly owned subsidiaries and consolidated variable interest entities ("VIEs"), including JBG SMITH and our wholly-owned subsidiaries and those other entities in which we have a controlling financial interest, including where we have been determined to be a primary beneficiary of a variable interest entity ("VIE").LP. See Note 65 for moreadditional information on our consolidated VIEs. The portions of the equity and net income (loss) income of consolidated subsidiariesentities that are not attributable to JBG SMITHus are presented separately as amounts attributable to noncontrolling interests in theour condensed consolidated and combined financial statements.
References to theour financial statements refer to our condensed consolidated and combined financial statements as of September 30, 2017March 31, 2022 and December 31, 2016,2021, and for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. References to theour balance sheets refer to our condensed consolidated and combined balance sheets as of September 30, 2017March 31, 2022 and December 31, 2016.2021. References to the statementour statements of operations refer to our condensed consolidated and combined statements of operations for the three
Income Taxes
We have elected to be applicable to the Vornado Included Assets based on an analysis of key metrics, including total revenues. Such costs do not necessarily reflect what the actual costs would have been if JBG SMITH had been operatingtaxed as a separate standalone public company. These charges are discussed further in Note 17.
Reclassification
Intangible assets, net, totaling $202.0 million were reclassified from "Other assets, net" to the completion of the Separation represents such recast amounts.
2.Summary of Significant Accounting Policies
Significant Accounting Policies
There were no material changes to our significant accounting policies disclosed in our Annual Report.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires managementus to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities atas of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB")issued Accounting Standards CodificationUpdate 2020-04, Reference Rate Reform ("ASC"Topic 848"),. Topic 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in Topic 848 is optional and may be elected over the period of March 12, 2020 through December 31, 2022 as reference rate reform activities occur. During the three months ended March 31, 2022, we make a determination aselected to apply the hedge accounting expedient that allows us to continue to assess whether the underlying hedged forecasted transaction remains probable without regard to the point in timereplacement of the contractually specified rate. We have
10
elected to apply the hedge accounting expedients related to (i) the assertion that it isour hedged forecasted transactions remain probable and (ii) the assessments of effectiveness for future London Interbank Offered Rate ("LIBOR") indexed cash flows to assume that a salethe index upon which future hedged transactions will be consummated. Givenbased matches the natureindex on the corresponding derivatives. Application of all real estate sales contracts, it is not unusual for such contracts to allow potential buyers a periodthese expedients preserves our past presentation of timeour derivatives. We will continue to evaluate the property prior to formal acceptanceimpact of the contract. In addition, certainguidance and may apply other matters critical toelections, as applicable.
3.Dispositions and Assets Held for Sale
Dispositions
The following is a summary of the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result,disposition activity for the three months ended March 31, 2022:
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Loss on | |
| | | | | | | | Gross | | Cash | | the Sale | |||
| | | | | | | | Sales | | Proceeds | | of Real | |||
Date Disposed |
| Assets |
| Segment |
| Location |
| Price |
| from Sale |
| Estate | |||
| | | | | | | | | | | | | | | |
March 28, 2022 | | Development Parcel | | Other | | Arlington, Virginia | | $ | 3,250 | | $ | 3,149 | | $ | (136) |
During the three months ended March 31, 2022, one of our unconsolidated real estate under contract may not close withinventures disposed of several assets. See Note 4 for additional information.
On April 1, 2022, we sold the expected time period or may not close at all. Therefore, any real estate categorizedUniversal Buildings, commercial assets located in Washington D.C., for a gross sales price of $228.0 million, which were classified as held for sale represents only those properties that management has determined are probable to close within the requirements set forth in the Property, Plant and Equipment Topic of the FASB ASC.
On April 13, 2022, we formed an unconsolidated real estate taxes, property insuranceventure with affiliates of Fortress Investment Group LLC ("Fortress") to recapitalize a 1.6 million square foot office portfolio and capital improvements.
Assets Held for Sale
The following is a summary of the accounting method used to accountassets held for sale:
| | | | | | | | | | | | |
| | | | | | | | | | | Liabilities Related | |
| | | | | | Total | | Assets Held | | to Assets Held | ||
Assets |
| Segment |
| Location |
| Square Feet |
| for Sale (1) |
| for Sale (2) | ||
| | | | | | (In thousands) | ||||||
March 31, 2022 | | | | | | | | | | | | |
Pen Place (3) | | Other | | Arlington, Virginia | | 2,082 | | $ | 73,876 | | $ | 298 |
Universal Buildings (4) | | Commercial | | Washington, D.C. | | 659 | | | 168,599 | | | 15,854 |
7200 Wisconsin Avenue (4) | | Commercial | | Bethesda, Maryland | | 271 | | | 113,471 | | | 1,471 |
1730 M Street (4) | | Commercial | | Washington, D.C. | | 205 | | | 77,284 | | | 89,515 |
RTC-West (4) (5) | | Commercial / Other | | Reston, Virginia | | 1,835 | | | 191,774 | | | 121,206 |
Courthouse Plaza 1 and 2 (4) | | Commercial | | Arlington, Virginia | | 633 | | | 266,746 | | | 139,662 |
| | | | | | 5,685 | | $ | 891,750 | | $ | 368,006 |
December 31, 2021 | | | | | | | | | | | | |
Pen Place (3) | | Other | | Arlington, Virginia | | 2,082 | | $ | 73,876 | | $ | — |
11
| (1) | Includes $180.5 million of finance lease right-of-use assets related to ground leases at 1730 M Street and Courthouse Plaza 1 and 2. The remaining assets primarily represent the carrying value of real estate. |
| (2) | Includes $164.8 million of mortgages payable related to 1730 M Street and RTC-West, which were repaid in April 2022, and $163.5 million of liabilities related to finance lease right-of-use assets related to 1730 M Street and Courthouse Plaza 1 and 2. |
| (3) | Under contract for sale to Amazon for $198.0 million, which we expect to close during the second quarter of 2022. Total square feet represent estimated or approved potential development density. |
| (4) | These assets were disposed of or recapitalized in April 2022. |
| (5) | Total square feet include 1.4 million square feet of estimated potential development density. |
4.Investments in Unconsolidated Real Estate Ventures
The following is a summary of our investments in unconsolidated real estate ventures:
| | | | | | | | |
| | Effective | | | ||||
| | Ownership | | | ||||
Real Estate Venture Partners |
| Interest (1) |
| March 31, 2022 |
| December 31, 2021 | ||
| | | | (In thousands) | ||||
Prudential Global Investment Management |
| 50.0% | | $ | 207,221 | | $ | 208,421 |
Landmark Partners ("Landmark") |
| 1.8% - 49.0% | |
| 26,369 | |
| 28,298 |
CBREI Venture |
| 5.0% - 64.0% | |
| 57,051 | |
| 57,812 |
Canadian Pension Plan Investment Board ("CPPIB") |
| 55.0% | |
| 48,179 | |
| 48,498 |
J.P. Morgan Global Alternatives ("J.P. Morgan") (2) | | 50.0% | | | 56,220 | | | 52,769 |
Berkshire Group |
| 50.0% | |
| 52,030 | | | 52,770 |
Brandywine Realty Trust |
| 30.0% | |
| 13,756 | |
| 13,693 |
Other |
| | |
| 618 | | | 624 |
Total investments in unconsolidated real estate ventures (3) | | | | $ | 461,444 | | $ | 462,885 |
| (1) | Reflects our effective ownership interests in the underlying real estate as of March 31, 2022. We have multiple investments with certain venture partners with varying ownership interests in the underlying real estate. |
| (2) | J.P. Morgan is the advisor for an institutional investor. |
| (3) | As of March 31, 2022 and December 31, 2021, our total investments in unconsolidated real estate ventures were greater than our share of the net book value of the underlying assets by $17.6 million and $18.6 million, resulting principally from capitalized interest and our 0 investment balance in the real estate venture with CPPIB that owns 1101 17th Street. |
We provide leasing, property management and other real estate services to our unconsolidated real estate ventures. We recognized revenue, including expense reimbursements, of $5.5 million and $5.9 million for the three months ended March 31, 2022 and 2021, for such services.
We evaluate reconsideration events as we become aware of them. Reconsideration events include amendments to real estate venture agreements or changes in our partner's ability to make contributions to the venture. Under certain circumstances, we may purchase our partner's interest. A reconsideration event could cause us to consolidate an unconsolidated real estate venture in the future or deconsolidate a consolidated entity.
The following is generally determineda summary of disposition activity by our unconsolidated real estate ventures for the three months ended March 31, 2022:
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Mortgages | | Proportionate | ||
| | Real Estate | | | | | | Gross | | Payable | | Share of | |||
| | Venture | | | | Ownership | | Sales | | Repaid by | | Aggregate | |||
Date Disposed |
| Partner | | Assets | | Percentage |
| Price | | Venture | | Gain (1) | |||
| | | | | | | | (In thousands) | |||||||
January 27, 2022 |
| Landmark | | The Alaire, The Terano and | | 1.8% - 18.0% |
| $ | 137,500 | | $ | 79,829 | | $ | 5,243 |
| (1) | Included in "Income (loss) from unconsolidated real estate ventures, net" in our statement of operations. |
12
The following is a summary of the debt of our unconsolidated real estate ventures:
| | | | | | | | |
| | Weighted | | | | | | |
| | Average Effective | | | ||||
|
| Interest Rate (1) |
| March 31, 2022 |
| December 31, 2021 | ||
| | | | (In thousands) | ||||
Variable rate (2) |
| 2.97% | | $ | 740,782 | | $ | 785,369 |
Fixed rate (3) |
| 4.16% | |
| 275,403 | |
| 309,813 |
Mortgages payable | | | |
| 1,016,185 | |
| 1,095,182 |
Unamortized deferred financing costs | | | |
| (4,431) | |
| (5,239) |
Mortgages payable, net (4) | | | | $ | 1,011,754 | | $ | 1,089,943 |
| (1) | Weighted average effective interest rate as of March 31, 2022. |
| (2) | Includes variable rate mortgages payable with interest rate cap agreements. |
| (3) | Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements. |
| (4) | See Note 17 for additional information on guarantees of the debt of certain of our unconsolidated real estate ventures. |
The following is a summary of financial information for our unconsolidated real estate ventures:
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
|
| (In thousands) | ||||
Combined balance sheet information: | | | | | | |
Real estate, net | | $ | 2,019,377 | | $ | 2,116,290 |
Other assets, net | |
| 246,848 | |
| 264,397 |
Total assets | | $ | 2,266,225 | | $ | 2,380,687 |
| | | | | | |
Mortgages payable, net | | $ | 1,011,754 | | $ | 1,089,943 |
Other liabilities, net | |
| 93,685 | |
| 118,752 |
Total liabilities | |
| 1,105,439 | |
| 1,208,695 |
Total equity | |
| 1,160,786 | |
| 1,171,992 |
Total liabilities and equity | | $ | 2,266,225 | | $ | 2,380,687 |
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
|
| (In thousands) | ||||
Combined income statement information: | | | | | | |
Total revenue | | $ | 42,874 | | $ | 48,217 |
Operating income (1) | |
| 48,426 | |
| 1,714 |
Net income (loss) (1) | |
| 39,283 | |
| (6,526) |
| (1) | Includes the gain from the sale of The Alaire, The Terano and 12511 Parklawn Drive totaling $45.1 million during the three months ended March 31, 2022. |
5.Variable Interest Entities
We hold various interests in entities deemed to be VIEs, which we evaluate at acquisition, formation, after a change in the ownership agreement, after a change in the entity's economics or after any other reconsideration event to determine if the VIE should be consolidated in our financial statements or should no longer be considered a VIE. An entity is a VIE because it is in the development stage and/or does not hold sufficient equity at risk, or conducts substantially all its operations on behalf of an investor with disproportionately few voting interests and the degree of influence we have over the entity. Management uses its judgment when determiningrights. We will consolidate a VIE if we are the primary beneficiary of or have a controlling financial interest in, an entity inthe VIE, which we have a variable interest. Factors considered in determining whether we haveentails having the power to direct the activities that most significantly impact the entity’sVIE’s economic performance include risk and reward sharing, experience and financial conditionperformance. Certain criteria we assess in determining whether we are the primary beneficiary of the other partners,VIE include our
13
influence over significant business activities, our voting rights involvementand any noncontrolling interest kick-out or participating rights.
Unconsolidated VIEs
As of March 31, 2022 and December 31, 2021, we had interests in entities deemed to be VIEs. Although we are engaged to act as the managing partner in charge of day-to-day capitaloperations of these entities, we are not the primary beneficiary of these VIEs, as we do not hold unilateral power over activities that, when taken together, most significantly impact the respective VIE's economic performance. We account for our investment in these entities under the equity method. As of March 31, 2022 and operating decisions andDecember 31, 2021, the extentnet carrying amounts of our involvementinvestment in the entity.
Consolidated VIEs
JBG SMITH LP is our most significant consolidated VIE. We hold 89.0% of related expensesthe limited partnership interest in JBG SMITH LP, act as the general partner and exercise full responsibility, discretion and control over its day-to-day management. The noncontrolling interests of JBG SMITH LP do not have substantive liquidation rights, substantive kick-out rights without cause or substantive participating rights that could be exercised by a simple majority of noncontrolling interest limited partners (including by such a limited partner unilaterally). Because the noncontrolling interest holders do not have these rights, JBG SMITH LP is recognized in "(Loss) incomea VIE. As general partner, we have the power to direct the activities of unconsolidated real estate ventures"JBG SMITH LP that most significantly affect its economic performance, and through our majority interest, we have both the right to receive benefits from and the obligation to absorb losses of JBG SMITH LP. Accordingly, we are the primary beneficiary of JBG SMITH LP and consolidate it in our statementsfinancial statements. Because we conduct our business and hold our assets and liabilities through JBG SMITH LP, its total assets and liabilities comprise substantially all of operations. We may also earn incremental promote distributions if certain financial return benchmarks are achieved upon ultimate dispositionour consolidated assets and liabilities.
As of March 31, 2022 and December 31, 2021, excluding the operating partnership, we consolidated 3 VIEs with total assets of $300.2 million and $269.7 million, and liabilities of $21.8 million and $13.9 million. The assets of the underlying properties. Management fees are recognized when earned, and promote fees are recognized when certain earnings events have occurred,VIEs can only be used to settle the obligations of the VIEs, and the amountliabilities include third-party liabilities of the VIEs for which the creditors or beneficial interest holders do not have recourse against us.
6.Other Assets, Net
The following is determinablea summary of other assets, net:
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
| | (In thousands) | ||||
Prepaid expenses | | $ | 16,564 | | $ | 17,104 |
Derivative agreements, at fair value | | | 15,478 | | | 951 |
Deferred financing costs, net | |
| 10,671 | |
| 11,436 |
Deposits | |
| 1,845 | |
| 1,938 |
Operating lease right-of-use assets | | | 1,591 | | | 1,660 |
Finance lease right-of-use assets (1) | | | — | | | 180,956 |
Other (2) (3) | |
| 25,236 | |
| 26,115 |
Total other assets, net | | $ | 71,385 | | $ | 240,160 |
| (1) | Represents finance ground leases at 1730 M Street and Courthouse Plaza 1 and 2, which were classified as "Assets held for sale" in our balance sheet as of March 31, 2022. |
| (2) | As of March 31, 2022 and December 31, 2021, included $11.9 million and $9.8 million of investments in funds, which invest in real estate focused technology companies, that are recorded at their fair value based on their reported net asset value. During the first quarter of 2022, we recorded unrealized gains totaling $156,000 related to these investments, which are included in "Interest and other income, net" in our statement of operations. |
14
| (3) | As of March 31, 2022 and December 31, 2021, included $8.3 million and $11.3 million of equity investments that are carried at cost. During the first quarter of 2022, we recorded a realized gain of $13.9 million related to these investments, which is included in "Interest and other income, net" in our statement of operations. |
7.Debt
Mortgages Payable
The following is a summary of mortgages payable:
| | | | | | | | |
| | Weighted Average | | | | | | |
| | Effective | | | | | | |
|
| Interest Rate (1) |
| March 31, 2022 |
| December 31, 2021 | ||
| | | | (In thousands) | ||||
Variable rate (2) |
| 2.38% | | $ | 749,946 | | $ | 867,246 |
Fixed rate (3) |
| 4.35% | |
| 872,335 | |
| 921,013 |
Mortgages payable | | | |
| 1,622,281 | |
| 1,788,259 |
Unamortized deferred financing costs and premium / discount, net (4) | | | |
| (9,199) | |
| (10,560) |
Mortgages payable, net | | | | | 1,613,082 | | | 1,777,699 |
Mortgages payable, net, related to assets held for sale | | 2.45% | | | 163,897 | | | — |
Mortgages payable, net, including mortgages payable related to assets held for sale | | | | $ | 1,776,979 | | $ | 1,777,699 |
| (1) | Weighted average effective interest rate as of March 31, 2022. |
| (2) | Includes variable rate mortgages payable with interest rate cap agreements. |
| (3) | Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements. |
| (4) | As of March 31, 2022 and December 31, 2021, excludes $6.1 million and $6.4 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net." |
As of March 31, 2022 and collectible. Any promote fees are reflected in "(Loss) income from unconsolidated real estate ventures" in our statements of operations.
As of March 31, 2022 and December 31, 2021, we had various interest rate swap and cap agreements on certain mortgages payable with an aggregate notional value of $1.3 billion. See Note 15 for additional information.
15
Credit Facility
Our $1.4 billion credit facility consists of a $1.0 billion revolving credit facility maturing in January 2025, a $200.0 million unsecured term loan ("Tranche A-1 Term Loan") maturing in January 2025 and a $200.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024. Effective as of January 14, 2022, the investmentTranche A-1 Term Loan was amended to extend the maturity date to January 2025 with 2 one-year extension options, and to amend the interest rate to Secured Overnight Financing Rate ("SOFR") plus 1.15% to SOFR plus 1.75%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets. In connection with the loan amendment, we amended the related interest rate swaps, extending the maturity to July 2024 and converting the hedged rate from one-month LIBOR to one-month SOFR. The following is a summary of amounts outstanding under the credit facility:
| | | | | | | | | |
| | Effective | | | | ||||
|
| Interest Rate (1) |
| | March 31, 2022 |
| December 31, 2021 | ||
| | | | | (In thousands) | ||||
Revolving credit facility (2) (3) (4) |
| 1.50% | | | $ | 300,000 | | $ | 300,000 |
| | | | | | | | | |
Tranche A-1 Term Loan (5) |
| 2.61% | | | $ | 200,000 | | $ | 200,000 |
Tranche A-2 Term Loan (5) |
| 2.49% | | |
| 200,000 | |
| 200,000 |
Unsecured term loans |
|
| | |
| 400,000 | |
| 400,000 |
Unamortized deferred financing costs, net |
|
| | |
| (1,668) | |
| (1,336) |
Unsecured term loans, net |
|
| | | $ | 398,332 | | $ | 398,664 |
| (1) | Effective interest rate as of March 31, 2022. |
| (2) | As of March 31, 2022 and December 31, 2021, letters of credit with an aggregate face amount of $467,000 and $911,000 were outstanding under our revolving credit facility. |
| (3) | As of March 31, 2022 and December 31, 2021, excludes $4.6 million and $5.0 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net." |
| (4) | The interest rate for our revolving credit facility excludes a 0.15% facility fee. In April 2022, we repaid $210.0 million on our revolving credit facility. |
| (5) | As of March 31, 2022 and December 31, 2021, the outstanding balance was fixed by interest rate swap agreements. As of March 31, 2022, the interest rate swaps mature in July 2024, and fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and fix LIBOR at a weighted average interest rate of 1.34% for the Tranche A-2 Term Loan. |
8.Other Liabilities, Net
The following is a summary of other liabilities, net:
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
| | (In thousands) | ||||
Lease intangible liabilities, net | | | 7,456 | | | 8,272 |
Lease assumption liabilities | |
| 4,707 | |
| 5,399 |
Lease incentive liabilities | |
| 5,954 | |
| 21,163 |
Liabilities related to operating lease right-of-use assets | |
| 6,329 | |
| 6,910 |
Liabilities related to finance lease right-of-use assets (1) | |
| — | |
| 162,510 |
Prepaid rent | |
| 18,826 | |
| 19,852 |
Security deposits | |
| 13,462 | |
| 18,188 |
Environmental liabilities | |
| 18,168 | |
| 18,168 |
Deferred tax liability, net | |
| 4,884 | |
| 5,340 |
Dividends payable | |
| — | |
| 32,603 |
Derivative agreements, at fair value | |
| 658 | |
| 18,361 |
Deferred purchase price related to the acquisition of a future development parcel | | | 19,741 | | | 19,691 |
Other | |
| 6,744 | |
| 6,108 |
Total other liabilities, net | | $ | 106,929 | | $ | 342,565 |
16
| (1) | Represents finance ground leases at 1730 M Street and Courthouse Plaza 1 and 2, which were classified as "Assets held for sale" in our balance sheet as of March 31, 2022. |
9.Redeemable Noncontrolling Interests
JBG SMITH LP
OP Units held by persons other than JBG SMITH are redeemable for cash or, at our election, our common shares, subject to certain limitations. Vested LTIP Units are redeemable into OP Units and, in thatturn cash or, at our election, our common shares, subject to certain limitations. During the three months ended March 31, 2022 and 2021, unitholders redeemed 207,882 and 119,178 OP Units, which we elected to redeem for an equivalent number of our common shares. As of March 31, 2022, outstanding OP Units and redeemable LTIP Units totaled 15.3 million, representing an 11.0% ownership interest in JBG SMITH LP. In our balance sheets, our OP Units and certain vested LTIP Units are presented at the higher of their redemption value or their carrying value, with adjustments to the redemption value recognized in "Additional paid-in capital." Redemption value per OP Unit is equivalent to the market value of one of our common shares at the end of the period.
Consolidated Real Estate Venture
We are a partner in The Wren, a consolidated real estate venture that owns a multifamily asset located in Washington, D.C. Pursuant to the terms of the real estate venture agreement, we are obligated to fund all capital contributions until our ownership interest reaches a maximum of 97.0%. Our partner can redeem its interest for cash under certain conditions. As of March 31, 2022, we held a 96.0% ownership interest in the real estate venture.
The following is a summary of the activity of redeemable noncontrolling interests:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | ||||||||||||||||
| | 2022 | | 2021 | ||||||||||||||
| | | | | Consolidated | | | | | | | | Consolidated | | | | ||
| | JBG | | Real Estate | | | | | JBG | | Real Estate | | | | ||||
|
| SMITH LP |
| Venture |
| Total |
| SMITH LP |
| Venture |
| Total | ||||||
|
| (In thousands) | ||||||||||||||||
Balance, beginning of period | | $ | 513,268 | | $ | 9,457 | | $ | 522,725 | | $ | 522,882 | | $ | 7,866 | | $ | 530,748 |
OP Unit redemptions | |
| (6,014) | |
| — | |
| (6,014) | |
| (3,919) | |
| — | |
| (3,919) |
LTIP Units issued in lieu of cash bonuses (1) | |
| 5,597 | |
| — | |
| 5,597 | |
| 4,817 | |
| — | |
| 4,817 |
Net income (loss) | |
| (3) | |
| 13 | |
| 10 | |
| (2,197) | |
| (33) | |
| (2,230) |
Other comprehensive income | |
| 2,966 | |
| — | |
| 2,966 | |
| 973 | |
| — | |
| 973 |
Distributions | |
| — | |
| (69) | |
| (69) | |
| (1,362) | |
| — | |
| (1,362) |
Share-based compensation expense | |
| 12,527 | |
| — | |
| 12,527 | |
| 12,564 | |
| — | |
| 12,564 |
Adjustment to redemption value | |
| 8,384 | |
| (77) | |
| 8,307 | |
| 11,293 | |
| 43 | |
| 11,336 |
Balance, end of period | | $ | 536,725 | | $ | 9,324 | | $ | 546,049 | | $ | 545,051 | | $ | 7,876 | | $ | 552,927 |
| (1) | See Note 11 for additional information. |
10.Property Rental Revenue
The following is a summary of property rental revenue from our non-cancellable leases:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
| | (In thousands) | ||||
Fixed | | $ | 120,637 | | $ | 112,249 |
Variable | | | 10,961 | | | 9,992 |
Property rental revenue | | $ | 131,598 | | $ | 122,241 |
17
11.Share-Based Payments
LTIP Units and Time-Based LTIP Units
In January 2022, we granted to certain employees 660,785 LTIP Units with time-based vesting requirements ("Time-Based LTIP Units") and a weighted average grant-date fair value of $27.41 per unit that vest ratably over four years subject to continued employment. Compensation expense for these units is being recognized over a four-year period.
In February 2022, we granted 252,206 fully vested LTIP Units to certain employees, who elected to receive all or a portion of their cash bonuses, related to 2021 service, as LTIP Units. The LTIP units had a weighted average grant-date fair value of $22.19 per unit. Compensation expense totaling $5.6 million for these LTIP Units was recognized in 2021.
The aggregate grant-date fair value of the Time-Based LTIP Units and the LTIP Units granted during the three months ended March 31, 2022 was $23.7 million. The Time-Based LTIP Units and the LTIP Units were valued based on an other-than-temporary basis. Cash flow projectionsthe closing common share price on the grant date, less a discount for post-grant restrictions. The discount was determined using Monte Carlo simulations and the investments consider property level factors suchfollowing is a summary of the significant assumptions used to value these units:
| | |
Expected volatility | 41.0% | |
Risk-free interest rate | 0.4% to 1.5% | |
Post-grant restriction periods | 2 years |
In April 2022, as expected future operating income, trends and prospects, as well aspart of their annual compensation, we granted to non-employee trustees a total of 2.0 million fully vested LTIP Units with a grant-date fair value of $20.90 per unit, which includes LTIP Units elected in lieu of cash retainers. The LTIP Units may not be sold while a trustee is serving on the effectsBoard of demand, competition and other factors. We consider various qualitative factorsTrustees.
Appreciation-Only LTIP Units ("AO LTIP Units")
In January 2022, we granted to determine ifcertain employees 1.5 million performance-based AO LTIP Units with a decreaseweighted average grant-date fair value of $4.44 per unit. The AO LTIP Units are structured in the form of profits interests that provide for a share of appreciation determined by the increase in the value of our investment is other-than-temporary. These factors include agea common share at the time of conversion over the participation threshold of $32.30. The AO LTIP Units are subject to a TSR modifier whereby the number of AO LTIP Units that will ultimately be earned will be increased or reduced by as much as 25%. The AO LTIP Units have a three-year performance period with 50% of the venture, our intent and ability to retain our investment inAO LTIP Units that are earned vesting at the entity, financial condition and long-term prospectsend of the entitythree-year performance period and relationships with our partners and banks. If we believe that the decline inremaining 50% vesting on the fourth anniversary of the grant date, subject to continued employment. The AO LTIPs have a 10-year term from the grant date.
The aggregate grant-date fair value of the investmentAO LTIP Units granted during the three months ended March 31, 2022 was $6.6 million, valued using Monte Carlo simulations. The following is temporary, no impairment chargea summary of the significant assumptions used to value the AO LTIP Units:
| | |
Expected volatility | 27.0% | |
Dividend yield | 2.7% | |
Risk-free interest rate | 1.6% |
Performance-Based LTIP Units
In January 2022, 469,624 LTIP Units with performance-based vesting requirements ("Performance-Based LTIP Units"), which were unvested as of December 31, 2021, were forfeited as the performance measures were not met.
18
Share-Based Compensation Expense
The following is recorded. If our analysis indicates that there is an other-than temporary impairmenta summary of share-based compensation expense:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
|
| (In thousands) | ||||
Time-Based LTIP Units | | $ | 6,126 | | $ | 4,380 |
AO LTIP Units and Performance-Based LTIP Units | |
| 4,157 | |
| 3,239 |
Other equity awards (1) | |
| 1,427 | |
| 1,463 |
Share-based compensation expense - other | |
| 11,710 | |
| 9,082 |
Formation Awards | |
| 374 | |
| 729 |
OP Units and LTIP Units (2) | |
| 583 | |
| 2,784 |
Special Time-Based LTIP Units and Special Performance-Based LTIP Units (3) | |
| 1,287 | |
| 1,432 |
Share-based compensation related to Formation Transaction and special equity awards (4) | |
| 2,244 | |
| 4,945 |
Total share-based compensation expense | |
| 13,954 | |
| 14,027 |
Less: amount capitalized | |
| (1,050) | |
| (791) |
Share-based compensation expense | | $ | 12,904 | | $ | 13,236 |
| (1) | Primarily comprising compensation expense for: (i) fully vested LTIP Units issued to certain employees in lieu of all or a portion of any cash bonuses earned, (ii) restricted share units ("RSUs") and (iii) shares issued under our ESPP. |
| (2) | Represents share-based compensation expense for LTIP Units and OP Units issued in the Formation Transaction, which are subject to post-Combination employment obligations. |
| (3) | Represents equity awards issued related to our successful pursuit of Amazon's additional headquarters in National Landing. |
| (4) | Included in "General and administrative expense: Share-based compensation related to Formation Transaction and special equity awards" in the accompanying statements of operations. |
As of March 31, 2022, we had $76.0 million of total unrecognized compensation expense related to unvested share-based payment arrangements, which is expected to be recognized over a weighted average period of 3.2 years.
12.Transaction and Other Costs
The following is a summary of transaction and other costs:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
|
| (In thousands) | ||||
Demolition costs | | $ | 22 | | $ | 1,008 |
Integration and severance costs | |
| 145 | |
| 240 |
Completed, potential and pursued transaction expenses (1) | |
| 732 | |
| 2,442 |
Transaction and other costs | | $ | 899 | | $ | 3,690 |
| (1) | Primarily consists of legal costs related to pursued transactions. |
19
13.Interest Expense
The following is a summary of interest expense:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
|
| (In thousands) | ||||
Interest expense before capitalized interest | | $ | 18,442 | | $ | 16,666 |
Amortization of deferred financing costs | |
| 1,130 | |
| 1,047 |
Interest expense related to finance lease right-of-use assets | | | 1,844 | | | 426 |
Net unrealized gain on derivative financial instruments designated as ineffective hedges | |
| (3,367) | |
| (133) |
Capitalized interest | |
| (1,771) | |
| (1,710) |
Interest expense | | $ | 16,278 | | $ | 16,296 |
14.Shareholders' Equity and Loss Per Common Share
Common Shares Repurchased
In March 2020, our Board of Trustees authorized the investment inrepurchase of up to $500.0 million of our outstanding common shares. During the three months ended March 31, 2022, we repurchased and retired 3.3 million common shares for $93.1 million, a particular real estate venture,weighted average purchase price per share of $27.86. During the carrying valuethree months ended March 31, 2021, we repurchased and retired 619,749 common shares for $19.2 million, a weighted average purchase price per share of $30.96. Since we began the share repurchase program, we have repurchased and retired 12.5 million common shares for $355.6 million, a weighted average purchase price per share of $28.45.
In April 2022, we repurchased and retired 707,000 common shares for $19.4 million, a weighted average purchase price per share of $27.39, pursuant to a repurchase plan under Rule 10b5-1 of the venture will be adjusted to an amount that reflects the estimated fair valueSecurities Exchange Act of 1934, as amended.
Loss Per Common Share
The following is a summary of the investment.
| | | | | | |
| | Three Months Ended March 31, | ||||
| | 2022 |
| 2021 | ||
| | (In thousands, except per share amounts) | ||||
Net loss | | $ | (77) | | $ | (24,069) |
Net (income) loss attributable to redeemable noncontrolling interests | |
| (10) | |
| 2,230 |
Net loss attributable to noncontrolling interests | |
| 55 | |
| 1,108 |
Net loss attributable to common shareholders | | $ | (32) | | $ | (20,731) |
| | | | | | |
Weighted average number of common shares outstanding - basic and diluted | |
| 126,682 | |
| 131,540 |
| | | | | | |
Loss per common share - basic and diluted | | $ | — | | $ | (0.16) |
The useful lives of intangible assets are evaluated each reporting period with any changes in estimated useful lives being accounted for over the revised remaining useful life.
20
Units, Performance-Based LTIP Units, Formation Awards and RSUs, which totaled 6.0 million and 3.9 million for the holderthree months ended March 31, 2022 and are presented2021, were excluded from the calculation of diluted loss per common share as they were antidilutive, but potentially could be dilutive in the mezzanine section between total liabilitiesfuture.
Dividends Declared in April 2022
On April 29, 2022, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on May 27, 2022 to shareholders of record as of May 13, 2022.
15.Fair Value Measurements
Fair Value Measurements on a Recurring Basis
To manage or hedge our exposure to interest rate risk, we follow established risk management policies and shareholders' equity onprocedures, including the balance sheets. The carrying amountuse of redeemable noncontrolling interests is adjusted to its redemption value at the enda variety of each reporting period, but no less than its initial carrying value, with such adjustments recognized in "Additional paid-in capital".
As of March 31, 2022 and December 31, 2021, we had various derivative financial instruments consisting of interest rate swapsswap and caps,cap agreements that are considered economic hedges, but not designated as accounting hedges, and are
Accounting Standards Codification 820 ("Topic 820"), Fair Value Measurement and Disclosures, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASCTopic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:
Level 1 — quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;
Level 2 — observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and
Level 3 — unobservable inputs that are used when little or no market data is available.
| Fair value of purchase consideration: | |||
| Common shares and OP Units | $ | 1,224,886 | |
| Cash | 20,573 | ||
| Total consideration paid | $ | 1,245,459 | |
| Fair value of assets acquired and liabilities assumed: | |||
| Land and improvements | $ | 342,932 | |
| Building and improvements | 623,889 | ||
| Construction in progress, including land | 632,664 | ||
| Leasehold improvements and equipment | 7,890 | ||
| Cash | 104,516 | ||
| Restricted cash | 13,460 | ||
| Investments in and advances to unconsolidated real estate ventures | 238,388 | ||
| Identified intangible assets | 146,600 | ||
Notes receivable (1) | 50,934 | ||
| Identified intangible liabilities | (8,449 | ) | |
Mortgages payable assumed (2) | (768,523 | ) | |
Capital lease obligations assumed (3) | (33,543 | ) | |
Deferred tax liability (4) | (21,476 | ) | |
| Other liabilities acquired, net | (52,065 | ) | |
| Noncontrolling interests in consolidated subsidiaries | (3,987 | ) | |
| Net assets acquired | 1,273,230 | ||
Gain on bargain purchase (5) | 27,771 | ||
| Total consideration paid | $ | 1,245,459 | |
| Outstanding common shares and common limited partnership units prior to the Combination | 100,571 | ||
Exchange ratio (1) | 2.71 | ||
| Common shares and OP Units issued in consideration | 37,164 | ||
Price per share/unit (2) | $ | 37.10 | |
| Fair value of common shares and OP Units issued in consideration | $ | 1,378,780 | |
| Fair value adjustment to OP Units due to transfer restrictions | (43,303 | ) | |
Portion of consideration attributable to performance of future services (3) | (110,591 | ) | |
| Fair value of common shares and OP Units purchase consideration | $ | 1,224,886 | |
The fair values of the depreciable tangible and identified intangible assets and liabilities, all of which have definite lives and are amortized, are as follows:
| Total Fair Value | Weighted Average Amortization Period | ||||||
Useful Life (1) | |||||||
| (In thousands) | (In years) | ||||||
| Tangible assets: | |||||||
| Building and improvements | $ | 559,042 | 3 - 40 years | ||||
| Tenant improvements | 64,847 | Shorter of useful life or remaining life of the respective lease | |||||
| Total building and improvements | $ | 623,889 | |||||
| Leasehold improvements | $ | 4,422 | Shorter of useful life or remaining life of the respective lease | ||||
| Identified intangible assets: | |||||||
| In-place leases | $ | 59,351 | 6.4 | Remaining life of the respective lease | |||
| Above-market real estate leases | 11,700 | 6.3 | Remaining life of the respective lease | ||||
| Below-market ground leases | 659 | 88.5 | Remaining life of the respective lease | ||||
| Option to enter into ground lease | 17,090 | N/A | Remaining life of contract | ||||
Management and leasing contracts (2) | 57,800 | 7.4 | Estimated remaining life of contracts, ranging between 3 - 8 years | ||||
| Total identified intangible assets | $ | 146,600 | |||||
| Identified intangible liabilities: | |||||||
| Below-market real estate leases | $ | 8,449 | 10.2 | Remaining life of the respective lease | |||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||
| Unaudited pro forma information: | |||||||||||||||
| Total revenue | $ | 160,428 | $ | 170,498 | $ | 481,314 | $ | 492,874 | |||||||
Net income (loss) attributable to JBG SMITH Properties | $ | 2,283 | $ | 803 | $ | (13,741 | ) | $ | (26,701 | ) | |||||
| Earnings (loss) per common share: | |||||||||||||||
| Basic | $ | 0.02 | $ | 0.01 | $ | (0.13 | ) | $ | (0.27 | ) | |||||
| Diluted | $ | 0.02 | $ | 0.01 | $ | (0.13 | ) | $ | (0.27 | ) | |||||
| September 30, 2017 | December 31, 2016 | |||||||
| (In thousands) | ||||||||
| Tenants | $ | 32,106 | $ | 26,278 | ||||
| Other | 23,835 | 11,314 | ||||||
| Allowance for doubtful accounts | (5,467 | ) | (4,212 | ) | ||||
| Total tenant and other receivables, net | $ | 50,474 | $ | 33,380 | ||||
Ownership Interest (1) | Investment Balance | |||||||||
Real Estate Venture Partners (1) | September 30, 2017 | September 30, 2017 | December 31, 2016 | |||||||
| (In thousands) | ||||||||||
| Landmark | 1.8% - 59.0% | $ | 110,562 | $ | — | |||||
| CBREI Venture | 5.0% - 64.0% | 85,386 | — | |||||||
| Canadian Pension Plan Investment Board | 55.0% | 36,223 | 36,312 | |||||||
| Brandywine | 30.0% | 13,753 | — | |||||||
| Berkshire Group | 50.0% | 27,647 | — | |||||||
| MRP Realty | 70.0% | 1,802 | — | |||||||
| JP Morgan | 5.0% | 9,351 | 9,335 | |||||||
| Other | 242 | 129 | ||||||||
| Total investments in unconsolidated real estate ventures | 284,966 | 45,776 | ||||||||
| Advances to unconsolidated real estate ventures | 20 | — | ||||||||
Total investments in and advances to unconsolidated real estate ventures | $ | 284,986 | $ | 45,776 | ||||||
| Weighted Average Interest Rate | Balance as of | |||||||||
| September 30, 2017 | September 30, 2017 | December 31, 2016 | ||||||||
| (In thousands) | ||||||||||
Variable rate (1) | 4.08% | $ | 531,989 | $ | 31,000 | |||||
Fixed rate (2) | 3.90% | 643,801 | 273,000 | |||||||
| Unconsolidated real estate ventures - mortgages payable | 1,175,790 | 304,000 | ||||||||
| Unamortized deferred financing costs, net | (860 | ) | (1,034 | ) | ||||||
| Unconsolidated real estate ventures - mortgages payable, net | $ | 1,174,930 | $ | 302,966 | ||||||
| September 30, 2017 | December 31, 2016 | |||||||
| Combined balance sheet information: | (In thousands) | |||||||
| Total assets | $ | 3,446,348 | $ | 598,239 | ||||
| Total liabilities | 1,253,664 | 327,862 | ||||||
| Noncontrolling interests | 343 | 343 | ||||||
| Total equity | 2,192,341 | 270,034 | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Combined income statement information: | (In thousands) | |||||||||||||||
| Total revenue | $ | 46,830 | $ | 16,364 | $ | 83,387 | $ | 51,066 | ||||||||
| Net (loss) income | (5,191 | ) | 2,607 | (414 | ) | 5,083 | ||||||||||
| September 30, 2017 | December 31, 2016 | |||||||
| (In thousands) | ||||||||
| Deferred leasing costs | $ | 168,344 | $ | 157,258 | ||||
| Accumulated amortization | (66,403 | ) | (57,910 | ) | ||||
| Deferred leasing costs, net | 101,941 | 99,348 | ||||||
| Prepaid expenses | 21,942 | 2,199 | ||||||
| Identified intangible assets, net | 143,000 | 3,063 | ||||||
| Other | 21,508 | 8,345 | ||||||
| Total other assets, net | $ | 288,391 | $ | 112,955 | ||||
| September 30, 2017 | December 31, 2016 | ||||||
| Identified intangible assets: | (in thousands) | ||||||
| In-place leases | $ | 72,081 | $ | 12,777 | |||
| Above-market real estate leases | 12,473 | 773 | |||||
| Below-market ground leases | 2,874 | 2,215 | |||||
| Option to enter into ground lease | 17,090 | — | |||||
| Management and leasing contracts | 57,800 | — | |||||
| Other | 206 | 206 | |||||
| Total identified intangibles assets | 162,524 | 15,971 | |||||
| Accumulated amortization: | |||||||
| In-place leases | 15,187 | 10,871 | |||||
| Above-market real estate leases | 1,082 | 612 | |||||
| Below-market ground leases | 1,344 | 1,278 | |||||
| Management and leasing contracts | 1,753 | — | |||||
| Other | 158 | 147 | |||||
| Total accumulated amortization | 19,524 | 12,908 | |||||
| Identified intangible assets, net | $ | 143,000 | $ | 3,063 | |||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (in thousands) | |||||||||||||||
In-place lease amortization (1) | $ | 4,104 | $ | 233 | $ | 4,347 | $ | 336 | |||||||
Above-market real estate lease amortization (2) | 448 | 20 | 471 | 64 | |||||||||||
Below-market ground lease amortization (3) | 23 | 21 | 66 | 64 | |||||||||||
Management and leasing contract amortization (1) | 1,753 | — | 1,753 | — | |||||||||||
Other amortization (1) | 3 | 22 | 10 | 69 | |||||||||||
| Total identified intangible asset amortization | $ | 6,331 | $ | 296 | $ | 6,647 | $ | 533 | |||||||
| Year ending December 31, | Amount | |||
| (in thousands) | ||||
| 2018 | $ | 15,119 | ||
| 2019 | 12,032 | |||
| 2020 | 10,105 | |||
| 2021 | 6,664 | |||
| 2022 | 5,312 | |||
| Weighted Average Interest Rate | Balance as of | |||||||||
| September 30, 2017 | September 30, 2017 | December 31, 2016 | ||||||||
| (In thousands) | ||||||||||
Variable rate (1) | 2.95% | $ | 1,152,106 | $ | 547,291 | |||||
Fixed rate (2) | 4.79% | 836,141 | 620,327 | |||||||
Mortgages payable (3) | 1,988,247 | 1,167,618 | ||||||||
| Unamortized deferred financing costs and premium/discount, net | (10,573 | ) | (2,604 | ) | ||||||
| Mortgages payable, net | $ | 1,977,674 | $ | 1,165,014 | ||||||
Payable to former parent (4) | — | $ | — | $ | 283,232 | |||||
| Interest Rate | Balance as of | |||||
| September 30, 2017 | September 30, 2017 | |||||
| (In thousands) | ||||||
Revolving credit facility (1) | 2.34% | $ | 115,751 | |||
| Tranche A-1 Term Loan | 2.44% | $ | 50,000 | |||
| Unamortized deferred financing costs, net | (3,611 | ) | ||||
| Unsecured term loan, net | $ | 46,389 | ||||
| Year ending December 31, | Amount | |||
| (In thousands) | ||||
| 2017 | $ | — | ||
| 2018 | 376,019 | |||
| 2019 | 227,919 | |||
| 2020 | 215,096 | |||
| 2021 | 215,592 | |||
| 2022 | 327,500 | |||
| Thereafter | 791,872 | |||
| Total | $ | 2,153,998 | ||
| September 30, 2017 | December 31, 2016 | ||||||
| (In thousands) | |||||||
| Lease intangible liabilities | $ | 44,965 | $ | 36,515 | |||
| Accumulated amortization | (26,287 | ) | (24,945 | ) | |||
| Lease intangible liabilities, net | 18,678 | 11,570 | |||||
| Prepaid rent | 12,445 | 9,163 | |||||
| Lease assumptions liabilities and accrued tenant incentives | 12,090 | 14,907 | |||||
| Capital lease obligation | 15,976 | — | |||||
| Security deposits | 13,795 | 10,324 | |||||
| Ground lease deferred rent payable | 3,559 | 3,331 | |||||
Deferred tax liability (1) | 22,007 | — | |||||
| Other | 2,224 | 192 | |||||
| Total other liabilities, net | $ | 100,774 | $ | 49,487 | |||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (in thousands) | |||||||||||||||
Lease intangible liabilities amortization (1) | $ | 633 | $ | 359 | $ | 1,343 | $ | 1,076 | |||||||
| Year ending December 31, | Amount | |||
| (in thousands) | ||||
| 2018 | $ | 2,765 | ||
| 2019 | 2,679 | |||
| 2020 | 2,392 | |||
| 2021 | 1,917 | |||
| 2022 | 1,798 | |||
| Nine Months Ended September 30, | |||
| 2017 | |||
| (In thousands) | |||
Balance at January 1, 2017 (1) | $ | — | |
| OP Units issued at the Separation | 96,632 | ||
OP Units issued in connection with the Combination (2) | 359,967 | ||
| Net loss attributable to redeemable noncontrolling interests | (2,481 | ) | |
| Share-based compensation expense | 15,799 | ||
| Adjustment to redemption value | 97,084 | ||
| Balance as of September 30, 2017 | $ | 567,001 | |
| Formation Awards | $ | 3,963 | |
| LTIP Units that vested immediately | 2,546 | ||
OP Units (1) | 7,936 | ||
Share-based compensation related to Formation Transaction (2) | 14,445 | ||
| LTIP Units that vest over four years | 885 | ||
| OPP Units | 469 | ||
| Other equity awards | 1,526 | ||
Share-based compensation expense - other (3) | 2,880 | ||
| Total share-based compensation expense | 17,325 | ||
| Less amount capitalized | (161 | ) | |
Net share-based compensation expense (4) | $ | 17,164 | |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||
| Net (loss) income attributable to JBG SMITH Properties | $ | (69,831 | ) | $ | 21,014 | $ | (57,851 | ) | $ | 49,344 | |||||
Weighted average shares outstanding — basic and diluted (1) | 114,744 | 100,571 | 105,347 | 100,571 | |||||||||||
| (Loss) earnings per share available to common shareholders: | |||||||||||||||
| Basic | $ | (0.61 | ) | $ | 0.21 | $ | (0.55 | ) | $ | 0.49 | |||||
| Diluted | $ | (0.61 | ) | $ | 0.21 | $ | (0.55 | ) | $ | 0.49 | |||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||
| OP Units | 3,281 | — | 3,281 | — | |||||||
| Formation Awards | 2,681 | — | 2,681 | — | |||||||
| LTIP Units | 410 | — | 410 | — | |||||||
| OPP Units | 605 | — | 605 | — | |||||||
| Year ending December 31, | Amount | |||
| (In thousands) | ||||
| 2017 | $ | 133,025 | ||
| 2018 | 387,636 | |||
| 2019 | 310,230 | |||
| 2020 | 277,278 | |||
| 2021 | 234,005 | |||
| 2022 | 195,750 | |||
| Thereafter | 868,284 | |||
The following areis a summary of assets and liabilities measured at fair value on a recurring basisbasis:
| | | | | | | | | | | | |
| | Fair Value Measurements | ||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
| | (In thousands) | ||||||||||
March 31, 2022 |
| | | | | | | | | | | |
Derivative financial instruments designated as effective hedges: | |
|
|
| |
| |
|
|
| |
|
Classified as assets in "Other assets, net" | | $ | 11,553 | | | — | | $ | 11,553 | | | — |
Classified as liabilities in "Other liabilities, net" | | | 658 | |
| — | | | 658 | |
| — |
Derivative financial instruments designated as ineffective hedges: | |
|
| |
|
| |
|
| |
|
|
Classified as assets in "Other assets, net" | |
| 3,925 | |
| — | |
| 3,925 | |
| — |
| | | | | | | | | | | | |
December 31, 2021 | |
|
|
| |
| |
|
|
| |
|
Derivative financial instruments designated as effective hedges: | |
|
|
| |
| |
|
|
| |
|
Classified as assets in "Other assets, net" | | $ | 393 | | | — | | $ | 393 | | | — |
Classified as liabilities in "Other liabilities, net" | | | 18,361 | |
| — | | | 18,361 | |
| — |
Derivative financial instruments designated as ineffective hedges: | |
|
| |
|
| |
|
| |
|
|
Classified as assets in "Other assets, net" | |
| 558 | |
| — | |
| 558 | |
| — |
21
The fair values of our derivative financial instruments were determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivatives fall within Level 2 of the fair value hierarchy under authoritative accounting guidance, the credit valuation adjustments associated with the derivatives also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of September 30, 2017:
| Fair Value Measurements | |||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| September 30, 2017 | (In thousands) | ||||||||||||||
| Interest rate swaps and caps: | |||||||||||||||
| Classified as liabilities in "Other liabilities, net" | $ | 703 | $ | — | $ | 703 | $ | — | |||||||
Financial Assets and Liabilities Not Measured at Fair Value
As of September 30, 2017March 31, 2022 and December 31, 2016,2021, all financial instrumentsassets and liabilities were reflected in our balance sheets at amounts which, in our estimation, reasonably approximated their fair values, except for the following:
| | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 | ||||||||
|
| Carrying |
| |
| Carrying |
| | ||||
| | Amount (1) | | Fair Value | | Amount (1) | | Fair Value | ||||
|
| (In thousands) | ||||||||||
Financial liabilities: |
| |
|
| |
|
| |
|
| |
|
Mortgages payable (2) | | $ | 1,787,081 | | $ | 1,795,938 | | $ | 1,788,259 | | $ | 1,814,780 |
Revolving credit facility | |
| 300,000 | |
| 300,376 | |
| 300,000 | |
| 300,363 |
Unsecured term loans | |
| 400,000 | |
| 400,415 | |
| 400,000 | |
| 400,519 |
| September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Amount (1) | Fair Value | Carrying Amount (1) | Fair Value | ||||||||||||
| (In thousands) | |||||||||||||||
| Financial liabilities: | |||||||||||||||
| Mortgages payable | $ | 1,988,247 | $ | 2,015,653 | $ | 1,167,618 | $ | 1,192,267 | |||||||
| (1) | The carrying amount consists of principal only. |
| (2) | Includes mortgages payable related to assets held for sale as of March 31, 2022. |
The carrying amount consistsfair values of principal only.
16.Segment Information
We review operating and financial data for each property on an individual basis; therefore, each of our individual properties is a separate operating segment. As a result of the Formation Transaction, we redefinedWe define our reportable segments to be aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker (“CODM”("CODM"), makes key operating decisions, evaluates financial results, allocates resources and manages our business. Accordingly, we aggregate our operating segments into three3 reportable segments (office,(commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services. In connection therewith,To conform to the current period presentation, we have reclassified the prior period segment financial data for 1700 M Street, for which we are the ground lessor, that had been classified as part of the commercial segment to conformother to the current period presentation.
The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party asset management and real estate services business, based on the net operating income (“NOI”("NOI") of properties within each segment. NOI includes property rental revenuesrevenue and tenant reimbursementsparking revenue, and deducts property operating expenses and real estate taxes.
22
With respect to the third-party asset management and real estate services business, the CODM reviews revenuesrevenue streams generated by this segment (third-party("Third-party real estate services, including reimbursements)reimbursements"), as well as the expenses attributable to the segment (general("General and administrative: third-party real estate services)services"), which are both disclosed separately in theour statements of operations. The following represents the components of revenue from our third-party asset management and real estate services business:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
|
| (In thousands) | ||||
Property management fees | | $ | 4,808 | | $ | 4,942 |
Asset management fees | |
| 1,771 | |
| 2,228 |
Development fees (1) | |
| 3,539 | |
| 14,250 |
Leasing fees | |
| 1,839 | |
| 860 |
Construction management fees | |
| 150 | |
| 172 |
Other service revenue | |
| 816 | |
| 1,698 |
Third-party real estate services revenue, excluding reimbursements | |
| 12,923 | |
| 24,150 |
Reimbursement revenue (2) | |
| 11,047 | |
| 13,957 |
Third-party real estate services revenue, including reimbursements | | | 23,970 | | | 38,107 |
Third-party real estate services expenses | | | 27,049 | | | 28,936 |
Third-party real estate services revenue less expenses | | $ | (3,079) | | $ | 9,171 |
| (1) | As of March 31, 2022, we had estimated unrecognized development fee revenue totaling $45.2 million, of which $10.4 million, $12.0 million and $6.3 million is expected to be recognized during the remainder of 2022, 2023 and 2024, and $16.5 million is expected to be recognized thereafter through 2027 as unsatisfied performance obligations are completed. |
| (2) | Represents reimbursement of expenses incurred by us on behalf of third parties, including allocated payroll costs and amounts paid to third-party contractors for construction management projects. |
Management company assets primarily consist of management and leasing contracts with a net book value of $56.0$18.1 million and $19.6 million as of March 31, 2022 and December 31, 2021, which are classified in "Other"Intangible assets, net" in theour balance sheet as of September 30, 2017.sheets. Consistent with theinternal reporting presented to our CODM approach and our definition of NOI, the third-party asset management and real estate services operating results are excluded from the NOI data below.
23
The following table reflectsis the reconciliation of net (loss) incomeloss attributable to JBG SMITH Propertiescommon shareholders to NOI for the three and nine months ended September 30, 2017 and 2016:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In thousands) | |||||||||||||||
| Net (loss) income attributable to JBG SMITH Properties | $ | (69,831 | ) | $ | 21,014 | $ | (57,851 | ) | $ | 49,344 | |||||
| Add: | |||||||||||||||
| Depreciation and amortization expense | 43,951 | 31,377 | 109,726 | 98,291 | |||||||||||
| General and administrative expense: | |||||||||||||||
| Corporate and other | 10,593 | 10,913 | 35,536 | 36,040 | |||||||||||
| Third-party real estate services | 21,178 | 4,779 | 30,362 | 14,272 | |||||||||||
| Share-based compensation related to Formation Transaction | 14,445 | — | 14,445 | — | |||||||||||
| Transaction and other costs | 104,095 | 1,528 | 115,173 | 1,528 | |||||||||||
| Interest expense | 15,309 | 13,028 | 43,813 | 38,662 | |||||||||||
| Loss on extinguishment of debt | 689 | — | 689 | — | |||||||||||
| Income tax (benefit) expense | (1,034 | ) | 302 | (317 | ) | 884 | |||||||||
| Less: | |||||||||||||||
| Third-party real estate services, including reimbursements | 25,141 | 8,297 | 38,881 | 24,617 | |||||||||||
| Other income | 1,158 | 1,564 | 3,701 | 3,938 | |||||||||||
| (Loss) income from unconsolidated real estate ventures | (1,679 | ) | 584 | (1,365 | ) | (952 | ) | ||||||||
| Interest and other (loss) income, net | (379 | ) | 749 | 1,366 | 2,292 | ||||||||||
| Gain on bargain purchase | 27,771 | — | 27,771 | — | |||||||||||
| Net loss attributable to redeemable noncontrolling interests | 8,160 | — | 2,481 | — | |||||||||||
| NOI | $ | 79,223 | $ | 71,747 | $ | 218,741 | $ | 209,126 | |||||||
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
|
| (In thousands) | ||||
Net loss attributable to common shareholders | | $ | (32) | | $ | (20,731) |
Add: | |
|
| |
|
|
Depreciation and amortization expense | |
| 58,062 | |
| 64,726 |
General and administrative expense: | |
|
| |
|
|
Corporate and other | |
| 15,815 | |
| 12,475 |
Third-party real estate services | |
| 27,049 | |
| 28,936 |
Share-based compensation related to Formation Transaction and special equity awards | |
| 2,244 | |
| 4,945 |
Transaction and other costs | |
| 899 | |
| 3,690 |
Interest expense | |
| 16,278 | |
| 16,296 |
Loss on the extinguishment of debt | |
| 591 | |
| — |
Income tax expense (benefit) | |
| (471) | |
| 4,315 |
Net income (loss) attributable to redeemable noncontrolling interests | |
| 10 | |
| (2,230) |
Net loss attributable to noncontrolling interests | | | (55) | | | (1,108) |
Less: | |
|
| |
|
|
Third-party real estate services, including reimbursements revenue | |
| 23,970 | |
| 38,107 |
Other revenue | |
| 2,196 | |
| 2,186 |
Income (loss) from unconsolidated real estate ventures, net | |
| 3,145 | |
| (943) |
Interest and other income, net | |
| 14,246 | |
| 9 |
Loss on the sale of real estate | |
| (136) | |
| — |
Consolidated NOI | | $ | 76,969 | | $ | 71,955 |
The following is a summary of NOI by segment forsegment. Items classified in the threeOther column include future development assets, assets ground leased to third parties, corporate entities and nine months ended September 30, 2017 and 2016:the elimination of inter-segment activity.
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | ||||||||||
|
| Commercial |
| Multifamily |
| Other |
| Total | ||||
|
| (In thousands) | ||||||||||
Property rental revenue | | $ | 87,621 | | $ | 42,108 | | $ | 1,869 | | $ | 131,598 |
Parking revenue | |
| 4,012 | |
| 134 | |
| 55 | |
| 4,201 |
Total property revenue | |
| 91,633 | |
| 42,242 | |
| 1,924 | |
| 135,799 |
Property expense: | |
| | |
|
| |
|
| |
|
|
Property operating | |
| 26,202 | |
| 13,755 | |
| 687 | |
| 40,644 |
Real estate taxes | |
| 11,777 | |
| 5,221 | |
| 1,188 | |
| 18,186 |
Total property expense | |
| 37,979 | |
| 18,976 | |
| 1,875 | |
| 58,830 |
Consolidated NOI | | $ | 53,654 | | $ | 23,266 | | $ | 49 | | $ | 76,969 |
| | Three Months Ended March 31, 2021 | ||||||||||
|
| Commercial |
| Multifamily |
| Other |
| Total | ||||
| | (In thousands) | ||||||||||
Property rental revenue | | $ | 87,181 | | $ | 32,586 | | $ | 2,474 | | $ | 122,241 |
Parking revenue | |
| 2,690 | |
| 65 | |
| — | |
| 2,755 |
Total property revenue | |
| 89,871 | |
| 32,651 | |
| 2,474 | |
| 124,996 |
Property expense: | |
|
| |
|
| |
|
| |
|
|
Property operating | |
| 23,964 | |
| 12,195 | |
| (1,428) | |
| 34,731 |
Real estate taxes | |
| 11,772 | |
| 5,245 | |
| 1,293 | |
| 18,310 |
Total property expense | |
| 35,736 | |
| 17,440 | |
| (135) | |
| 53,041 |
Consolidated NOI | | $ | 54,135 | | $ | 15,211 | | $ | 2,609 | | $ | 71,955 |
24
| Three Months Ended September 30, 2017 | ||||||||||||||||||||
| Office | Multifamily | Other | Eliminations | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Rental revenue: | ||||||||||||||||||||
| Property rentals | $ | 91,534 | $ | 23,397 | $ | 4,171 | $ | (2,644 | ) | $ | 116,458 | |||||||||
| Tenant reimbursements | 7,917 | 1,548 | 128 | — | 9,593 | |||||||||||||||
| Total rental revenue | 99,451 | 24,945 | 4,299 | (2,644 | ) | 126,051 | ||||||||||||||
| Rental expense: | — | |||||||||||||||||||
| Property operating | 27,000 | 6,796 | 3,502 | (7,664 | ) | 29,634 | ||||||||||||||
| Real estate taxes | 13,038 | 2,952 | 1,204 | — | 17,194 | |||||||||||||||
| Total rental expense | 40,038 | 9,748 | 4,706 | (7,664 | ) | 46,828 | ||||||||||||||
| NOI | $ | 59,413 | $ | 15,197 | $ | (407 | ) | $ | 5,020 | $ | 79,223 | |||||||||
| Three Months Ended September 30, 2016 | ||||||||||||||||||||
| Office | Multifamily | Other | Eliminations | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Rental revenue: | ||||||||||||||||||||
| Property rentals | $ | 81,575 | $ | 15,850 | $ | 4,898 | $ | 942 | $ | 103,265 | ||||||||||
| Tenant reimbursements | 8,977 | 876 | 378 | — | 10,231 | |||||||||||||||
| Total rental revenue | 90,552 | 16,726 | 5,276 | 942 | 113,496 | |||||||||||||||
| Rental expense: | — | |||||||||||||||||||
| Property operating | 25,083 | 4,782 | 3,065 | (5,643 | ) | 27,287 | ||||||||||||||
| Real estate taxes | 11,793 | 1,663 | 1,006 | 14,462 | ||||||||||||||||
| Total rental expense | 36,876 | 6,445 | 4,071 | (5,643 | ) | 41,749 | ||||||||||||||
| NOI | $ | 53,676 | $ | 10,281 | $ | 1,205 | $ | 6,585 | $ | 71,747 | ||||||||||
| Nine Months Ended September 30, 2017 | ||||||||||||||||||||
| Office | Multifamily | Other | Eliminations | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Rental revenue: | ||||||||||||||||||||
| Property rentals | $ | 249,532 | $ | 62,050 | $ | 9,623 | $ | (4,306 | ) | $ | 316,899 | |||||||||
| Tenant reimbursements | 22,738 | 3,772 | 651 | — | 27,161 | |||||||||||||||
| Total rental revenue | 272,270 | 65,822 | 10,274 | (4,306 | ) | 344,060 | ||||||||||||||
| Rental expense: | — | |||||||||||||||||||
| Property operating | 71,377 | 16,716 | 11,330 | (22,082 | ) | 77,341 | ||||||||||||||
| Real estate taxes | 37,185 | 7,973 | 2,820 | — | 47,978 | |||||||||||||||
| Total rental expense | 108,562 | 24,689 | 14,150 | (22,082 | ) | 125,319 | ||||||||||||||
| NOI | $ | 163,708 | $ | 41,133 | $ | (3,876 | ) | $ | 17,776 | $ | 218,741 | |||||||||
| Nine Months Ended September 30, 2016 | ||||||||||||||||||||
| Office | Multifamily | Other | Eliminations | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Rental revenue: | ||||||||||||||||||||
| Property rentals | $ | 237,826 | $ | 45,203 | $ | 18,621 | $ | (2,153 | ) | $ | 299,497 | |||||||||
| Tenant reimbursements | 24,807 | 2,422 | 1,199 | — | 28,428 | |||||||||||||||
| Total rental revenue | 262,633 | 47,625 | 19,820 | (2,153 | ) | 327,925 | ||||||||||||||
| Rental expenses: | — | |||||||||||||||||||
| Property operating | 69,740 | 12,594 | 14,934 | (22,181 | ) | 75,087 | ||||||||||||||
| Real estate taxes | 34,855 | 5,063 | 3,794 | — | 43,712 | |||||||||||||||
| Total rental expense | 104,595 | 17,657 | 18,728 | (22,181 | ) | 118,799 | ||||||||||||||
| NOI | $ | 158,038 | $ | 29,968 | $ | 1,092 | $ | 20,028 | $ | 209,126 | ||||||||||
The following is a summary of certain balance sheet data by segment as of September 30, 2017 and December 31, 2016:
| Office | Multifamily | Other | Eliminations | Total | |||||||||||||||
| September 30, 2017 | (In thousands) | ||||||||||||||||||
| Real estate, at cost | $ | 3,867,513 | $ | 1,434,730 | $ | 540,287 | $ | — | $ | 5,842,530 | |||||||||
Investments in and advances to unconsolidated real estate ventures | $ | 126,620 | $ | 106,842 | $ | 51,524 | $ | — | $ | 284,986 | |||||||||
| Total assets | $ | 3,338,100 | $ | 1,472,864 | $ | 1,204,063 | $ | — | $ | 6,015,027 | |||||||||
| December 31, 2016 | |||||||||||||||||||
| Real estate, at cost | $ | 2,798,946 | $ | 959,404 | $ | 397,041 | $ | — | $ | 4,155,391 | |||||||||
| Investments in and advances to unconsolidated real estate ventures | $ | 45,647 | $ | — | $ | 129 | $ | — | $ | 45,776 | |||||||||
| Total assets | $ | 2,388,396 | $ | 873,157 | $ | 399,087 | $ | — | $ | 3,660,640 | |||||||||
| | | | | | | | | | | | |
|
| Commercial |
| Multifamily |
| Other |
| Total | ||||
| | (In thousands) | ||||||||||
March 31, 2022 | | | | | | | | | | | | |
Real estate, at cost | | $ | 2,674,939 | | $ | 2,434,441 | | $ | 420,245 | | $ | 5,529,625 |
Investments in unconsolidated real estate ventures | |
| 280,913 | |
| 111,920 | |
| 68,611 | |
| 461,444 |
Total assets | |
| 3,594,436 | |
| 1,836,526 | |
| 884,918 | |
| 6,315,880 |
December 31, 2021 | |
|
| |
|
| |
|
| |
|
|
Real estate, at cost | | $ | 3,422,278 | | $ | 2,367,712 | | $ | 446,486 | | $ | 6,236,476 |
Investments in unconsolidated real estate ventures | |
| 281,515 | |
| 103,389 | |
| 77,981 | |
| 462,885 |
Total assets | |
| 3,591,839 | |
| 1,797,807 | |
| 996,560 | |
| 6,386,206 |
17.Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $200.0$150.0 million per occurrence and in the aggregate, and property and rental value insurance coverage with limits of $2.0$1.5 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties. We also maintain coverage, through our wholly owned captive insurance subsidiary, for a portion of the first loss on the above limits and for both terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for nuclear, biological, chemical and radiological terrorism events, as definedoccurrence. These policies are partially reinsured by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. Insurance premiums are charged directly to each of the properties and are included in "Property operating expenses" in the statement of operations.
We will continue to monitor the state of the insurance market, and the scope and costs of coverage for acts of terrorism. We cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of the insurance coverage, which could be material.
Our debt, consisting of mortgage loansmortgages payable secured by our properties, a revolving credit facility and unsecured term loans, containcontains customary covenants requiring adequate insurance coverage. Although we believe that we currently have adequate insurance coverage, we may not be able to obtain an equivalent amount of coverage at a reasonable costscost in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect theour ability to finance or refinance our properties.
Construction Commitments
As of September 30, 2017,March 31, 2022, we havehad assets under construction in progress that will, require an additional $707.8 million to complete ($611.1 million related to our consolidated entities and $96.7 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, require an additional $569.0 million to complete, which we anticipate will be primarily expended over the next two to three years. These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, and available cash.
Environmental Matters
Most of our properties hasassets have been subjectedsubject, at some point, to varying degreesenvironmental assessments that are intended to evaluate the environmental condition of environmental assessment at various times.the assets. The environmental assessments did not reveal any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations.operations, or that have not been anticipated and remediated during site redevelopment as required by law. Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in significant cost to us. Environmental liabilities totaled $18.2 million as of March 31, 2022 and December 31, 2021 and are included in "Other liabilities, net" in our balance sheets.
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Other
As of March 31, 2022, we had committed tenant-related obligations totaling $78.6 million ($73.2 million related to our consolidated entities and $5.4 million related to our unconsolidated real estate ventures at our share). The timing and amounts of payments for tenant-related obligations are uncertain and may only be due upon satisfactory performance of certain conditions.
There are various legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to (1)unconsolidated real estate ventures, to (i) guarantee portions of the principal, interest and other amounts in connection with their borrowings, (2)(ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with their borrowings and (3)or (iii) provide guarantees to lenders and other third parties for the completion of development projects. We customarily have agreements with our outside venture partners whereby the partners agree to reimburse the jointreal estate venture or us for their share of any payments made under the guarantee. Amounts that may be required to be paid in future periods in relation to budget overruns or operating losses thatcertain of these guarantees. At times, we also included in somehave agreements with certain of our guarantees are not estimable.outside venture partners whereby we agree to either indemnify the partners and/or the associated ventures with respect to certain contingent liabilities associated with operating assets or to reimburse our partner for its share of any payments made by them under certain guarantees. Guarantees (excluding environmental) customarily terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt. Amounts that we may be required to pay in future periods in relation to guarantees associated with budget overruns or operating losses are not estimable.
As of September 30, 2017,March 31, 2022, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $68.6 million. As of March 31, 2022, we had 0 principal payment guarantees related to our unconsolidated real estate ventures.
Additionally, with respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (i) guarantee portions of the principal, interest and other amounts, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (iii) provide guarantees to lenders, tenants and other third parties for the completion of development projects.As of March 31, 2022, the aggregate amount of our principal payment guarantees was approximately $89.0$8.3 million for our consolidated entities and $63.8 million for our unconsolidated real estate ventures.
| Year ending December 31, | Amount | |||
| (In thousands) | ||||
| 2017 | $ | 1,974 | ||
| 2018 | 8,391 | |||
| 2019 | 8,170 | |||
| 2020 | 7,825 | |||
| 2021 | 7,496 | |||
| 2022 | 6,580 | |||
| Thereafter | 874,467 | |||
| Total | $ | 914,903 | ||
In connection with the Formation Transaction, we entered intohave an agreement with Vornado under whichregarding tax matters (the "Tax Matters Agreement") that provides special rules that allocate tax liabilities if the distribution of JBG SMITH shares by Vornado, provides operational support for an initial period of uptogether with certain related transactions, is determined not to two years. These services include information technology, financial reportingbe tax-free. Under the Tax Matters Agreement, we may be required to indemnify Vornado against any taxes and payroll services. The charges for these services are based on an hourly or per transaction fee arrangement including reimbursement for overheadrelated amounts and out-of-pocket expenses. The total charges for both the three months and nine months ended September 30, 2017 were approximately $912,000. Pursuant to an agreement, we are providing Vornado with leasing and property management services for certain of its assets that were not partcosts resulting from a violation by us of the Separation. The total revenue related to these services for both the three monthsTax Matters Agreement.
18.Transactions with Related Parties
Our third-party asset management and nine months ended September 30, 2017 was $68,000. We believe that the terms of both of these agreements are comparable to those that would have been negotiated based on market rates.
We launched the WHI with the Federal City Council in June 2018 as a scalable market-driven model that uses private capital to help address the scarcity of housing for middle income families. We are the manager for the WHI Impact Pool, which is the social impact debt financing vehicle of the WHI. As of March 31, 2022, the WHI Impact Pool had completed
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closings of capital commitments totaling $114.4 million, which included a commitment from us of $11.2 million. As of March 31, 2022, our remaining commitment was $7.5 million.
The third-party real estate services revenue, including expense reimbursements, from thesethe JBG Legacy Funds and the WHI Impact Pool was $5.5 million and $5.8 million for both the three and nine months ended September 30, 2017 was $8.4 million.
We rented our management team and/or Board of Trustees.
We have agreements with Building Maintenance Services ("BMS"), an entity in which we have a minor preferred interest, to supervise cleaning, engineering and security services at our properties. We paid BMS $3.1 million and $4.3 million during the ability to draw an additional $10.0 million based on the asset’s performance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see "Risk Factors" in Item 1A of our Registration StatementAnnual Report on Form 10, as amended,10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the "SEC"on February 22, 2022 ("Annual Report") and declared effective on June 26, 2017, as well as the section entitled "Risk Factors""Management's Discussion and Analysis of the final Information Statement filed with the SEC as Exhibit 99.1 on our CurrentFinancial Condition and Results of Operations" in this Quarterly Report on Form 8-K filed on June 27, 2017.
For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Organization and Basis of Presentation
JBG SMITH Properties ("JBG SMITH") was organized by Vornado Realty Trust ("Vornado" or "former parent") as, a Maryland real estate investment trust ("REIT") on October 27, 2016 (capitalized on November 22, 2016)., owns and operates a portfolio of commercial and multifamily assets amenitized with ancillary retail. JBG SMITH's portfolio reflects its longstanding strategy of owning and operating assets within Metro-served submarkets in the Washington, D.C. metropolitan area with high barriers to entry and vibrant urban amenities. Over half of our portfolio is in National Landing in Northern Virginia where we serve as the developer for Amazon.com, Inc.'s ("Amazon") new over five million square foot headquarters and where Virginia Tech's $1 billion Innovation Campus is under construction. In addition, our third-party asset management and real estate services business provides fee-based real estate services to Amazon, the Washington Housing Initiative ("WHI") Impact Pool, the legacy funds formerly organized by The JBG Companies ("JBG") (the "JBG Legacy Funds") and other third parties. Substantially all our assets are held by, and our operations are conducted through, JBG SMITH was formedProperties LP ("JBG SMITH LP"), our operating partnership. JBG SMITH is referred to as "we," "us," "our" or other similar terms. References to "our share" refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures.
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We were organized for the purpose of receiving, via the spin-off on July 17, 2017 (the "Separation"), substantially all of the assets and liabilities of Vornado’sVornado Realty Trust's ("Vornado") Washington, DC segment, which operated as Vornado / Charles E. Smith, (the "Vornado Included Assets").D.C. segment. On July 18, 2017, JBG SMITHwe acquired the management business, and certain assets and liabilities (the "JBG Assets") of The JBG Companies (the "Combination"). The Separation and the Combination are collectively referred to as the "Formation Transaction." Unless the context otherwise requires, all references to "we," "us," and "our," refer to the Vornado Included Assets, our predecessor and accounting acquirer, for periods prior to the Separation and to JBG SMITH for periods from and after the Separation and Combination.
References to theour financial statements refer to our unaudited condensed consolidated and combined financial statements as of September 30, 2017March 31, 2022 and December 31, 2016,2021, and for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. References to theour balance sheets refer to our condensed consolidated and combined balance sheets as of September 30, 2017March 31, 2022 and December 31, 2016.2021. References to theour statements of operations refer to our condensed consolidated and combined statements of operations for the three
The accompanying unaudited financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The historical financial results for the Vornado Included Assets reflect charges for certain corporate costs allocated by the former parent which we believe are reasonable. These charges were based on either actual costs incurred or a proportion of costs estimated to be applicable to the Vornado Included Assets based on an analysis of key metrics, including total revenues. Such costs do not necessarily reflect what the actual costs would
We have been if the Vornado Included Assets had been operating as a separate standalone public company. These charges are discussed further in Note 17 to the financial statements.
We aggregate our operating segments into three reportable segments (office,(commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.
Our revenues and expenses are, to some extent, subject to seasonality during the year, which impacts quarterly net earnings, cash flows and funds from operations that affects the sequential comparison of our results in individual quarters over time. For instance, we have historically experienced higher utility costs in the first and third quarters of the year.
We compete with a large number ofmany property owners and developers. Our success depends upon, among other factors, trends affecting national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and legislation, population trends, zoning laws, and our ability to lease, sublease or sell our assets at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.
Overview
As of September 30, 2017,March 31, 2022, our portfolio comprised: (i) 69Operating Portfolio consisted of 62 operating assets comprising 51 office41 commercial assets totaling over 13.713.0 million square feet (11.8(11.3 million square feet at our share), 1420 multifamily assets totaling 6,0167,715 units (4,232 units at our share) and four other assets totaling approximately 765,000 square feet (348,000 square feet at our share); (ii) nine assets under construction comprising four office assets totaling approximately 1.3 million square feet (1.2 million square feet at our share), four multifamily assets totaling 1,334 units (1,149(6,502 units at our share) and one otherwholly-owned land asset totaling approximately 41,100 square feet (4,100 square feet at our share; (iii) one near-term developmentfor which we are the ground lessor. Additionally, we have: (i) two under-construction multifamily asset totaling 433assets with 1,583 units (303(1,583 units at our share), and (iv) 42 future; (ii) nine near-term development assets totaling approximately 21.34.1 million square feet (17.6(3.9 million square feet at our share) of estimated potential development density; and (iii) 20 future development assets totaling 13.0 million square feet (10.5 million square feet at our share) of estimated potential development density.
We continue to focus on our comprehensive plan to reposition our holdings in National Landing in Northern Virginia by executing a broad array of Placemaking strategies. Our Placemaking includes the delivery of new multifamily and office developments, locally sourced amenity retail, and thoughtful improvements to the streetscape, sidewalks, parks and other outdoor gathering spaces. In keeping with our dedication to Placemaking, each new project is intended to contribute to authentic and distinct neighborhoods by creating a vibrant street environment with robust retail offerings and other amenities, including improved public spaces. Additionally, the cutting-edge digital infrastructure investments we are
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making, including the purchase of Citizens Broadband Radio Service wireless spectrum in National Landing and an agreement with AT&T, are advancing our efforts as we strive to make National Landing among the first 5G-operable submarkets in the nation.
In November 2018, Amazon announced it had selected sites in National Landing as the location of its new headquarters. We currently have leases with Amazon totaling 1.0 million square feet at six office buildings in National Landing. In March 2019, we executed purchase and sale agreements with Amazon for two of our National Landing development sites, Metropolitan Park and Pen Place. We are currently constructing two new office buildings for Amazon on Metropolitan Park, totaling 2.1 million square feet, inclusive of over 50,000 square feet of street-level retail with new shops and restaurants. The sale of Pen Place to Amazon is expected to close, subject to customary closing conditions, during the second quarter of 2022 for $198.0 million, and we expect Amazon to begin construction in 2022. We are the developer, property manager and retail leasing agent for Amazon's new headquarters at National Landing.
2022 Outlook
A fundamental component of our strategy to maximize long-term net asset value ("NAV") per share is active capital allocation. We evaluate development, acquisition, disposition, share repurchase and other investment decisions based on how they may impact long-term NAV per share. We intend to continue to opportunistically sell non-core office assets outside of National Landing as well as land sites where a ground lease or joint venture execution may represent the most attractive path to maximizing value. Successful execution of our capital allocation strategy enables us to source capital at NAV from the disposition of assets generating low cash yields and invest those proceeds in new acquisitions with higher cash yields and growth, as well as in development projects with significant yield spreads and profit potential. We view this strategy as a key tool to source capital and intend to continue disposing of assets where the disparity in public and private market valuations is greatest. Consequently, at any given time, we expect to be in various stages of discussions and negotiations with potential buyers, real estate venture partners, ground lessors and other counterparties with respect to sales, joint ventures and/or ground leases for certain of our assets, including portfolios thereof. These discussions and negotiations may or may not lead to definitive documentation or closed transactions. Redeploying the proceeds from these sales will not only help fund our planned growth, but will also further advance the strategic shift of our portfolio to majority multifamily.
Our office portfolio performance remained relatively stable in the first quarter. While the pandemic appears to be abating, and we are optimistic about the future, new leasing has been slow to recover and will likely continue to lag due to delayed return-to-the office plans and decision-making related to future office utilization. We expect this lag to continue to impact our occupancy levels through 2022. We have seen an increase in the number of employees returning to the office, with parking revenue in our commercial portfolio at approximately 65% of pre-pandemic levels of approximately $30 million annually, at our share.
Our multifamily portfolio has seen an improvement in occupancy as residents continue to return to urban environments, offices reinstate in-person mandates, and cities repopulate. Although asking rents in our portfolio ended the quarter above pre-pandemic levels, average in-place rents ended the quarter approximately 8.5% below asking rents. We expect in-place rents to increase as leases roll, resulting in incremental multifamily NOI growth.
Operating Results
Key highlights of operating results for the three months ended September 30, 2017March 31, 2022 included:
| ● | |
| ● | third-party real estate services revenue, including reimbursements, of $24.0 million for 2022 compared to $38.1 million for 2021; |
| ● | |
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| The in-service operating multifamily portfolio leased |
| ● | |
the leasing of a GAAP-basis weighted average rent per square foot (3) of $53.49 for 2022; and |
| ● | |
an increase in same store March 31, 2021. |
| (1) | |
| (2) | |
| Represents the cash basis weighted average starting rent per square foot at our share, which excludes free rent and |
| (3) | Represents the weighted average rent per square foot recognized over the term of the respective leases, including the effect of free rent and fixed escalations. |
| Includes the results of the properties that are owned, operated and |
Additionally, investing and financing activity during the three months ended September 30, 2017March 31, 2022 included:
| ● | |
| the |
| ● | recognition of an aggregate gain of $5.2 million from the sale of various assets by one of our unconsolidated real estate ventures. See Note 4 to the financial statements for additional information; |
| the |
| ● | the amendment of a |
| ● | the payment of dividends totaling $28.7 million |
| ● | |
| the |
| ● | |
| the investment of |
Activity subsequent to March 31, 2022 included:
| ● | the sale of the Universal Buildings for a gross sales price of $228.0 million; |
| ● | the formation of an unconsolidated real estate venture with affiliates of Fortress Investment Group LLC to recapitalize a 1.6 million square foot office portfolio and land parcels for a gross sales price of $580.0 million comprising four wholly owned commercial assets (7200 Wisconsin Avenue, 1730 M Street, RTC-West/RTC-West Trophy Office/RTC-West Land and Courthouse Plaza 1 and 2). See Note 3 to the financial statements for additional information; |
| ● | the repurchase and retirement of 707,000 common shares for $19.4 million, a weighted average purchase price per share of $27.39, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended; |
| ● | repaid $210.0 million on our revolving credit facility; and |
| ● | the declaration of a quarterly dividend of $0.225 per common share, payable on May 27, 2022 to shareholders of record as of May 13, 2022. |
Critical Accounting Policies and Estimates
Our Information Statement on Form 10, as amended, filed with the SEC on June 20, 2017Annual Report contains a description of our critical accounting policies,estimates, including asset acquisitions, real estate, deferred costs, revenue recognition and income taxes. For the three and nine months ended September 30, 2017, there were no material changes to these policies, except for the addition of the following policy:
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Recent Accounting Pronouncements
See Note 2 to the financial statements for a description of the potential impact of the adoption of any newrecent accounting pronouncements.
Comparison of the Three Months Ended September 30, 2017March 31, 2022 to 2016
The following summarizes certain line items from our statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the three months ended September 30, 2017 asMarch 31, 2022 compared to the same period in 2016:
| | | | | | | | | |
| | Three Months Ended March 31, | |||||||
|
| 2022 |
| 2021 |
| % Change |
| ||
| (Dollars in thousands) |
| |||||||
Property rental revenue | | $ | 131,598 | | $ | 122,241 |
| 7.7 | % |
Third-party real estate services revenue, including reimbursements | |
| 23,970 | |
| 38,107 |
| (37.1) | % |
Depreciation and amortization expense | |
| 58,062 | |
| 64,726 |
| (10.3) | % |
Property operating expense | |
| 40,644 | |
| 34,731 |
| 17.0 | % |
Real estate taxes expense | |
| 18,186 | |
| 18,310 |
| (0.7) | % |
General and administrative expense: | | | | | | | | | |
Corporate and other | |
| 15,815 | |
| 12,475 |
| 26.8 | % |
Third-party real estate services | |
| 27,049 | |
| 28,936 |
| (6.5) | % |
Share-based compensation related to Formation Transaction and special equity awards | |
| 2,244 | |
| 4,945 |
| (54.6) | % |
Transaction and other costs | |
| 899 | |
| 3,690 |
| (75.6) | % |
Income (loss) from unconsolidated real estate ventures, net | |
| 3,145 | |
| (943) |
| 433.5 | % |
Interest and other income, net | |
| 14,246 | |
| 9 |
| * | |
Interest expense | |
| 16,278 | |
| 16,296 |
| (0.1) | % |
| Three Months Ended September 30, | ||||||||||
| 2017 | 2016 | % Change | ||||||||
| (In thousands) | ||||||||||
| Property rentals revenue | $ | 116,458 | $ | 103,265 | 12.8 | % | ||||
| Tenant reimbursements revenue | 9,593 | 10,231 | (6.2 | )% | ||||||
| Third-party real estate services revenue, including reimbursements | 25,141 | 8,297 | 203.0 | % | ||||||
| Depreciation and amortization expense | 43,951 | 31,377 | 40.1 | % | ||||||
| Property operating expense | 29,634 | 27,287 | 8.6 | % | ||||||
| Real estate taxes expense | 17,194 | 14,462 | 18.9 | % | ||||||
| General and administrative expense: | ||||||||||
| Corporate and other | 10,593 | 10,913 | (2.9 | )% | ||||||
| Third-party real estate services | 21,178 | 4,779 | 343.1 | % | ||||||
| Share-based compensation related to Formation Transaction | 14,445 | — | * | |||||||
| Transaction and other costs | 104,095 | 1,528 | * | |||||||
| (Loss) income from unconsolidated real estate ventures | (1,679 | ) | 584 | * | ||||||
| Interest expense | 15,309 | 13,028 | 17.5 | % | ||||||
| Loss on extinguishment of debt | 689 | — | * | |||||||
| Gain on bargain purchase | 27,771 | — | * | |||||||
| Net loss attributable to redeemable noncontrolling interests | 8,160 | — | * | |||||||
* Not meaningful.
Property rentalsrental revenue increased by approximately $13.2$9.4 million, or 12.8%7.7%, to $116.5$131.6 million in 20172022 from $103.3$122.2 million in 2016.2021. The increase was primarily due to revenues(i) a $4.5 million increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street), (ii) a $2.8 million increase related to the commencement of $13.8a lease with Amazon at 2100 Crystal Drive, (iii) a $2.8 million associated with the assetsincrease related to The Batley, which we acquired in the Combination,November 2021 and (iv) a $1.7 million increase due to cash basis tenants paying previously deferred rent in 2022 and to a decrease in uncollectible operating lease receivables. The increase in property rental revenue was partially offset by a decrease of $0.6 million in revenues associated with existing assets. The $0.6$2.1 million decrease in revenues associated with existing assets is primarily due to 1150 17
Third-party real estate services revenue, including reimbursements, decreased by approximately $14.1 million, or 37.1%, to $24.0 million in 2022 from $38.1 million in 2021. The decrease was primarily due to a $10.7 million decrease in development fees related to the timing of development projects and a $2.9 million decrease in reimbursement revenue due to the termination of a management agreement.
Depreciation and amortization expense decreased by approximately $6.7 million, or 10.3%, to $58.1 million in 2022 from $64.7 million in 2021. The decrease was primarily due to a $12.1 million decrease related to the Universal Buildings, RTC-West, 7200 Wisconsin Avenue and 2345 Crystal Drive primarily due to the amortization and disposal of certain tenant improvements in 2021. The decrease in depreciation and amortization expense was partially offset by a $4.3 million increase related to The Batley.
Property operating expense increased by approximately $16.8$5.9 million, or 203.0%17.0%, to $25.1$40.6 million in 20172022 from $8.3$34.7 million in 2016.2021. The increase was primarily due to (i) a $1.7 million increase related to technology initiatives in National Landing, (ii) an $879,000 increase related to The Batley, (iii) a $614,000 increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren and 900 W Street), (iv) a $555,000 increase related to 2451 Crystal Drive due to costs incurred for construction management services provided to tenants, (v) a $524,000 increase related to 2221 S. Clark Street – Residential due to higher property management and other operating expenses and (vi) a
31
$512,000 increase related to higher operating costs associated with the realcommencement of a lease with Amazon at 2100 Crystal Drive.
Real estate services business acquired in the Combination, partially offset by lower management fees and leasing commissions from existing arrangements with third-parties.
General and administrative expense: corporate and other decreasedincreased by approximately $300,000,$3.3 million, or 2.9%26.8%, to $10.6$15.8 million in 20172022 from $10.9$12.5 million in 2016.2021. The decreaseincrease was primarily due to lower marketing and general office expenses, partially offset by an increase in general operating expenses associated with the operations acquired in the Combination.
General and administrative expense: third-party real estate services increaseddecreased by approximately $16.4$1.9 million, or 343.1%6.5%, to $21.2$27.0 million in 20172022 from $4.8$28.9 million in 2016
General and administrative expense: share-based compensation related to Formation Transaction of $14.4 million in 2017 consists of expense related to share-based compensation issued in connection with the Formation Transaction.
| Nine Months Ended September 30, | ||||||||||
| 2017 | 2016 | % Change | ||||||||
| (In thousands) | ||||||||||
| Property rentals revenue | $ | 316,899 | $ | 299,497 | 5.8 | % | ||||
| Tenant reimbursements revenue | 27,161 | 28,428 | (4.5 | )% | ||||||
| Third-party real estate services revenue, including reimbursements | 38,881 | 24,617 | 57.9 | % | ||||||
| Depreciation and amortization expense | 109,726 | 98,291 | 11.6 | % | ||||||
| Property operating expense | 77,341 | 75,087 | 3.0 | % | ||||||
| Real estate taxes expense | 47,978 | 43,712 | 9.8 | % | ||||||
| General and administrative expense: | ||||||||||
| Corporate and other | 35,536 | 36,040 | (1.4 | )% | ||||||
| Third-party real estate services | 30,362 | 14,272 | 112.7 | % | ||||||
| Share-based compensation related to Formation Transaction | 14,445 | — | * | |||||||
| Transaction and other costs | 115,173 | 1,528 | * | |||||||
| Loss from unconsolidated real estate ventures | (1,365 | ) | (952 | ) | 43.4 | % | ||||
| Interest expense | 43,813 | 38,662 | 13.3 | % | ||||||
| Loss on extinguishment of debt | 689 | — | * | |||||||
| Gain on bargain purchase | 27,771 | — | * | |||||||
| Net loss attributable to redeemable noncontrolling interests | 2,481 | — | * | |||||||
Transaction and other costs of $115.2$899,000 in 2022 primarily included $732,000 of expenses related to completed, potential and pursued transactions, and $145,000 of integration and severance costs. Transaction and other costs of $3.7 million in 2017 consists2021 primarily included $2.4 million of feesexpenses related to completed, potential and expenses incurred in connection with the Formation Transaction, including severancepursued transactions, and transaction bonus expense$1.0 million of $34.3 million, investment banking fees of $33.6 million, legal fees of $13.1 million and accounting fees of $8.1 million.
Income from unconsolidated real estate ventures increased by approximately $400,000 to $1.4 million in 2017 from $1.0 million in 2016. The increase in the loss was primarily due to losses from interests in real estate ventures acquired in the Combination, partially offset by a reduction of interest expense of approximately $1.7 million from the refinancing of the Warner Building mortgage loan in May 2016 at a lower interest rate and for a lower outstanding principal amount.
Interest and other income of $14.2 million in 2022 was primarily related to a realized gain of $13.9 million from the sale of investments in equity securities, which had been carried at cost.
Interest expense decreased by approximately $18,000, or 0.1%, to $16.3 million in 2022. The decrease in interest expense associated with the assets acquiredwas due to a $3.2 million change in the Combination and lower capitalized interest related to The Bartlett which was placed into service during the second quarter of 2016, partially offset by lower interest expense associated with mortgages that were repaid.
FFO
FFO is a non-GAAP financial statements for additional information.
We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because FFO excludes real estate depreciation and amortization expense and other non-comparable income and expenses, which implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen withtime rather than fluctuating based on market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves."
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The following reflectsis the reconciliation of net (loss) incomeloss attributable to JBG SMITH Properties,common shareholders, the most directly comparable GAAP measure, to FFO for the three months ended September 30, 2017:
| Three Months Ended September 30, 2017 | |||
| (In thousands) | |||
| Net loss attributable to JBG SMITH Properties | $ | (69,831 | ) |
| Net loss attributable to redeemable noncontrolling interests | (8,160 | ) | |
| Net loss | (77,991 | ) | |
| Real estate depreciation and amortization | 41,393 | ||
| Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures | 6,059 | ||
| FFO attributable to the operating partnership common units | (30,539 | ) | |
| FFO attributable to redeemable noncontrolling interests | 3,195 | ||
| FFO attributable to diluted common shareholders | $ | (27,344 | ) |
| Weighted average diluted shares | 114,744 | ||
| | | | | | |
| | Three Months Ended March 31, | ||||
| X | 2022 |
| 2021 | ||
| | (In thousands) | ||||
Net loss attributable to common shareholders | | $ | (32) | | $ | (20,731) |
Net income (loss) attributable to redeemable noncontrolling interests | |
| 10 | |
| (2,230) |
Net loss attributable to noncontrolling interests | |
| (55) | |
| (1,108) |
Net loss | |
| (77) | |
| (24,069) |
Loss on the sale of real estate | |
| 136 | |
| — |
Gain on the sale of unconsolidated real estate assets | |
| (5,243) | |
| — |
Real estate depreciation and amortization | |
| 55,517 | |
| 62,500 |
Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures | |
| 6,870 | |
| 7,311 |
FFO attributable to noncontrolling interests | |
| (26) | |
| 1,071 |
FFO attributable to OP Units | |
| 57,177 | |
| 46,813 |
FFO attributable to redeemable noncontrolling interests | |
| (5,877) | |
| (4,485) |
FFO attributable to common shareholders | | $ | 51,300 | | $ | 42,328 |
NOI which is a non-GAAP financial measure that we usemanagement uses to assess a segment’ssegment's performance. The most directly comparable GAAP measure is net income (loss) attributable to JBG SMITH Properties plus depreciation and amortization expense, general and administrative expense, transaction and other costs, interest expense, gain (loss) on extinguishment of debt and income tax expense, less third-party real estate services, less reimbursements, other income, income (loss) from unconsolidated real estate ventures, interest and other (loss) income, gain on bargain purchase and noncontrolling interests.common shareholders. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only property related revenue (which includes base rent, tenant reimbursements and other operating revenue)revenue, net of free rent and payments associated with assumed lease liabilities) less operating expense, beforeexpenses and ground rent for operating leases, if applicable. NOI also excludes deferred rent, and related party management fees.fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and the amortization of acquired above-market leases and below-market ground lease intangibles. Management uses NOI as a supplemental performance measure forof our assets and believes it provides useful information to investors because it reflects only those revenue and expense items that are incurred at the asset level, excluding non-cash items. In addition, NOI is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. However, because NOI excludes depreciation and amortization and captures neither the changes in the value of our assets that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our assets, all of which have real economic effect and could materially impact the financial performance of our assets, the utility of NOI as a measure of the operating performance of our assets is limited. NOI presented by us may not be comparable to NOI reported by other REITs that define these measures differently. We believe that to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) attributable to JBG SMITH Propertiescommon shareholders as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) attributable to JBG SMITH Propertiescommon shareholders as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.
Information provided on a same store basis includes the results of properties that are owned, operated and stabilizedin-service for the entirety of both periods being compared, except forwhich excludes properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared. During the three months ended March 31, 2022, our same store pool increased to 59 properties from 55 properties due to the inclusion of West Half, 901 W Street, 900 W Street 1770 Crystal Drive, 1900 N Street and 4747 Bethesda Avenue, and the exclusion of The Alaire and The Terano, which were sold during the period. While there is judgment surrounding changes in designations, a property is removed from the same store pool when athe property is considered to be a property under constructionunder-construction because it is undergoing significant redevelopment or renovation pursuant to a formal plan or is being repositioned in the market and such renovation or repositioning is expected to have a significant impact on property operating income.NOI. A development property or under-construction property under construction is moved to the same store pool once a substantial portion of the growth expected from the development or redevelopment is reflected in both the current and comparable prior year period. Acquisitions are moved into the same store pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment.
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Same store NOI increased by $4.2$9.5 million, or 6.3%12.0%, and $6.3to $88.5 million or 3.1%, for the three and nine months ended September 30, 2017, respectively, as compared toMarch 31, 2022 from $79.0 million for the three and nine months ended September 30, 2016, respectively.same period in 2021. The increase was substantially attributable to (i) higher occupancy and rents, and lower concessions in same store
The following table reflectsis the reconciliation of net (loss) incomeloss attributable to JBG SMITH Properties, the most directly comparable GAAP measure,common shareholders to NOI and same store NOI for the periods presented:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
| | | | | | |
Net loss attributable to common shareholders | | $ | (32) | | $ | (20,731) |
Add: | | | | | | |
Depreciation and amortization expense | |
| 58,062 | |
| 64,726 |
General and administrative expense: | | | | | | |
Corporate and other | |
| 15,815 | |
| 12,475 |
Third-party real estate services | |
| 27,049 | |
| 28,936 |
Share-based compensation related to Formation Transaction and special equity awards | |
| 2,244 | |
| 4,945 |
Transaction and other costs | |
| 899 | |
| 3,690 |
Interest expense | |
| 16,278 | |
| 16,296 |
Loss on the extinguishment of debt | |
| 591 | |
| — |
Income tax expense (benefit) | |
| (471) | |
| 4,315 |
Net income (loss) attributable to redeemable noncontrolling interests | |
| 10 | |
| (2,230) |
Net loss attributable to noncontrolling interests | | | (55) | | | (1,108) |
Less: | | | | | | |
Third-party real estate services, including reimbursements revenue | |
| 23,970 | |
| 38,107 |
Other revenue | |
| 2,196 | |
| 2,186 |
Income (loss) from unconsolidated real estate ventures, net | |
| 3,145 | |
| (943) |
Interest and other income, net | |
| 14,246 | |
| 9 |
Loss on the sale of real estate | |
| (136) | |
| — |
Consolidated NOI | |
| 76,969 | |
| 71,955 |
NOI attributable to unconsolidated real estate ventures at our share | |
| 6,967 | |
| 7,512 |
Non-cash rent adjustments (1) | |
| (1,791) | |
| (4,765) |
Other adjustments (2) | |
| 8,760 | |
| 4,738 |
Total adjustments | |
| 13,936 | |
| 7,485 |
NOI | |
| 90,905 | |
| 79,440 |
Less: out-of-service NOI loss (3) | |
| (1,448) | |
| (1,361) |
Operating Portfolio NOI | |
| 92,353 | |
| 80,801 |
Non-same store NOI (4) | |
| 3,814 | |
| 1,767 |
Same store NOI (5) | | $ | 88,539 | | $ | 79,034 |
| | | | | | |
Change in same store NOI | |
| 12.0% | | | |
Number of properties in same store pool | |
| 59 | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In thousands) | |||||||||||||||
| Net (loss) income attributable to JBG SMITH Properties | $ | (69,831 | ) | $ | 21,014 | $ | (57,851 | ) | $ | 49,344 | |||||
| Add: | |||||||||||||||
| Depreciation and amortization expense | 43,951 | 31,377 | 109,726 | 98,291 | |||||||||||
| General and administrative expense: | |||||||||||||||
| Corporate and other | 10,593 | 10,913 | 35,536 | 36,040 | |||||||||||
| Third-party real estate services | 21,178 | 4,779 | 30,362 | 14,272 | |||||||||||
| Share-based compensation related to Formation Transaction | 14,445 | — | 14,445 | — | |||||||||||
| Transaction and other costs | 104,095 | 1,528 | 115,173 | 1,528 | |||||||||||
| Interest expense | 15,309 | 13,028 | 43,813 | 38,662 | |||||||||||
| Loss on extinguishment of debt | 689 | — | 689 | — | |||||||||||
| Income tax (benefit) expense | (1,034 | ) | 302 | (317 | ) | 884 | |||||||||
| Less: | |||||||||||||||
| Third-party real estate services, including reimbursements | 25,141 | 8,297 | 38,881 | 24,617 | |||||||||||
| Other income | 1,158 | 1,564 | 3,701 | 3,938 | |||||||||||
| (Loss) income from unconsolidated real estate ventures | (1,679 | ) | 584 | (1,365 | ) | (952 | ) | ||||||||
| Interest and other (loss) income, net | (379 | ) | 749 | 1,366 | 2,292 | ||||||||||
| Gain on bargain purchase | 27,771 | — | 27,771 | — | |||||||||||
| Net loss attributable to redeemable noncontrolling interests | 8,160 | — | 2,481 | — | |||||||||||
| Total | 79,223 | 71,747 | 218,741 | 209,126 | |||||||||||
Adjustment (1) | 11,315 | 10,492 | 45,645 | 30,762 | |||||||||||
| NOI | 90,538 | 82,239 | 264,386 | 239,888 | |||||||||||
Non-same store NOI (2) | 20,266 | 16,137 | 59,029 | 40,792 | |||||||||||
Same store NOI (3) | $ | 70,272 | $ | 66,102 | $ | 205,357 | $ | 199,096 | |||||||
| Growth in same store NOI | 6.3 | % | 3.1 | % | |||||||||||
| Number of properties | 36 | 36 | |||||||||||||
| (1) | |
| Adjustment |
| (2) | Adjustment to include other revenue and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue and allocated corporate general and administrative expenses to operating properties. |
| Includes the results |
| (4) | Includes the results of properties that were not |
| (5) | |
| Includes the results of the properties that are owned, operated and |
Reportable Segments
We review operating and financial data for each property on an individual basis; therefore, each of our individual properties is a separate operating segment. We define our reportable segments to be aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker ("CODM"), makes key operating decisions, evaluates financial results, allocates resources and manages our business. Accordingly, we aggregate our operating segments into three reportable segments (commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.
34
The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party asset management and real estate services business, based on the NOI of properties within each segment.
With respect to the third-party asset management and real estate services business, the CODM reviews revenue streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative: third-party real estate services"), which are both disclosed separately in our statements of operations. The following represents the components of revenue from our third-party asset management and real estate services business:
| | | | | | |
| | Three Months Ended March 31, | ||||
| X | 2022 |
| 2021 | ||
| | | | | | |
Property management fees | | $ | 4,808 | | $ | 4,942 |
Asset management fees | |
| 1,771 | |
| 2,228 |
Development fees (1) | |
| 3,539 | |
| 14,250 |
Leasing fees | |
| 1,839 | |
| 860 |
Construction management fees | |
| 150 | |
| 172 |
Other service revenue | |
| 816 | |
| 1,698 |
Third-party real estate services revenue, excluding reimbursements | |
| 12,923 | |
| 24,150 |
Reimbursement revenue (2) | |
| 11,047 | |
| 13,957 |
Third-party real estate services revenue, including reimbursements | | | 23,970 | | | 38,107 |
Third-party real estate services expenses | | | 27,049 | | | 28,936 |
Third-party real estate services revenue less expenses | | $ | (3,079) | | $ | 9,171 |
| (1) | As of March 31, 2022, we had estimated unrecognized development fee revenue totaling $45.2 million, of which $10.4 million, $12.0 million and $6.3 million is expected to be recognized during the remainder of 2022, 2023 and 2024, and $16.5 million is expected to be recognized thereafter through 2027 as unsatisfied performance obligations are completed. |
| (2) | Represents reimbursements of expenses incurred by us on behalf of third parties, including allocated payroll costs and amounts paid to third-party contractors for |
See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the three months ended March 31, 2022 in the preceding pages under "Results of Operations."
Consistent with internal reporting presented to our CODM and our definition of NOI, the third-party asset management and real estate services operating results are excluded from the NOI data below.
35
Property revenue is calculated as property rental revenue plus parking revenue. Property expense is calculated as property operating expenses plus real estate taxes. Consolidated NOI is calculated as property revenue less property expense. See Note 16 to the financial statements for the reconciliation of net loss attributable to common shareholders to consolidated NOI for the three months ended March 31, 2022 and 2021. The following is a summary of NOI by segment:
| | | | | | |
| | Three Months Ended March 31, | ||||
| X | 2022 |
| 2021 | ||
| | | | | | |
Property revenue: | | |
|
| |
|
Commercial | | $ | 91,633 | | $ | 89,871 |
Multifamily | |
| 42,242 | |
| 32,651 |
Other (1) | |
| 1,924 | |
| 2,474 |
Total property revenue | |
| 135,799 | |
| 124,996 |
| | | | | | |
Property expense: | |
|
| |
|
|
Commercial | |
| 37,979 | |
| 35,736 |
Multifamily | |
| 18,976 | |
| 17,440 |
Other (1) | |
| 1,875 | |
| (135) |
Total property expense | |
| 58,830 | |
| 53,041 |
| | | | | | |
Consolidated NOI: | |
|
| |
|
|
Commercial | |
| 53,654 | |
| 54,135 |
Multifamily | |
| 23,266 | |
| 15,211 |
Other (1) | |
| 49 | |
| 2,609 |
Consolidated NOI | | $ | 76,969 | | $ | 71,955 |
| (1) | Includes activity related to future development assets and corporate entities and the elimination of inter-segment activity. |
Comparison of the periods being compared.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In thousands) | |||||||||||||||
| Rental revenue: | |||||||||||||||
| Office | $ | 99,451 | $ | 90,552 | $ | 272,270 | $ | 262,633 | |||||||
| Multifamily | 24,945 | 16,726 | 65,822 | 47,625 | |||||||||||
| Other | 4,299 | 5,276 | 10,274 | 19,820 | |||||||||||
| Eliminations | (2,644 | ) | 942 | (4,306 | ) | (2,153 | ) | ||||||||
| Total rental revenue | 126,051 | 113,496 | 344,060 | 327,925 | |||||||||||
| Rental expense: | |||||||||||||||
| Office | 40,038 | 36,876 | 108,562 | 104,595 | |||||||||||
| Multifamily | 9,748 | 6,445 | 24,689 | 17,657 | |||||||||||
| Other | 4,706 | 4,071 | 14,150 | 18,728 | |||||||||||
| Eliminations | (7,664 | ) | (5,643 | ) | (22,082 | ) | (22,181 | ) | |||||||
| Total rental expense | 46,828 | 41,749 | 125,319 | 118,799 | |||||||||||
| NOI: | |||||||||||||||
| Office | 59,413 | 53,676 | 163,708 | 158,038 | |||||||||||
| Multifamily | 15,197 | 10,281 | 41,133 | 29,968 | |||||||||||
| Other | (407 | ) | 1,205 | (3,876 | ) | 1,092 | |||||||||
| Eliminations | 5,020 | 6,585 | 17,776 | 20,028 | |||||||||||
| Total NOI | $ | 79,223 | $ | 71,747 | $ | 218,741 | $ | 209,126 | |||||||
Commercial: Property rental revenue increased by $8.9$1.8 million, or 9.8%2.0%, to $99.5$91.6 million in 20172022 from $90.6$89.9 million in 2016.2021. Consolidated NOI increaseddecreased by $5.7 million,$481,000, or 10.7%0.9%, to $59.4 million in 2017 from $53.7 million in 2016.2022 from $54.1 million in 2021. The increase in property revenue and NOI is primarilywas due to the Combination.
Multifamily: Property rental revenue increased by $9.7$9.6 million, or 3.7%29.4%, to $272.3$42.2 million in 20172022 from $262.6$32.7 million in 2016.2021. Consolidated NOI increased by $5.7$8.1 million, or 3.6%53.0%, to $163.7$23.3 million in 20172022 from $158.0$15.2 million in 2016.2021. The increaseincreases in property revenue and consolidated NOI is primarilywere due to the Combinationacquisition of The Batley in November 2021 and higher rents due to rent commencements at 1215 S. Clark St.
Liquidity and Capital Resources
Property rental income is our primary source of operating cash flow and is dependentdepends on a number ofmany factors including occupancy levels and rental rates, as well as our tenants’tenants' ability to pay rent. In addition, to our portfolio, we have a third-party asset management and real estate services business that provides fee-based real estate services to our real estate ventures, legacy funds formerly organized by JBG ("Amazon, the WHI Impact Pool, the JBG Legacy Funds")Funds and other third parties. Our assets provide us with a relatively consistent level of cash flow that enables us to pay operating expenses, debt service, recurring capital expenditures, dividends to shareholders and distributions to holders of OP Units and LTIP Units. Other sources of liquidity to fund cash requirements include proceeds from financings, recapitalizations, asset sales and asset sales.the issuance and sale of securities. We anticipate that cash flows from continuing operations over the next 12 months and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders and distributions to holders of OP Units.Units and LTIP Units over the next 12 months.
36
Financing Activities
The following is a summary of mortgages payable as of September 30, 2017 and December 31, 2016:
| | | | | | | | |
| | Weighted Average | | | | | | |
| | Effective |
| | | | | |
|
| Interest Rate (1) |
| March 31, 2022 |
| December 31, 2021 | ||
| | | | (In thousands) | ||||
Variable rate (2) |
| 2.38% | | $ | 749,946 | | $ | 867,246 |
Fixed rate (3) |
| 4.35% | |
| 872,335 | |
| 921,013 |
Mortgages payable |
| | |
| 1,622,281 | |
| 1,788,259 |
Unamortized deferred financing costs and premium/discount, net (4) |
| | |
| (9,199) | |
| (10,560) |
Mortgages payable, net | | | | | 1,613,082 | | $ | 1,777,699 |
Mortgages payable, net, related to assets held for sale | | 2.45% | | | 163,897 | | | — |
Mortgages payable, net, including mortgages payable related to assets held for sale | | | | $ | 1,776,979 | | $ | 1,777,699 |
| Weighted Average Interest Rate | Balance as of | |||||||||
| September 30, 2017 | September 30, 2017 | December 31, 2016 | ||||||||
| (In thousands) | ||||||||||
Variable rate (1) | 2.95% | $ | 1,152,106 | $ | 547,291 | |||||
Fixed rate (2) | 4.79% | 836,141 | 620,327 | |||||||
Mortgages payable (3) | 1,988,247 | 1,167,618 | ||||||||
| Unamortized deferred financing costs and premium/discount, net | (10,573 | ) | (2,604 | ) | ||||||
| Mortgages payable, net | $ | 1,977,674 | $ | 1,165,014 | ||||||
Payable to former parent (4) | — | $ | — | $ | 283,232 | |||||
| (1) | Weighted average effective interest rate as of March 31, 2022. |
| Includes variable rate mortgages payable with interest rate |
| (3) | |
| Includes variable rate mortgages payable with interest rates |
| (4) | |
As of September 30, 2017,March 31, 2022 and December 31, 2021, the net carrying value of real estate collateralizing our mortgages payable, including mortgages payable related to assets held for sale, totaled $3.9$1.8 billion. Our mortgage loansmortgages payable contain covenants that limit our ability to incur additional indebtedness on these properties and, in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity. Certain mortgages payable are recourse to us. See Note 17 to the financial statements for additional information.
As of September 30, 2017,March 31, 2022 and December 31, 2021, we were in compliance with all debt covenants.
Credit Facility
Our $1.4 billion credit facility consistingconsists of a $1.0 billion revolving credit facility maturing in July 2021, with two six-month extension options,January 2025, a delayed draw $200.0 million unsecured term loan ("Tranche A-1 Term Loan") maturing in January 20232025 and a delayed draw $200.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024. TheEffective as of January 14, 2022, the Tranche A-1 Term Loan was amended to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate for the credit facility variesto SOFR plus 1.15% to SOFR plus 1.75%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets and ranges (a) in the case of the revolving credit facility, from LIBOR plus 1.10% to LIBOR plus 1.50%, (b) in the case of the Tranche A-1 Term Loan, from LIBOR plus 1.20% to LIBOR plus 1.70% and (c) in the case of the Tranche A-2 Term Loan, from LIBOR plus 1.55% to LIBOR plus 2.35%.
| | | | | | | | |
| | Effective | | | ||||
|
| Interest Rate (1) |
| March 31, 2022 |
| December 31, 2021 | ||
| | | | (In thousands) | ||||
Revolving credit facility (2) (3) (4) |
| 1.50% | | $ | 300,000 | | $ | 300,000 |
| | | | | | | | |
Tranche A-1 Term Loan (5) |
| 2.61% | | $ | 200,000 | | $ | 200,000 |
Tranche A-2 Term Loan (5) |
| 2.49% | |
| 200,000 | |
| 200,000 |
Unsecured term loans |
| | |
| 400,000 | |
| 400,000 |
Unamortized deferred financing costs, net |
| | |
| (1,668) | |
| (1,336) |
Unsecured term loans, net | | | | $ | 398,332 | | $ | 398,664 |
| Interest Rate | Balance as of | |||||
| September 30, 2017 | September 30, 2017 | |||||
| (In thousands) | ||||||
Revolving credit facility (1) | 2.34% | $ | 115,751 | |||
| Tranche A-1 Term Loan | 2.44% | $ | 50,000 | |||
| Unamortized deferred financing costs, net | (3,611 | ) | ||||
| Unsecured term loan, net | $ | 46,389 | ||||
| (1) | Effective interest rate as of March 31, 2022. |
| As of |
37
| Total | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||||||||
Contractual cash obligations (principal and interest): | (In thousands) | ||||||||||||||||||||||||||||||
Debt obligations (1) | $ | 2,480,892 | $ | 23,597 | $ | 464,528 | $ | 294,361 | $ | 276,060 | $ | 261,943 | $ | 371,899 | $ | 788,504 | |||||||||||||||
Operating leases (2) | 914,903 | 1,974 | 8,391 | 8,170 | 7,825 | 7,496 | 6,580 | 874,467 | |||||||||||||||||||||||
| Capital lease obligation | 15,767 | 235 | 953 | 972 | 992 | 1,011 | 1,032 | 10,572 | |||||||||||||||||||||||
Total contractual cash obligations (3) | $ | 3,411,562 | $ | 25,806 | $ | 473,872 | $ | 303,503 | $ | 284,877 | $ | 270,450 | $ | 379,511 | $ | 1,673,543 | |||||||||||||||
| (3) | |
| (4) | |
| (5) | |
As of September 30, 2017,March 31, 2022, we expecthad floating rate debt with a principal balance totaling $1.7 billion and hedging arrangements with a notional value totaling $1.4 billion that use LIBOR as a reference rate, including mortgages payable related to fund additional capital to certain of our unconsolidated investments totaling approximately $50.6 million, which we anticipate will be primarily expended over the next two to three years.
Common Shares Repurchased
In March 2020, our Board of Trustees declaredauthorized the repurchase of up to $500.0 million of our outstanding common shares. During the three months ended March 31, 2022, we repurchased and retired 3.3 million common shares for $93.1 million, a quarterly dividendweighted average purchase price per share of $0.225$27.86. During the three months ended March 31, 2021, we repurchased and retired 619,749 common shares for $19.2 million, a weighted average purchase price per share of $30.96. Since we began the share repurchase program, we have repurchased and retired 12.5 million common shares for $355.6 million, a weighted average purchase price per share payable on November 30, 2017of $28.45.
In April 2022, we repurchased and retired 707,000 common shares for $19.4 million, a weighted average purchase price per share of $27.39, pursuant to shareholdersa repurchase plan under Rule 10b5-1 of record on November 20, 2017.the Securities Exchange Act of 1934, as amended.
Purchases under the program are made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share price, applicable legal requirements and other factors. The program may be suspended or discontinued at our discretion without prior notice.
Material Cash Requirements
Our material cash requirements for the next 12 months and beyond include:
| ● | normal recurring expenses; |
| ● | debt service and principal repayment obligations, including balloon payments on maturing debt — As of March 31, 2022, we had mortgages payable totaling $107.5 million on a consolidated basis and $194.1 million at our share scheduled to mature in 2022. In April 2022, we repaid $210.0 million on our revolving credit facility; |
| ● | capital expenditures, including major renovations, tenant improvements and leasing costs — As of March 31, 2022, we had committed tenant-related obligations totaling $78.6 million ($73.2 million related to our consolidated entities and $5.4 million related to our unconsolidated real estate ventures at our share); |
| ● | development expenditures — As of March 31, 2022, we had assets under construction that will, based on our current plans and estimates, require an additional $569.0 million to complete, which we anticipate will be primarily expended over the next two to three years; |
38
| ● | dividends to shareholders and distributions to holders of OP Units and LTIP Units — On April 29, 2022, our Board of Trustees declared a quarterly dividend of $0.225 per common share; |
| ● | common share repurchases — In April 2022, we repurchased and retired 707,000 common shares for $19.4 million; and |
| ● | possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests therein. |
We expect to satisfy these needs using one or more of the following:
| ● | cash and cash equivalents — As of March 31, 2022, we had cash and cash equivalents of $189.1 million; |
| ● | cash flows from operations; |
| ● | distributions from real estate ventures; |
| ● | borrowing capacity under our current credit facility — As of March 31, 2022, we had $699.5 million of availability under our credit facility; and |
| ● | proceeds from financings, recapitalizations and asset sales. |
While we do not expect the need to do so during the next 12 months, we also can issue securities to raise funds.
During the three months ended March 31, 2022, there were no material changes to the financial statements formaterial cash requirements information presented in Item 7 of Part II of our Annual Report.
See additional information about events occurring after September 30, 2017.
Summary of Cash Flows
The following summary discussion of our cash flows is based on theour statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
| Nine Months Ended September 30, | |||||||||||
| 2017 | 2016 | Change | |||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 23,393 | $ | 101,383 | $ | (77,990 | ) | ||||
| Net cash provided by (used in) investing activities | 88,184 | (204,105 | ) | 292,289 | |||||||
| Net cash provided by financing activities | 227,319 | 63,040 | 164,279 | ||||||||
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
| | (In thousands) | ||||
Net cash provided by operating activities | | $ | 69,598 | | $ | 66,502 |
Net cash used in investing activities | |
| (32,951) | |
| (29,515) |
Net cash used in financing activities | |
| (119,529) | |
| (51,776) |
Cash Flows for the NineThree Months Ended September 30, 2017
Cash and cash equivalents, were $367.9and restricted cash decreased $82.9 million at September 30, 2017,to $219.2 million as of March 31, 2022, compared to $29.0$302.1 million atas of December 31, 2016, an increase of $338.9 million.2021. This increasedecrease resulted from $23.4 million of net cash provided by operating activities, $88.2$119.5 million of net cash used in investingfinancing activities and $227.3$33.0 million of net cash provided by financing activities. Our outstanding debt was $2.1 billion at September 30, 2017, a $974.8 million increase from the balance at December 31, 2016.
Net cash provided by operating activities of $101.4$69.6 million primarily comprised: (i) $50.7 million of net income of $49.3 million, (ii) $92.4(before $50.6 million of non-cash adjustments, which include depreciationitems and amortization,a $136,000 loss on the sale of real estate), (ii) $2.9 million of return on capital from unconsolidated real estate ventures and (iii) $16.0 million of net change in operating assets and liabilities. Non-cash income adjustments of $50.6 million primarily include depreciation and amortization expense, net income from investments, share-based compensation expense, deferred rent, and accretion of below-market lease intangibles and (iii) distributions ofnet income from unconsolidated real estate ventures, amortization of $1.0 million, partially offset by (iv) the net change in operating assetslease incentives and liabilities of $45.5 million.
Net cash used in investing activities of $204.1$33.0 million comprised: (i) $185.4$52.7 million of development costs, construction in progress and real estate additions and (ii) $20.0$7.2 million of investments in and advances to unconsolidated real estate ventures and (iii) $1.9 million of other investments, partially offset by (iv) a decrease of $3.2 million in restricted cash.
39
Net cash used in financing activities of $119.5 million primarily comprised: (i) $91.1 million of common shares repurchased, (ii) $28.7 million of dividends paid to common shareholders, (iii) $4.0 million of distributions to our former parent,redeemable noncontrolling interests and (iv) $1.2 million of repayments of mortgages payable, partially offset by (iii) $8.9(v) $6.0 million for the repayments of borrowings.
Unconsolidated Real Estate Ventures
We consolidate entities in which we own less than a 100% equity interest if we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance-sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.
As of September 30, 2017,March 31, 2022, we havehad investments in and advances to unconsolidated real estate ventures totaling $285.0$461.4 million. For the majority of these investments, we exercise significant influence over but do not control these entities and, therefore, account for these investments using the equity method of accounting. For a more complete description of our jointreal estate ventures, see Note 54 to the financial statements.
From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to unconsolidated real estate ventures, to (1)(i) guarantee portions of the principal, interest and other amounts in connection with their borrowings, (2)(ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with their borrowings and (3)or (iii) provide guarantees to lenders and other third parties for the completion of development projects. We customarily have agreements with our outside venture partners whereby the partners agree to reimburse the jointreal estate venture or us for their share of any payments made under certain of these guarantees. Amounts that may be required to be paid in future periods in relation to budget overruns or operating losses that areAt times, we also included in somehave agreements with certain of our guarantees are not estimable.outside venture partners whereby we agree to either indemnify the partners and/or the associated ventures with respect to certain contingent liabilities associated with operating assets or to reimburse our partner for its share of any payments made by them under certain guarantees. Guarantees (excluding environmental) customarily terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt. At times,Amounts that we have agreementsmay be required to pay in future periods in relation to guarantees associated with our outside partners whereby we agree to reimburse our partner for their share of any payments made by them under certain guarantees. budget overruns or operating losses are not estimable.
As of September 30, 2017, the aggregate amount of our principal paymentMarch 31, 2022, we had additional capital commitments and certain recorded guarantees was approximately $63.8 million forto our unconsolidated real estate ventures.
We evaluate reconsideration events as we become aware of them. Some triggersReconsideration events include amendments to be considered are additional contributions required by each partner and each partners’real estate venture agreements or changes in our partner's ability to make those contributions.contributions to the venture. Under certain of these circumstances, we may purchase our partner’spartner's interest. OurA reconsideration event could cause us to consolidate an unconsolidated real estate ventures are heldventure in entities which appear sufficiently stable to meet their capital requirements; however, if market conditions worsen and our partners are unable to meet their commitments, there isthe future or deconsolidate a possibility we may have to consolidate these entities.
Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $200.0$150.0 million per occurrence and in the aggregate, and property and rental value insurance coverage with limits of $2.0$1.5 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties. We also maintain coverage, through our wholly owned captive insurance subsidiary, for a portion of the first loss on the above limits and for both terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for nuclear, biological, chemical and radiological terrorism events, as definedoccurrence. These policies are partially reinsured by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. Insurance premiums are charged directly to each of the properties.
We will continue to monitor the state of the insurance market, and the scope and costs of coverage for acts of terrorism. We cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of the insurance coverage, which could be material.
40
Our debt, consisting of mortgage loansmortgages payable secured by our properties, a revolving credit facility and unsecured term loans, containcontains customary covenants requiring adequate insurance coverage. Although we believe that we currently have adequate insurance coverage, we may not be able to obtain an equivalent amount of coverage at a reasonable costscost in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect theour ability to finance or refinance our properties.
Construction Commitments
As of September 30, 2017,March 31, 2022, we havehad assets under construction in progress that will, require an additional $707.8 million to complete ($611.1 million related to our consolidated entities and $96.7 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, require an additional $569.0 million to complete, which we anticipate will be primarily expended over the next two to three years. These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, and available cash.
Other
As of March 31, 2022, we had committed tenant-related obligations totaling $78.6 million ($73.2 million related to our consolidated entities and $5.4 million related to our unconsolidated real estate ventures at our share). The timing and amounts of payments for tenant-related obligations are uncertain and may only be due upon satisfactory performance of certain conditions.
There are various legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
With respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (i) guarantee portions of the principal, interest and other amounts, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (iii) provide guarantees to lenders, tenants and other third parties for the completion of development projects.As of September 30, 2017,March 31, 2022, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.
In connection with the Formation Transaction, we expecthave an agreement with Vornado regarding tax matters (the "Tax Matters Agreement") that provides special rules that allocate tax liabilities if the distribution of JBG SMITH shares by Vornado, together with certain related transactions, is determined not to fund additional capitalbe tax-free. Under the Tax Matters Agreement, we may be required to certain of our unconsolidated investments totaling approximately $50.6 million, which we anticipate will be primarily expended over the next two to three years.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’sowner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership and operation of our assets, we may be potentially liable for such costs. The operations of current and former tenants at our assets have involved, or may have involved, the use of hazardous materials or generated hazardous wastes.waste. The release of such hazardous materials and wasteswaste could result in us incurring liabilities to remediate any resulting contamination. The presence of contamination ifor the responsible party is unablefailure to remediate contamination at our properties may (i) expose us to third-party liability (e.g., for cleanup costs, natural resource damages, bodily injury or unwillingproperty damage), (ii) subject our properties to do so.liens in favor of the government for damages and costs the government incurs in connection with the contamination, (iii) impose restrictions on the manner in which a property may be used or which businesses may be operated, or (iv) materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, our assets are exposed to the risk of contamination originating from other sources. While a property owner generally ismay not be responsible for remediating contamination that has migrated onsite from an identifiable and viable offsite source, the contaminant’scontaminant's presence can have adverse effects on operations and the redevelopment of our assets. To the extent we send contaminated materials to other locations for treatment or disposal, we may be liable for cleanup of those sites if they become contaminated.
41
Most of our assets have been subject, at some point, to environmental assessments that are intended to evaluate the environmental condition of the subject and surrounding assets. These environmental assessments generally have included a historical review, a public records review, a visual inspection of the site and surrounding assets, screening for the presencevisual or historical evidence of asbestos‑containing materials, polychlorinated biphenyls and underground storage tanks, and the preparation and issuance of a written report. Soil and/or groundwater subsurface testing is conducted at our assets, when necessary, to further investigate any issues raised by the initial assessment that could reasonably be expected to pose a material concern to the property or result in us incurring material environmental liabilities.liabilities as a result of redevelopment. They may not, however, have included extensive sampling or subsurface investigations. In each case where the environmental assessments have identified conditions requiring remedial actions required by law, we have initiated the appropriate actions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control. OurThe following is a summary of our annual exposure to a change in interest rates is summarized in the table below.
| | | | | | | | | | | | | | | | |
|
| March 31, 2022 | | December 31, 2021 |
| |||||||||||
|
| | |
| Weighted |
| | | |
| | |
| Weighted |
| |
| | | | | Average | | | Annual | | | | | Average |
| ||
| | | | | Effective | | | Effect of 1% | | | | | Effective |
| ||
| | | | | Interest | | | Change in | | | | | Interest |
| ||
| | Balance | | Rate | |
| Base Rates | | Balance | | Rate |
| ||||
| | (Dollars in thousands) |
| |||||||||||||
Debt (contractual balances): | | | | | | | | | | | | | | | | |
Mortgages payable: (1) | | |
|
| |
|
| | |
|
| |
|
|
| |
Variable rate (2) | | $ | 749,946 |
| | 2.38% | | | $ | 7,604 | | $ | 867,246 |
| 2.01% | |
Fixed rate (3) | |
| 872,335 |
| | 4.35% | | |
| — | |
| 921,013 |
| 4.32% | |
| | $ | 1,622,281 | | | | | | $ | 7,604 | | $ | 1,788,259 | | | |
Credit facility: | | | | | | | | | | | | | | | | |
Revolving credit facility (4) | | $ | 300,000 | |
| 1.50% | | | $ | 3,042 | | $ | 300,000 |
| 1.15% | |
Tranche A-1 Term Loan (5) | |
| 200,000 | |
| 2.61% | | |
| — | |
| 200,000 |
| 2.59% | |
Tranche A-2 Term Loan (5) | |
| 200,000 | |
| 2.49% | | |
| — | |
| 200,000 |
| 2.49% | |
| | $ | 700,000 | | | | | | $ | 3,042 | | $ | 700,000 | | | |
Pro rata share of debt of unconsolidated real estate ventures (contractual balances): | | | | | | | | | | | | | | | | |
Variable rate (2) | | $ | 274,276 | |
| 3.05% | | | $ | 2,781 | | $ | 281,608 |
| 2.56% | |
Fixed rate (3) | |
| 90,836 | |
| 4.49% | | |
| — | |
| 91,653 |
| 4.49% | |
| | $ | 365,112 | | | | | | $ | 2,781 | | $ | 373,261 | | | |
| 2017 | 2016 | |||||||||||||||
| (Amounts in thousands) | September 30, | Weighted Average Interest Rate | Effect of 1% Change in Base Rates | December 31, | Weighted Average Interest Rate | |||||||||||
| Balance | Balance | |||||||||||||||
| Consolidated debt (contractual balances): | ||||||||||||||||
| Mortgages payable | ||||||||||||||||
Variable rate (1) | $ | 1,152,106 | 2.95 | % | $ | 11,681 | $ | 547,291 | 2.11% | |||||||
Fixed rate (2) | 836,141 | 4.79 | % | — | 620,327 | 5.52% | ||||||||||
| $ | 1,988,247 | $ | 11,681 | $ | 1,167,618 | |||||||||||
| Credit facility (variable rate): | ||||||||||||||||
| Revolving credit facility | $ | 115,751 | 2.34 | % | $ | 1,174 | — | — | ||||||||
| Tranche A-1 Term Loan | 50,000 | 2.44 | % | $ | 507 | — | — | |||||||||
| Pro rata share of debt of unconsolidated entities (contractual balances): | ||||||||||||||||
Variable rate (1) | $ | 159,169 | 4.08 | % | $ | 1,614 | $ | 17,050 | 1.87% | |||||||
Fixed rate (2) | 230,541 | 3.90 | % | — | 150,150 | 3.65% | ||||||||||
| $ | 389,710 | $ | 1,614 | $ | 167,200 | |||||||||||
| (1) | Excludes mortgages payable related to assets held for sale as of March 31, 2022, which were repaid in April 2022. |
| Includes variable rate mortgages payable with interest rate |
| (3) | |
| Includes variable rate mortgages payable with interest rates |
| (4) | The interest rate for our revolving credit facility excludes a 0.15% facility fee. |
| (5) | As of March 31, 2022 and December 31, 2021, the outstanding balance was fixed by interest rate swap agreements. As of March 31, 2022, the interest rate swaps mature in July 2024, and fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and fix LIBOR at a weighted average rate of 1.34% for the Tranche A-2 Term Loan. |
42
The fair value of our consolidated debtmortgages payable is calculatedestimated by discounting the future contractual cash flows of these instruments using current risk‑adjustedrisk-adjusted rates available to borrowers with similar credit profiles based on market sources. The fair value of our revolving credit facility and unsecured term loans is calculated based on the net present value of payments over the term of the facilities using estimated market rates for similar notes and remaining terms. As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the estimated fair value of our consolidated debt was $2.1 billion and $1.2 billion, respectively.$2.5 billion. These estimates of fair value, which are made at the end of the reporting period, may be different from the amounts that may ultimately be realized upon the disposition of our financial instruments.
Hedging Activities
To manage, or hedge, our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments. We do not enter into derivative financial instruments for speculative purposes.
Derivative Financial Instruments Designated as Effective Hedges
Certain derivative financial instruments, consisting of interest rate swapsswap and caps,cap agreements, are considered economiccash flow hedges but notthat are designated as accountingeffective hedges, and are carried at their estimated fair value on a recurring basisbasis. We assess the effectiveness of our hedges both at inception and on an ongoing basis. If the hedges are deemed to be effective, the fair value is recorded in "Accumulated other comprehensive income (loss)" in our balance sheets and is subsequently reclassified into "Interest expense" in our statements of operations in the period that the hedged forecasted transactions affect earnings. Our hedges become less than perfectly effective if the critical terms of the hedging instrument and the forecasted transactions do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and interest rates. In addition, we evaluate the default risk of the counterparty by monitoring the creditworthiness of the counterparty. While management believes its judgments are reasonable, a change in a derivative's effectiveness as a hedge could materially affect expenses, net income (loss) and equity.
As of March 31, 2022 and December 31, 2021, we had interest rate swap and cap agreements with realizedan aggregate notional value of $1.0 billion and $862.7 million, which were designated as effective hedges. The fair value of our interest rate swaps and caps designated as effective hedges consisted of assets totaling $11.6 million and $393,000 as of March 31, 2022 and December 31, 2021 included in "Other assets, net" in our balance sheets, and liabilities totaling $658,000 and $18.4 million as of March 31, 2022 and December 31, 2021, included in "Other liabilities, net" in our balance sheets.
Derivative Financial Instruments Designated as Ineffective Hedges
Certain derivative financial instruments, consisting of interest rate swap and cap agreements, are cash flow hedges that are designated as ineffective hedges, and are carried at their estimated fair value on a recurring basis. Realized and unrealized gains or losses are recorded into earnings in the period"Interest expense" in which the change occurs.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
43
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2017March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We are, from time to time, involved in legal actions arising in the ordinary course of business. In our opinion, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
There werehave been no material changes to the Risk Factorsrisk factors previously disclosed in our Information Statement on Form 10, as amended, filed with the SEC on June 20, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| (a) | Not applicable. |
| (b) | Not applicable. |
| (c) | Purchases of equity securities by the issuer and affiliated purchasers: |
| | | | | | | | | | | |
Period | | Total Number Of Common Shares Purchased | | | Average Price Paid Per Common Share | | | Total Number Of Common Shares Purchased As Part Of Publicly Announced Plans Or Programs | | | Approximate Dollar Value Of Common Shares That May Yet Be Purchased Under the Plan Or Programs |
January 1, 2022 - January 31, 2022 | | 32,304 | | $ | 25.99 | | | 32,304 | | $ | 236,715,349 |
February 1, 2022 - February 28, 2022 | | 679,479 | | | 26.50 | | | 679,479 | | | 218,696,286 |
March 1, 2022 - March 31, 2022 | | 2,629,364 | | | 28.23 | | | 2,629,364 | | | 144,408,487 |
Total for the three months ended March 31, 2022 | | 3,341,147 | | | 27.86 | | | 3,341,147 | | | |
Program total since inception in March 2020 (1) | | 12,487,968 | | | 28.45 | | | 12,487,968 | | | |
| (1) | In April 2022, we repurchased and retired 707,000 common shares for $19.4 million, a weighted average purchase price per share of $27.39, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. |
In March 2020, our Board of Trustees authorized the repurchase of up to $500.0 million of our outstanding common shares. Purchases under the program are made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share price, applicable legal requirements and other factors. The program may be suspended or discontinued at our discretion without prior notice.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
44
ITEM 4
Not applicable.
ITEM 5. OTHER INFORMATION
On April 29, 2022, we held our 2022 Annual Meeting of Shareholders (the “Annual Meeting”). At the Annual Meeting, our shareholders voted on the (i) election of 11 trustees to the Board of Trustees (the “Board”) to serve until our 2023 annual meeting of shareholders, (ii) approval, on a non-binding advisory basis, of the compensation of the named executive officers, and (iii) ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for the fiscal year ending December 31, 2022. The proposals are described in detail in our Proxy Statement for the Annual Meeting, which was filed with the Securities and Exchange Commission on March 17, 2022. The final voting results for each proposal are set forth below.
Proposal 1: Election of Trustees
At the Annual Meeting, shareholders voted on the election of 11 trustees to the Board to serve until the 2023 annual meeting of shareholders and until their respective successors have been duly elected and qualified. The table below sets forth the voting results for each trustee nominee:
| | | | | | | | | ||||||||
Nominee |
| Votes For |
|
| Votes Against |
|
| Abstentions |
|
| Broker Non-Votes |
| ||||
Phyllis R. Caldwell |
|
| 102,870,592 | | | | 7,597,227 | | | | 26,274 | | | | 4,735,771 |
|
Scott A. Estes |
|
| 108,333,419 | | | | 2,130,614 | | | | 30,060 | | | | 4,735,771 |
|
Alan S. Forman |
|
| 104,618,574 | | | | 5,847,550 | | | | 27,969 | | | | 4,735,771 |
|
Michael J. Glosserman |
|
| 104,193,298 | | | | 6,273,694 | | | | 27,101 | | | | 4,735,771 |
|
Charles E. Haldeman Jr. |
|
| 108,592,581 | | | | 1,874,130 | | | | 27,382 | | | | 4,735,771 |
|
W. Matthew Kelly |
|
| 109,693,910 | | | | 772,218 | | | | 27,965 | | | | 4,735,771 |
|
Alisa M. Mall |
|
| 108,641,916 | | | | 1,825,885 | | | | 26,292 | | | | 4,735,771 |
|
Carol A. Melton |
|
| 106,079,393 | | | | 4,388,424 | | | | 26,276 | | | | 4,735,771 |
|
William J. Mulrow |
|
| 108,400,748 | | | | 2,065,502 | | | | 27,843 | | | | 4,735,771 |
|
D. Ellen Shuman |
|
| 108,648,799 | | | | 1,818,942 | | | | 26,352 | | | | 4,735,771 |
|
Robert A. Stewart |
|
| 108,483,937 | | | | 1,981,280 | | | | 28,876 | | | | 4,735,771 |
|
Proposal 2: Advisory Vote on Executive Compensation
At the Annual Meeting, our shareholders did not approve, on a non-binding advisory basis, the compensation of our named executive officers. The table below sets forth the voting results for this proposal:
| | | | | | | | | | |||||
Votes For |
|
| Votes Against |
|
| Abstentions |
|
| Broker Non-Votes |
| ||||
| 48,643,746 | | | | 56,754,328 | | | | 5,096,019 | | | | 4,735,771 |
|
Proposal 3: Ratification of the Appointment of Deloitte as the Company’s Independent Registered Public Accounting Firm
At the Annual Meeting, our shareholders ratified the appointment of Deloitte to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2022. The table below sets forth the voting results for this proposal:
| | | | | | |||||
Votes For |
|
| Votes Against |
|
| Abstentions |
| |||
| 113,447,306 | | | | 1,755,294 | | | | 27,264 |
|
45
ITEM 6. EXHIBITS
(a) Exhibit Index
| | ||
|---|---|---|---|
Exhibits | Description | ||
3.1 |
3.2 | |
3.3 | |
3.4 | |
10.1 | |
10.2 | |
10.3† | |
31.1** | |
31.2** | |
32.1** | |
101.INS | |
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | |
Inline XBRL Taxonomy Extension Schema | |
101.CAL | |
Inline XBRL Extension Calculation Linkbase | |
101.LAB | |
Inline XBRL Extension Labels Linkbase | |
101.PRE | |
Inline XBRL Taxonomy Extension Presentation Linkbase | |
101.DEF | |
Inline XBRL Taxonomy Extension Definition Linkbase | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| |
** | Filed herewith. |
† | Denotes a management contract or compensatory plan, contract or arrangement. |
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| |||
JBG SMITH Properties | |||
| |||
Date: | May 3, 2022 | /s/ M. Moina Banerjee | |
| M. Moina Banerjee | ||
| Chief Financial Officer | ||
| (Principal Financial | ||
| | |
| JBG SMITH Properties | |
| ||
Date: | May 3, 2022 | /s/ Angela Valdes |
| Angela Valdes | |
| Chief Accounting Officer | |
| (Principal Accounting Officer) | |
47