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,May 5, 2023, JBG SMITH Properties had 117,957,107111,443,983 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, 2023 |
| December 31, 2022 | ||
ASSETS |
| |
|
| |
|
Real estate, at cost: |
| |
|
| |
|
Land and improvements | | $ | 1,267,022 | | $ | 1,302,569 |
Buildings and improvements | |
| 4,157,110 | |
| 4,310,821 |
Construction in progress, including land | |
| 619,111 | |
| 544,692 |
| |
| 6,043,243 | |
| 6,158,082 |
Less: accumulated depreciation | |
| (1,355,655) | |
| (1,335,000) |
Real estate, net | |
| 4,687,588 | |
| 4,823,082 |
Cash and cash equivalents | |
| 279,553 | |
| 241,098 |
Restricted cash | |
| 42,339 | |
| 32,975 |
Tenant and other receivables | |
| 46,241 | |
| 56,304 |
Deferred rent receivable | |
| 159,287 | |
| 170,824 |
Investments in unconsolidated real estate ventures | |
| 312,651 | |
| 299,881 |
Intangible assets, net | | | 149,243 | | | 162,246 |
Other assets, net | |
| 158,118 | |
| 117,028 |
TOTAL ASSETS | | $ | 5,835,020 | | $ | 5,903,438 |
| | | | | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | |
|
| |||
Liabilities: | |
|
| |
|
|
Mortgage loans, net | | $ | 1,802,051 | | $ | 1,890,174 |
Revolving credit facility | |
| — | |
| — |
Unsecured term loans, net | |
| 547,256 | |
| 547,072 |
Accounts payable and accrued expenses | |
| 124,268 | |
| 138,060 |
Other liabilities, net | |
| 164,627 | |
| 132,710 |
Total liabilities | |
| 2,638,202 | |
| 2,708,016 |
Commitments and contingencies | |
|
| |
|
|
Redeemable noncontrolling interests | |
| 457,778 | |
| 481,310 |
Shareholders' equity: | |
|
| |
|
|
Preferred shares, $0.01 par value - 200,000 shares authorized; none issued | |
| — | |
| — |
Common shares, $0.01 par value - 500,000 shares authorized; 113,583 and 114,013 shares issued and outstanding as of March 31, 2023 and December 31, 2022 | |
| 1,137 | |
| 1,141 |
Additional paid-in capital | |
| 3,282,290 | |
| 3,263,738 |
Accumulated deficit | |
| (607,465) | |
| (628,636) |
Accumulated other comprehensive income | |
| 32,036 | |
| 45,644 |
Total shareholders' equity of JBG SMITH Properties | |
| 2,707,998 | |
| 2,681,887 |
Noncontrolling interests | |
| 31,042 | |
| 32,225 |
Total equity | |
| 2,739,040 | |
| 2,714,112 |
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | $ | 5,835,020 | | $ | 5,903,438 |
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, | ||||
|
| 2023 |
| 2022 | ||
REVENUE | | |
|
| |
|
Property rental | | $ | 124,033 | | $ | 131,598 |
Third-party real estate services, including reimbursements | |
| 22,784 | |
| 23,970 |
Other revenue | |
| 6,145 | |
| 6,397 |
Total revenue | |
| 152,962 | |
| 161,965 |
EXPENSES | |
| | |
|
|
Depreciation and amortization | |
| 53,431 | |
| 58,062 |
Property operating | |
| 35,612 | |
| 40,644 |
Real estate taxes | |
| 15,224 | |
| 18,186 |
General and administrative: | |
| | |
|
|
Corporate and other | |
| 16,123 | |
| 15,815 |
Third-party real estate services | |
| 23,823 | |
| 27,049 |
Share-based compensation related to Formation Transaction and special equity awards | |
| 351 | |
| 2,244 |
Transaction and other costs | |
| 2,472 | |
| 899 |
Total expenses | |
| 147,036 | |
| 162,899 |
OTHER INCOME (EXPENSE) | |
|
| |
|
|
Income from unconsolidated real estate ventures, net | |
| 433 | |
| 3,145 |
Interest and other income, net | |
| 4,077 | |
| 14,246 |
Interest expense | |
| (26,842) | |
| (16,278) |
Gain (loss) on the sale of real estate, net | |
| 40,700 | |
| (136) |
Loss on the extinguishment of debt | |
| — | |
| (591) |
Total other income (expense) | |
| 18,368 | |
| 386 |
INCOME (LOSS) BEFORE INCOME TAX BENEFIT | |
| 24,294 | |
| (548) |
Income tax benefit | |
| 16 | |
| 471 |
NET INCOME (LOSS) | |
| 24,310 | |
| (77) |
Net income attributable to redeemable noncontrolling interests | |
| (3,363) | |
| (10) |
Net loss attributable to noncontrolling interests | |
| 224 | |
| 55 |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | | $ | 21,171 | | $ | (32) |
EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED | | $ | 0.19 | | $ | — |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | |
| 114,052 | |
| 126,682 |
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, | ||||
|
| 2023 |
| 2022 | ||
NET INCOME (LOSS) | | $ | 24,310 | | $ | (77) |
OTHER COMPREHENSIVE INCOME (LOSS): | |
|
| |
|
|
Change in fair value of derivative financial instruments | |
| (8,969) | |
| 25,095 |
Reclassification of net (income) loss on derivative financial instruments from accumulated other comprehensive income into interest expense | |
| (7,816) | |
| 3,756 |
Total other comprehensive income (loss) | |
| (16,785) | |
| 28,851 |
COMPREHENSIVE INCOME | |
| 7,525 | |
| 28,774 |
Net income attributable to redeemable noncontrolling interests | |
| (3,363) | |
| (10) |
Net loss attributable to noncontrolling interests | | | 224 | | | 55 |
Other comprehensive (income) loss attributable to redeemable noncontrolling interests | |
| 2,225 | |
| (2,966) |
Other comprehensive loss attributable to noncontrolling interests | | | 952 | | | — |
COMPREHENSIVE INCOME ATTRIBUTABLE TO JBG SMITH PROPERTIES | | $ | 7,563 | | $ | 25,853 |
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, 2022 |
| 114,013 | | $ | 1,141 | | $ | 3,263,738 | | $ | (628,636) | | $ | 45,644 | | $ | 32,225 | | $ | 2,714,112 |
Net income (loss) attributable to common shareholders and noncontrolling interests |
| — | |
| — | |
| — | |
| 21,171 | |
| — | |
| (224) | |
| 20,947 |
Conversion of common limited partnership units ("OP Units") to common shares |
| 756 | |
| 8 | |
| 13,774 | |
| — | |
| — | |
| — | |
| 13,782 |
Common shares repurchased | | (1,205) | | | (12) | | | (20,086) | | | — | | | — | | | — | | | (20,098) |
Common shares issued pursuant to employee incentive compensation plan and Employee Share Purchase Plan ("ESPP") | | 19 | | | — | | | 624 | | | — | | | — | | | — | | | 624 |
Distributions to noncontrolling interests, net |
| — | |
| — | |
| — | |
| — | |
| — | |
| (7) | |
| (7) |
Redeemable noncontrolling interests redemption value adjustment and total other comprehensive loss allocation |
| — | |
| — | |
| 24,240 | |
| — | |
| 2,225 | |
| — | |
| 26,465 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (16,785) | |
| — | |
| (16,785) |
Other comprehensive loss attributable to noncontrolling interest | | | | | | | | | | | | | | 952 | | | (952) | | | — |
BALANCE AS OF MARCH 31, 2023 |
| 113,583 | | $ | 1,137 | | $ | 3,282,290 | | $ | (607,465) | | $ | 32,036 | | $ | 31,042 | | $ | 2,739,040 |
| | | | | | | | | | | | | | | | | | | | |
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 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 ESPP | | 3 | | | — | | | 286 | | | — | | | — | | | — | | | 286 |
Contributions from noncontrolling interests, net |
| — | |
| — | |
| — | |
| — | |
| — | |
| 5,986 | |
| 5,986 |
Redeemable noncontrolling interests redemption value adjustment and total 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 |
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, | ||||
|
| 2023 |
| 2022 | ||
OPERATING ACTIVITIES: |
| |
|
| |
|
Net income (loss) | | $ | 24,310 | | $ | (77) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
|
| |
|
|
Share-based compensation expense | |
| 10,428 | |
| 12,904 |
Depreciation and amortization expense, including amortization of deferred financing costs | |
| 54,637 | |
| 59,162 |
Deferred rent | |
| (8,733) | |
| (3,706) |
Income from unconsolidated real estate ventures, net | |
| (433) | |
| (3,145) |
Amortization of market lease intangibles, net | |
| (253) | |
| (353) |
Amortization of lease incentives | |
| 741 | |
| 2,374 |
(Gain) loss on the sale of real estate, net | |
| (40,700) | |
| 136 |
(Income) loss on operating lease and other receivables | |
| (1,215) | | �� | 587 |
Income from investments, net | | | (1,798) | | | (14,071) |
Return on capital from unconsolidated real estate ventures | |
| 3,861 | |
| 2,879 |
Other non-cash items | |
| 3,032 | |
| (3,105) |
Changes in operating assets and liabilities: | |
| | |
|
|
Tenant and other receivables | |
| 11,624 | |
| (1,793) |
Other assets, net | |
| 1,420 | |
| (1,367) |
Accounts payable and accrued expenses | |
| (16,069) | |
| (4,575) |
Other liabilities, net | |
| 1,780 | |
| 23,748 |
Net cash provided by operating activities | |
| 42,632 | |
| 69,598 |
INVESTING ACTIVITIES: | |
|
| |
|
|
Development costs, construction in progress and real estate additions | |
| (78,332) | |
| (52,686) |
Acquisition of real estate | |
| (450) | |
| — |
Proceeds from the sale of real estate | |
| 68,998 | |
| 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 | |
| (16,889) | |
| (7,230) |
Net cash used in investing activities | |
| (26,673) | |
| (32,951) |
FINANCING ACTIVITIES: | |
|
| |
|
|
Borrowings under mortgage loans | |
| 223,303 | |
| — |
Repayments of mortgage loans | |
| (133,860) | |
| (1,178) |
Debt issuance and modification costs | |
| (7,206) | |
| (531) |
Redemption of partner's noncontrolling interest | |
| (647) | |
| — |
Common shares repurchased | | | (20,098) | | | (91,148) |
Dividends paid to common shareholders | |
| (25,664) | |
| (28,665) |
Distributions to redeemable noncontrolling interests | |
| (3,968) | |
| (4,005) |
Contributions from noncontrolling interests | | | — | | | 5,998 |
Net cash provided by (used in) financing activities | |
| 31,860 | |
| (119,529) |
Net increase (decrease) in cash and cash equivalents, and restricted cash | |
| 47,819 | |
| (82,882) |
Cash and cash equivalents, and restricted cash, beginning of period | |
| 274,073 | |
| 302,095 |
Cash and cash equivalents, and restricted cash, end of period | | $ | 321,892 | | $ | 219,213 |
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, | ||||
|
| 2023 |
| 2022 | ||
CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD: | |
|
| |||
Cash and cash equivalents | | $ | 279,553 | | $ | 189,140 |
Restricted cash | |
| 42,339 | |
| 30,073 |
Cash and cash equivalents, and restricted cash | | $ | 321,892 | | $ | 219,213 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION: | |
|
| |||
Cash paid for interest (net of capitalized interest of $5,175 and $1,771 in 2023 and 2022) | | $ | 22,705 | | $ | 18,219 |
Accrued capital expenditures included in accounts payable and accrued expenses | |
| 72,375 | |
| 60,044 |
Write-off of fully depreciated assets | |
| 192 | |
| 8,341 |
Conversion of OP Units to common shares | |
| 13,782 | |
| 6,014 |
Recognition of operating lease right-of-use asset | | | 61,443 | | | — |
Recognition of liabilities related to operating lease right-of-use asset | | | 61,443 | | | — |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | |
| 398 | |
| 546 |
See accompanying notes to the condensed consolidated financial statements (unaudited).
8
(Unaudited)
Organization
JBG SMITH Properties ("JBG SMITH") was organized by Vornado Realty Trust ("Vornado" or "former parent") as, a Maryland real estate investment trust, owns and operates a portfolio of multifamily and commercial 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. Approximately two-thirds of our portfolio is in National Landing, which is anchored by four key demand drivers: Amazon.com, Inc.'s ("REIT"Amazon") on October 27, 2016 (capitalized on November 22, 2016).new headquarters; Virginia Tech's under-construction $1 billion Innovation Campus; the submarket’s proximity to the Pentagon; and our deployment of next-generation public and private 5G digital infrastructure. In addition, our third-party asset management and real estate services business provides fee-based real estate services to 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, 2023, JBG SMITH, as its sole general partner, controlled JBG SMITH LP and owned 88.5% 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, but exclude our: (i) 10.0% subordinated interest in one commercial building, (ii) 33.5% subordinated interest in four commercial buildings (the "Fortress Assets") and (iii) 49.0% interest in three commercial buildings (the "L'Enfant Plaza Assets"), as well as the associated non-recourse mortgage loans, held through unconsolidated real estate ventures; these interests and debt are excluded because our investment in each real estate venture is zero, we do not anticipate receiving any near-term cash flow distributions from the real estate ventures, and we have not guaranteed their obligations or otherwise committed to providing financial support.
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, 2023, 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 officemultifamily and multifamilycommercial 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
9
for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 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, 2022, 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.
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 unaudited condensed consolidated and combined financial statements as of September 30, 2017March 31, 2023 and December 31, 2016,2022, and for the three and nine months ended September 30, 2017March 31, 2023 and 2016.2022. References to theour balance sheets refer to our condensed consolidated and combined balance sheets as of September 30, 2017March 31, 2023 and December 31, 2016.2022. References to the statementour statements of operations refer to our condensed consolidated and combined statements of operations for the three
Income Taxes
We intend to electhave elected to be taxed as a REITreal estate investment trust ("REIT") under sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the filing of our tax return for the 2017 calendar year, effective for our tax year ending December 31, 2017.. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Prior to the Separation, the Vornado Included Assets historically operated under Vornado’s REIT structure. Since Vornado operates as a REITWe currently adhere and distributes 100% of taxable income to its shareholders, no provision for federal income taxes has been made in the accompanying financial statements for the periods prior to the Separation. We intend to continue to adhere to these requirements and to maintain our REIT status in future periods.
2.Summary of Significant Accounting Policies
Significant Accounting Policies
There were no material changes to our TRSs are accounted for undersignificant accounting policies disclosed in our Annual Report.
Use of Estimates
The preparation of the assetfinancial statements in conformity with GAAP requires us to make estimates and liability method. Underassumptions that affect the asset and liability method, deferred income taxes arise from temporary differences between the tax basisreported amounts of assets and liabilities, and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform ("Topic 848"), which was amended in December 2022 by ASU 2022-06, Reference Rate Reform (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 recognized ratably over the vesting period. For grants with a graded vesting schedule that are only subject to service conditions, we haveoptional and may be elected through December 31, 2024 as reference rate reform activities occur. We elected to recognize compensation expense onapply the hedge accounting expedients that allow us to (i) continue to amortize previously deferred gains and losses in accumulated other comprehensive income related to terminated hedges into earnings in accordance with the underlying hedged forecasted transactions, (ii) modify loan agreements to replace the reference rate without treating the change as a straight-line basis.
10
index upon which future hedged transactions will be based matches the index on unvested OP Units, LTIPs and OPPs are charged to “net income attributable to noncontrolling interests” in the statementscorresponding derivatives. Application of operations.
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 |
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 | ) |
3.Dispositions
Dispositions
The following is a summary of tenant and other receivables, net as of September 30, 2017 and December 31, 2016:
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 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Gain (Loss) | |
| | | | | | | | Total | | Gross | | Cash | | on the Sale | |||
| | | | | | | | Square | | Sales | | Proceeds | | of Real | |||
Date Disposed |
| Assets |
| Segment |
| Location |
| Feet |
| Price |
| from Sale |
| Estate | |||
| | | | | | | | (In thousands) | |||||||||
March 17, 2023 | | Development Parcel | | Other | | Arlington, Virginia | | — | | $ | 5,500 | | $ | 4,954 | | $ | (53) |
March 23, 2023 | | 4747 Bethesda Avenue (1) | | Commercial | | Bethesda, Maryland | | | | | | | | | | | 40,053 |
| | Other (2) | | | | | | | | | | | | | | | 700 |
| | | | | | | | | | | | | | | | $ | 40,700 |
(1) | We sold an 80.0% interest in the asset for a gross sales price of $196.0 million, representing a gross valuation of $245.0 million. See Note 4 for additional information. |
(2) | Represents recognition of contingent consideration related to a prior period disposition. |
The following is a summary of the composition of our investments in and advances to unconsolidated real estate ventures as of September 30, 2017 and December 31, 2016:
| | | | | | | | |
| | Effective | | | | | | |
|
| Ownership | | | | | | |
Real Estate Venture |
| Interest (1) |
| March 31, 2023 |
| December 31, 2022 | ||
| | | | (In thousands) | ||||
Prudential Global Investment Management |
| 50.0% | | $ | 200,578 | | $ | 203,529 |
J.P. Morgan Global Alternatives ("J.P. Morgan") (2) | | 50.0% | | | 66,771 | | | 64,803 |
4747 Bethesda Venture (3) | | 20.0% | | | 13,799 | | | — |
Brandywine Realty Trust |
| 30.0% | |
| 13,757 | |
| 13,678 |
CBREI Venture |
| 9.9% - 10.0% | |
| 12,508 | |
| 12,516 |
Landmark Partners (4) |
| 18.0% | |
| 4,669 | |
| 4,809 |
Other |
| | |
| 569 | | | 546 |
Total investments in unconsolidated real estate ventures (5) (6) | | | | $ | 312,651 | | $ | 299,881 |
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 |
(1) | Reflects our effective ownership interests in the underlying real estate as of March 31, 2023. 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) | In March 2023, we sold an 80.0% interest in 4747 Bethesda Avenue for a gross sales price of $196.0 million, representing a gross valuation of $245.0 million and retained a 20.0% interest. We will provide leasing, property management and other real estate services to the venture. In connection with the transaction, the real estate venture assumed the related $175.0 million mortgage loan. |
(4) | Excludes the L'Enfant Plaza Assets for which we have a zero investment balance and discontinued applying the equity method of accounting after September 30, 2022. |
(5) | Excludes (i) 10.0% subordinated interest in one commercial building, (ii) the Fortress Assets and (iii) the L'Enfant Plaza Assets held through unconsolidated real estate ventures. For more information see Note 1. Also, excludes our interest in an investment in the real estate venture that owns 1101 17th Street for which we have discontinued applying the equity method of accounting since June 30, 2018 because we received distributions in excess of our contributions and share of earnings, which reduced our investment to zero; further, we are not obligated to provide for losses, have not guaranteed its obligations or otherwise committed to provide financial support. |
11
(6) | As of March 31, 2023 and December 31, 2022, our total investments in unconsolidated real estate ventures were greater than our share of the net book value of the underlying assets by $6.9 million and $8.9 million, resulting principally from capitalized interest and our zero investment balance in certain real estate ventures. |
We classifyprovide leasing, property management and other real estate services to our investments in and advances to unconsolidated real estate ventures byventures. We recognized revenue, including expense reimbursements, of $5.3 million and $5.5 million for the three months ended March 31, 2023 and 2022 for such services.
We evaluate reconsideration events as we become aware of them. Reconsideration events include, among other criteria, amendments to real estate venture partner with which we may have multiple investments with varying ownership interests.
The following is a summary of the debt of our unconsolidated real estate ventures as of September 30, 2017 and December 31, 2016:
| | | | | | | | |
| | Weighted | | | | | | |
| | Average Effective | | | ||||
|
| Interest Rate (1) |
| March 31, 2023 |
| December 31, 2022 | ||
| | | | (In thousands) | ||||
Variable rate (2) |
| 5.90% | | $ | 358,768 | | $ | 184,099 |
Fixed rate (3) |
| 4.13% | |
| 60,000 | |
| 60,000 |
Mortgage loans (4) | | | |
| 418,768 | |
| 244,099 |
Unamortized deferred financing costs and premium / discount, net | | | |
| (10,814) | |
| (411) |
Mortgage loans, net (4) (5) | | | | $ | 407,954 | | $ | 243,688 |
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 |
(1) | Weighted average effective interest rate as of March 31, 2023. |
Includes variable rate mortgages |
(3) | |
Includes variable rate mortgages |
(4) | Excludes mortgage loans related to the Fortress Assets and the L'Enfant Plaza Assets. |
(5) | 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 the financial information for our unconsolidated real estate ventures, asventures:
| | | | | | |
|
| March 31, 2023 |
| December 31, 2022 | ||
|
| (In thousands) | ||||
Combined balance sheet information: (1) | | | | | | |
Real estate, net | | $ | 1,072,386 | | $ | 888,379 |
Other assets, net | |
| 201,713 | |
| 160,015 |
Total assets | | $ | 1,274,099 | | $ | 1,048,394 |
| | | | | | |
Mortgage loans, net | | $ | 407,954 | | $ | 243,688 |
Other liabilities, net | |
| 54,143 | |
| 54,639 |
Total liabilities | |
| 462,097 | |
| 298,327 |
Total equity | |
| 812,002 | |
| 750,067 |
Total liabilities and equity | | $ | 1,274,099 | | $ | 1,048,394 |
12
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
|
| (In thousands) | ||||
Combined income statement information: (1) | | | | | | |
Total revenue | | $ | 20,033 | | $ | 42,874 |
Operating income (2) | |
| 2,491 | |
| 48,426 |
Net income (loss) (2) | |
| (1,720) | |
| 39,283 |
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 |
(1) | Excludes amounts related to the Fortress Assets. Excludes combined balance sheet information for both periods presented and combined income statement information for the three months ended March 31, 2023 related to the L'Enfant Plaza Assets as we discontinued applying the equity method of accounting after September 30, 2022. |
(2) | Includes the gain on the sale of various assets totaling $45.1 million during the three months ended March 31, 2022. |
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 |
We hold various interests in several investments that areentities deemed to be VIEs, that arewhich 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 doand/or does not hold sufficient equity at risk, or conductconducts substantially all theirits operations on behalf of thean investor with disproportionately few voting rights. We will consolidate a VIE if we are the primary beneficiary of the VIE, which entails having the power to direct the activities that most significantly impact the VIE’s economic performance. Certain criteria we assess in determining whether we are the primary beneficiary of the VIE include our influence over significant business activities, our voting rights and any noncontrolling interest kick-out or participating rights.
Unconsolidated VIEs
As of March 31, 2023 and December 31, 2022, we had interests in entities deemed to be VIEs. Although we are engaged to act asmay be responsible for managing the managing partner in charge of day-to-day operations of these investees, 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’sVIE's economic performance. We account for our investment in these entities under the equity method. As of September 30, 2017March 31, 2023 and December 31, 2016,2022, the net carrying amounts of our investment in these entities were $203.0$85.3 million and $42.4$83.2 million, respectively.which were included in "Investments in unconsolidated real estate ventures" in our balance sheets. Our equity in the income of unconsolidated VIEs is included in "Income from unconsolidated real estate ventures, net" in our statements of operations. Our maximum loss exposure to loss in these entities is limited to our investments, construction commitments and debt guarantees. See Note 1617 for additional information.
Consolidated VIEs
JBG SMITH LP our operating partnership, is our most significant consolidated VIE. We hold 88.5% of the majority membershiplimited partnership interest in the operating partnership,JBG SMITH LP, act as the general partner and exercise full responsibility, discretion and control over its day-to-day management.
As of March 31, 2023 and December 31, 2022, excluding JBG SMITH LP, we consolidated two VIEs that have minimal noncontrolling interests (less than 5%). These entities are(1900 Crystal Drive and 2000/2001 South Bell Street) with total assets of $326.0 million and $265.5 million, and liabilities of $158.2 million and $116.3 million, primarily consisting of construction in process and mortgage loans. The assets of the VIEs becausecan only be used to settle the noncontrolling interestsobligations of the VIEs, and the liabilities include third-party liabilities of the VIEs for which the creditors or beneficial interest holders do not have substantive kick-out or participating rights. We consolidate these entities because we control allrecourse against us.
13
The following is a summary of other assets, net as of September 30, 2017 and December 31, 2016:
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 |
| | | | | | |
|
| March 31, 2023 |
| December 31, 2022 | ||
| | (In thousands) | ||||
Prepaid expenses | | $ | 14,429 | | $ | 16,440 |
Derivative agreements, at fair value | | | 41,689 | | | 61,622 |
Deferred financing costs, net | |
| 5,003 | |
| 5,516 |
Deposits | |
| 386 | |
| 483 |
Operating lease right-of-use assets (1) | | | 62,688 | | | 1,383 |
Investments in funds (2) | | | 18,645 | | | 16,748 |
Other investments (3) | | | 3,563 | | | 3,524 |
Other | |
| 11,715 | |
| 11,312 |
Total other assets, net | | $ | 158,118 | | $ | 117,028 |
(1) | Includes our corporate office lease at 4747 Bethesda Avenue as of March 31, 2023. |
(2) | Consists of investments in real estate-focused technology companies, which are recorded at their fair value based on their reported net asset value. During the three months ended March 31, 2023 and 2022, unrealized gains related to these investments were $2.0 million and $156,000, which were included in "Interest and other income, net" in our statements of operations. During the three months ended March 31, 2023, realized losses related to these investments were $129,000, which were included in "Interest and other income, net" in our statement of operations. |
(3) | Primarily consists of equity investments that are carried at cost. During the three months ended March 31, 2022, realized gains related to these investments were $13.9 million, which were included in "Interest and other income, net" in our statement of operations. |
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 |
Mortgage Loans
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, 2023 |
| December 31, 2022 | ||
| | | | (In thousands) | ||||
Variable rate (2) |
| 5.47% | | $ | 754,281 | | $ | 892,268 |
Fixed rate (3) |
| 4.43% | |
| 1,063,634 | |
| 1,009,607 |
Mortgage loans | | | |
| 1,817,915 | |
| 1,901,875 |
Unamortized deferred financing costs and premium / discount, net (4) | | | |
| (15,864) | |
| (11,701) |
Mortgage loans, net | | | | $ | 1,802,051 | | $ | 1,890,174 |
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, 2023. |
Includes variable rate mortgage loans with interest rate cap agreements. For mortgage loans with interest rate caps, the weighted average interest rate cap strike is 2.35%, and the weighted average maturity date of the interest rate caps is August 1, 2023. The interest rate cap strike is exclusive of the credit spreads associated with the mortgage loans. As of March 31, 2023, one-month LIBOR was 4.86% and one-month term Secured Overnight Financing Rate ("SOFR") was 4.80%. |
(3) | Includes variable rate mortgages |
(4) | |
As of September 30, 2017,March 31, 2023 and December 31, 2022, the net carrying value of real estate collateralizing our mortgages payablemortgage loans totaled $3.9$2.2 billion. Our mortgage loans 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. AsCertain mortgage loans are recourse to us. See Note 17 for additional information.
14
In January 2023, we entered into a $1.4$187.6 million loan facility, collateralized by The Wren and F1RST Residences. The loan has a seven-year term and a fixed interest rate of 5.13%. This loan is the initial advance under a Fannie Mae multifamily credit facility which provides flexibility for collateral substitutions, future advances tied to performance, ability to mix fixed and floating rates, and staggered maturities. Proceeds from the loan were used, in part, to repay the $131.5 million mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%.
As of March 31, 2023 and December 31, 2022, we had various interest rate swap and cap agreements on certain mortgage loans with an aggregate notional value of $1.2 billion and $1.3 billion. See Note 15 for additional information.
Credit Facility
As of March 31, 2023 and December 31, 2022, our $1.6 billion credit facility consistingconsisted of aan undrawn $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$350.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024. The interest rate for the credit facility varies based onJanuary 2028, which has 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%.
The following is a summary of amounts outstanding under the credit facility as of September 30, 2017:
| | | | | | | | | |
| | Effective | | | | ||||
|
| Interest Rate (1) |
| | March 31, 2023 |
| December 31, 2022 | ||
| | | | | (In thousands) | ||||
Revolving credit facility (2) (3) |
| 5.95% | | | $ | — | | $ | — |
| | | | | | | | | |
Tranche A-1 Term Loan (4) |
| 2.61% | | | $ | 200,000 | | $ | 200,000 |
Tranche A-2 Term Loan (4) |
| 3.39% | | |
| 350,000 | |
| 350,000 |
Unsecured term loans |
|
| | |
| 550,000 | |
| 550,000 |
Unamortized deferred financing costs, net |
|
| | |
| (2,744) | |
| (2,928) |
Unsecured term loans, net |
|
| | | $ | 547,256 | | $ | 547,072 |
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, 2023. The interest rate for our revolving credit facility excludes a 0.15% facility fee. |
As of |
(3) | As of March 31, 2023 and December 31, 2022, excludes $2.9 million and $3.3 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net" in our balance sheets. |
(4) | As of March 31, 2023 and December 31, 2022, the outstanding balance was fixed by interest rate swap agreements, which fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.14% for the Tranche A-2 Term Loan. Interest rate swaps for the Tranche A-1 Term Loan with a total notional value of $200.0 million mature in July 2024. Interest rate swaps for the Tranche A-2 Term Loan with a total notional value of $200.0 million mature in July 2024 and with a total notional value of $150.0 million mature in January 2028. We have two forward-starting interest rate swaps that will be effective July 2024 with a total notional value of $200.0 million, which will effectively fix SOFR at a weighted average interest rate of 2.61% through the maturity date. The interest rate for our Tranche A-2 Term Loan excludes a 0.15% per annum commitment fee on the undrawn $50.0 million of commitments. |
15
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 |
The following is a summary of other liabilities, net as of September 30, 2017 and December 31, 2016:
| | | | | | |
|
| March 31, 2023 |
| December 31, 2022 | ||
| | (In thousands) | ||||
Lease intangible liabilities, net | | $ | 6,839 | | $ | 7,275 |
Lease assumption liabilities | |
| 1,964 | |
| 2,647 |
Lease incentive liabilities | |
| 11,434 | |
| 11,539 |
Liabilities related to operating lease right-of-use assets (1) | |
| 66,511 | |
| 5,308 |
Prepaid rent | |
| 18,295 | |
| 15,923 |
Security deposits | |
| 13,432 | |
| 13,963 |
Environmental liabilities | |
| 17,990 | |
| 17,990 |
Deferred tax liability, net | |
| 4,887 | |
| 4,903 |
Dividends payable | |
| — | |
| 29,621 |
Derivative agreements, at fair value | |
| 166 | |
| — |
Deferred purchase price related to the acquisition of a development parcel | | | 19,047 | | | 19,447 |
Other | |
| 4,062 | |
| 4,094 |
Total other liabilities, net | | $ | 164,627 | | $ | 132,710 |
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 |
(1) | |
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 |
9.Redeemable Noncontrolling Interests
JBG SMITH LP issued 19.8 million
OP Units toheld by persons other than JBG SMITH that are redeemable for cash or, at our election, our common shares, beginning August 1, 2018, subject to certain limitations. TheseVested LTIP Units are redeemable into OP Units. During the three months ended March 31, 2023 and 2022, unitholders redeemed 756,356 and 207,882 OP Units, represent a 14.4%which we elected to redeem for an equivalent number of our common shares. As of March 31, 2023, outstanding OP Units and redeemable LTIP Units totaled 14.8 million, representing an 11.5% ownership interest in JBG SMITH LP asLP. Our OP Units and certain vested LTIP Units are presented at the higher of September 30, 2017. The carrying amount of the redeemable noncontrolling interests is adjusted to itstheir redemption value at the end of each reporting period, but no less than its initialor their carrying value, with such adjustments to the redemption value recognized in "Additional paid-in capital". in our balance sheets. Redemption value per OP Unit is equivalent to the market value of one of our common
Consolidated Real Estate Venture
We were a partner in a consolidated real estate venture that owned a multifamily asset, The Wren, located in Washington, D.C. As of March 31, 2022, we held a 96.0% ownership interest in the real estate venture. In October 2022, one partner redeemed its 3.7% interest, and in February 2023, another partner redeemed its 0.3% interest, increasing our ownership interest to 100.0% as of March 31, 2023.
16
The following is a summary of the activity of redeemable noncontrolling interests for the nine months ended September 30, 2017:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | ||||||||||||||||
| | 2023 | | 2022 | ||||||||||||||
| | | | | Consolidated | | | | | | | | Consolidated | | | | ||
| | JBG | | Real Estate | | | | | JBG | | Real Estate | | | | ||||
|
| SMITH LP |
| Venture |
| Total |
| SMITH LP |
| Venture |
| Total | ||||||
|
| (In thousands) | ||||||||||||||||
Balance, beginning of period | | $ | 480,663 | | $ | 647 | | $ | 481,310 | | $ | 513,268 | | $ | 9,457 | | $ | 522,725 |
Redemptions | |
| (13,782) | |
| (647) | |
| (14,429) | |
| (6,014) | |
| — | |
| (6,014) |
LTIP Units issued in lieu of cash bonuses (1) | |
| 4,456 | |
| — | |
| 4,456 | |
| 5,597 | |
| — | |
| 5,597 |
Net income (loss) | |
| 3,363 | |
| — | |
| 3,363 | |
| (3) | |
| 13 | |
| 10 |
Other comprehensive income (loss) | |
| (2,225) | |
| — | |
| (2,225) | |
| 2,966 | |
| — | |
| 2,966 |
Distributions | |
| — | |
| — | |
| — | |
| — | |
| (69) | |
| (69) |
Share-based compensation expense | |
| 9,543 | |
| — | |
| 9,543 | |
| 12,527 | |
| — | |
| 12,527 |
Adjustment to redemption value | |
| (24,240) | |
| — | |
| (24,240) | |
| 8,384 | |
| (77) | |
| 8,307 |
Balance, end of period | | $ | 457,778 | | $ | — | | $ | 457,778 | | $ | 536,725 | | $ | 9,324 | | $ | 546,049 |
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 |
(1) | |
10.Property Rental Revenue
The following is a summary of property rental revenue from our non-cancellable leases:
| | | | | |
| Three Months Ended March 31, | ||||
| 2023 |
| 2022 | ||
| (In thousands) | ||||
Fixed | $ | 113,071 | | $ | 120,637 |
Variable | | 10,962 | | | 10,961 |
Property rental revenue | $ | 124,033 | | $ | 131,598 |
11.Share-Based Payments
LTIP Units and Employee Benefits
During the Combination which have an estimatedthree months ended March 31, 2023, we granted to certain employees 922,459 LTIP Units with time-based vesting requirements ("Time-Based LTIP Units") and a weighted average grant-date fair value of $110.6 million, are$17.73 per unit that primarily vest ratably over four years subject to post-combination employment with vesting over periods of either 12 or 60 months. The fair value of these 3.3 million OP Units was estimated based on the post-vesting restriction periods of the units. The significant assumptions used to value the units include expected volatilities (18.0% to 27.0% ), risk-free interest rates (1.3% to 1.5%) and post-vesting restriction periods (1 year to 3 years).continued employment. Compensation expense for these units is primarily being recognized over a four-year period.
In February 2023, we granted 280,342 fully vested LTIP Units to certain employees, who elected to receive all or a portion of their cash bonuses related to 2022 service as LTIP Units. The LTIP units had a grant-date fair value of $15.90 per unit. Compensation expense totaling $4.5 million for these LTIP Units was recognized in 2022.
The aggregate grant-date fair value of the graded vesting period. See Note 3Time-Based LTIP Units and the LTIP Units granted during the three months ended March 31, 2023 was $20.8 million. The Time-Based LTIP Units and the LTIP Units were valued based on the closing common share price on the grant date, less a discount for additional information. Aspost-grant restrictions. The discount was determined using Monte Carlo simulations based on the following significant assumptions:
| | |
Expected volatility | 26.0% | |
Risk-free interest rate | 4.6% to 4.8% | |
Post-grant restriction periods | 2 years |
17
In May 2023, as part of these OPtheir annual compensation, we granted to non-employee trustees a total of 155,523 fully vested LTIP Units had vested or been forfeited.
Appreciation-Only LTIP Units ("AO LTIP Units"), effective as of July 17, 2017, and authorized the reservation of approximately 10.3 million of our common shares pursuant to the Plan. On July 10, 2017, our then sole-shareholder approved the Plan. As of September 30, 2017, there were 6.6 million common shares available for issuance under the Plan.
In January 2023, we granted approximately 2.7to certain employees 1.7 million Formation Awards based on an aggregate notionalperformance-based AO LTIP Units with a grant-date fair value of approximately $100.0 million divided by the volume-weighted average price on July 18, 2017 of $37.10$3.73 per common share.unit. The Formation AwardsAO LTIP Units are structured in the form of profits interests in JBG SMITH LP that provide for a share of appreciation determined by the increase in the value of a common share at the time of conversion over the $37.10 volume-weighted average priceparticipation threshold of a common share at the time the formation unit was granted.$20.83. The Formation Awards, subject to certain conditions, generally vest 25% on each of the third and fourth anniversaries and 50% on the fifth anniversary, of the closing of the Combination, subject to continued employment with JBG SMITH through each vesting date.
The aggregate grant-date fair value of the OPPAO LTIP Units granted during the three months ended March 31, 2023 was $6.4 million, valued using Monte Carlo simulations based on the following significant assumptions:
| | |
Expected volatility | 30.0% | |
Dividend yield | 3.2% | |
Risk-free interest rate | 4.1% |
LTIP Units with Performance-Based Vesting Requirements ("Performance-Based LTIP Units")
In January 2023, 470,773 Performance-Based LTIP Units, which were unvested as of December 31, 2022, were forfeited because the performance measures were not met.
Restricted Share Units ("RSUs")
In January 2023, we granted to certain non-executive employees 78,681 time-based RSUs ("Time-Based RSUs") with a grant-date fair value of $18.94 per unit. Vesting requirements and compensation expense recognition for the Time-Based RSUs are primarily consistent to those of the Time-Based LTIP Units granted in 2023.
The aggregate grant-date fair value of the RSUs granted during the three months ended March 31, 2023 was $1.5 million. The Time-Based RSUs were valued based on the closing common share price on the date of grant was
Share-Based Compensation Expense
The following is a summary of share-based compensation expense for the nine months ended September 30, 2017 is summarized as follows (in thousands):
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
|
| (In thousands) | ||||
Time-Based LTIP Units | | $ | 5,532 | | $ | 6,126 |
AO LTIP Units and Performance-Based LTIP Units | |
| 3,660 | |
| 4,157 |
Other equity awards (1) | |
| 1,536 | |
| 1,427 |
Share-based compensation expense - other | |
| 10,728 | |
| 11,710 |
Formation awards, OP Units and LTIP Units (2) | |
| 108 | |
| 957 |
Special Time-Based LTIP Units and Special Performance-Based LTIP Units (3) | |
| 243 | |
| 1,287 |
Share-based compensation related to Formation Transaction and special equity awards (4) | |
| 351 | |
| 2,244 |
Total share-based compensation expense | |
| 11,079 | |
| 13,954 |
Less: amount capitalized | |
| (651) | |
| (1,050) |
Share-based compensation expense | | $ | 10,428 | | $ | 12,904 |
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 |
18
(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) RSUs and (iii) shares issued under our ESPP. |
(3) | Represents equity awards issued related to our successful pursuit of Amazon's additional headquarters in National Landing. |
Included in "General and administrative expense: |
As of September 30, 2017,March 31, 2023, we had $141.4$53.2 million of total unrecognized compensation expense related to unvested share-based payment arrangements, (unvested OP Units, Formation Awards, LTIP Units and OPP Units). This expensewhich is expected to be recognized over a weighted average period of 3.42.8 years.
12.Transaction and Other Costs
The following is a 401(k) defined contribution plan (the “401(k) Plan”) covering substantially allsummary of transaction and other costs:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
|
| (In thousands) | ||||
Completed, potential and pursued transaction expenses (1) | | $ | 47 | | $ | 732 |
Severance and other costs | |
| 1,448 | |
| 145 |
Demolition costs | | | 977 | | | 22 |
Transaction and other costs | | $ | 2,472 | | $ | 899 |
(1) | Primarily consists of legal costs related to pursued transactions. |
13.Interest Expense
The following is a summary of interest expense:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
|
| (In thousands) | ||||
Interest expense before capitalized interest | | $ | 27,908 | | $ | 18,442 |
Amortization of deferred financing costs | |
| 1,279 | |
| 1,130 |
Interest expense related to finance lease right-of-use assets | | | — | | | 1,844 |
Net (gain) loss on derivative financial instruments designated as ineffective hedges: | | | | |
|
|
Net unrealized (gain) loss | |
| 2,697 | |
| (3,367) |
Net realized loss | |
| 133 | |
| — |
Capitalized interest | |
| (5,175) | |
| (1,771) |
Interest expense | | $ | 26,842 | | $ | 16,278 |
14.Shareholders' Equity and Earnings (Loss) Per Common Share
Common Shares Repurchased
Our Board of Trustees previously authorized the repurchase of up to $1.0 billion of our officersoutstanding common shares, and employees which permits participantsin May 2023, increased the common share repurchase authorization to defer compensation up to$1.5 billion. During the maximum amount permitted by law. We provide a discretionary matching contribution. Employees’ contributions vest immediately and our matching contributions vest over five years. Our contributions to the 401(k) Plan for three months ended September 30, 2017March 31, 2023, we repurchased and 2016 were $401,000 and $868,000, respectively. Our contributions duringretired 1.2 million common shares for $20.1 million, a weighted average purchase price per share of $16.66. During the ninethree months ended September 30, 2017March 31, 2022, we repurchased and 2016 were $3.2retired 3.3 million common shares for $93.1 million, a weighted average purchase price per share of $27.86. Since we began the share repurchase program, as of March 31, 2023, we have repurchased and $3.1retired 24.5 million respectively.common shares for $643.6 million, a weighted average purchase price per share of $26.25.
19
During the second quarter of 2023, through the date of this filing, we repurchased and retired 2.8 million common shares for $40.1 million, a weighted average purchase price per share of $14.16, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.
Earnings (Loss) Earnings Per Common Share
The following summarizesis a summary of the calculation of basic and diluted EPSearnings (loss) per common share and provides a reconciliation of net income (loss) to the amounts of net income (loss) income availableattributable to common shareholders and shares of common stock used in calculating basic and diluted EPS 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, 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 March 31, | ||||
| | 2023 |
| 2022 | ||
| | (In thousands, except per share amounts) | ||||
Net income (loss) | | $ | 24,310 | | $ | (77) |
Net income attributable to redeemable noncontrolling interests | |
| (3,363) | |
| (10) |
Net loss attributable to noncontrolling interests | |
| 224 | |
| 55 |
Net income (loss) attributable to common shareholders | | $ | 21,171 | | $ | (32) |
| | | | | | |
Weighted average number of common shares outstanding - basic and diluted | |
| 114,052 | |
| 126,682 |
| | | | | | |
Earnings (loss) per common share - basic and diluted | | $ | 0.19 | | $ | — |
The effect of the conversionredemption of 13,408 and 4,518 weighted average vested OP Units, for the threeTime-Based LTIP Units, fully vested LTIP Units and nine months ended September 30, 2017Special Time-Based LTIP Units that were outstanding as of March 31, 2023 and 2022 is excluded in the computation of basic and diluted lossearnings (loss) per common share as the assumed exchange of such units for common shares on a one-for-one basis was antidilutive (the assumed conversionredemption of these units would have no net impact on the determination of diluted earnings (loss) per share). As vestedSince OP Units, Time-Based LTIP Units, LTIP Units and outstanding OPSpecial Time-Based LTIP Units, which are held by a noncontrolling interest, lossesinterests, are attributed gains at an identical proportion to the common shareholders, the gains attributable and their equivalent weighted average impact are excluded from net income (loss) available to them based oncommon shareholders and from the weighted average number of common shares outstanding units and are thus excluded from the numerator in calculating basicdiluted earnings (loss) per common share. AO LTIP Units, Performance-Based LTIP Units, formation awards and diluted loss per share. The number of securities thatRSUs, which totaled 5.5 million and 6.0 million for the three months ended March 31, 2023 and 2022, were excluded from the calculation of diluted earnings (loss) earnings per common share becauseas they were antidilutive, thatbut potentially could be dilutive in the future are includedfuture.
Dividends Declared in the following table:
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 | — |
On May 4, 2023, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on June 30, 2023 to tenants under operating leases that expire at various dates through the year 2036. The leases provide for the paymentshareholders of fixed base rents payable monthly in advancerecord as well as reimbursements of real estate taxes, insurance and maintenance costs. Retail leases may also provide for the payment by the lessee of additional rents based on a percentage of their sales. As of September 30, 2017, future base rental revenue under these non-cancelable operating leases excluding extension options is as follows:
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 |
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 procedures, including the use of a variety of derivative financial instruments.
As of September 30, 2017,March 31, 2023 and December 31, 2022, we had various derivative financial instruments consisting of interest rate swap and cap agreements assumed in the Combination that are measured at fair value on a recurring basis. There were no interest rate swaps or caps prior to the Combination. The net unrealized gain on our derivative financial instruments designated as effective hedges was $37.1 million and $55.0 million as of March 31, 2023 and December 31, 2022 and was recorded in "Accumulated other comprehensive income" in our balance sheets, of which a portion was allocated to "Redeemable noncontrolling interests." Within the next 12 months, we expect to reclassify $26.0 million of the net unrealized gain as a decrease to interest rate swapsexpense.
Accounting Standards Codification 820 ("Topic 820"), Fair Value Measurement and caps was $467,000Disclosures, defines fair value and establishes a framework for bothmeasuring fair value. The objective of fair value is to determine the price that would be received
20
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). Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three and nine months ended September 30, 2017 andlevels:
Level 1 — quoted prices (unadjusted) in active markets that are includedaccessible at the measurement date for assets or liabilities;
Level 2 — observable prices that are based on inputs not quoted in "Interest expense" in the accompanying statements of operations. active markets, but corroborated by market data; and
Level 3 — unobservable inputs that are used when little or no market data is available.
The fair values of the interest rate swaps and capsderivative financial instruments are based on the estimated amounts we would receive or pay to terminate the contractcontracts at the reporting date and are determined using interest rate pricing models and observable inputs. The interest rate swaps and capsderivative financial instruments are classified within Level 2 of the valuation hierarchy.
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, 2023 |
| | | | | | | | | | | |
Derivative financial instruments designated as effective hedges: | |
|
|
| |
| |
|
|
| |
|
Classified as assets in "Other assets, net" | | $ | 36,381 | | | — | | $ | 36,381 | | | — |
Classified as liabilities in "Other liabilities, net" | | | 166 | |
| — | | | 166 | |
| — |
Derivative financial instruments designated as ineffective hedges: | |
|
| |
|
| |
|
| |
|
|
Classified as assets in "Other assets, net" | |
| 5,308 | |
| — | |
| 5,308 | |
| — |
| | | | | | | | | | | | |
December 31, 2022 | |
|
|
| |
| |
|
|
| |
|
Derivative financial instruments designated as effective hedges: | |
|
|
| |
| |
|
|
| |
|
Classified as assets in "Other assets, net" | | $ | 53,515 | | | — | | $ | 53,515 | | | — |
Derivative financial instruments designated as ineffective hedges: | |
|
| |
|
| |
|
| |
|
|
Classified as assets in "Other assets, net" | |
| 8,107 | |
| — | |
| 8,107 | |
| — |
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:March 31, 2023 and December 31, 2022, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instruments was assessed, and it was determined that these adjustments were not significant to the overall valuation of the derivative financial instruments. As a result, it was determined that the derivative financial instruments in their entirety should be classified in Level 2 of the fair value hierarchy. The net unrealized gains and losses included in "Other comprehensive income (loss)" in our statements of comprehensive income for the three months ended March 31, 2023 and 2022 were attributable to the net change in unrealized gains or losses related to effective interest rate swaps that were outstanding during those periods, none of which were reported in our statements of operations as the interest rate swaps were documented and qualified as hedging instruments.
21
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 | $ | — |
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, 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, 2023 | | December 31, 2022 | ||||||||
|
| Carrying |
| |
| Carrying |
| | ||||
| | Amount (1) | | Fair Value | | Amount (1) | | Fair Value | ||||
|
| (In thousands) | ||||||||||
Financial liabilities: |
| |
|
| |
|
| |
|
| |
|
Mortgage loans | | $ | 1,817,915 | | $ | 1,741,108 | | $ | 1,901,875 | | $ | 1,830,651 |
Unsecured term loans | |
| 550,000 | |
| 550,929 | |
| 550,000 | |
| 551,369 |
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. |
The carrying amount consistsfair values of principal only.
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 three reportable segments (office, multifamily,(multifamily, commercial, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services. In connection therewith, we have reclassified the prior period segment financial data to conform 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.
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, | ||||
|
| 2023 |
| 2022 | ||
|
| (In thousands) | ||||
Property management fees | | $ | 4,952 | | $ | 4,808 |
Asset management fees | |
| 1,103 | |
| 1,771 |
Development fees | |
| 1,986 | |
| 3,539 |
Leasing fees | |
| 1,356 | |
| 1,839 |
Construction management fees | |
| 340 | |
| 150 |
Other service revenue | |
| 1,224 | |
| 816 |
Third-party real estate services revenue, excluding reimbursements | |
| 10,961 | |
| 12,923 |
Reimbursement revenue (1) | |
| 11,823 | |
| 11,047 |
Third-party real estate services revenue, including reimbursements | | | 22,784 | | | 23,970 |
Third-party real estate services expenses | | | 23,823 | | | 27,049 |
Third-party real estate services revenue less expenses | | $ | (1,039) | | $ | (3,079) |
22
(1) | 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$12.2 million classifiedand $13.7 million as of March 31, 2023 and December 31, 2022, which were included 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.
The following table reflectsis the reconciliation of net income (loss) income attributable to JBG SMITH Propertiescommon shareholders to NOI for the three and nine months ended September 30, 2017 and 2016:consolidated NOI:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2023 |
| 2022 | ||
|
| (in thousands) | ||||
Net income (loss) attributable to common shareholders | | $ | 21,171 | | $ | (32) |
Add: | |
|
| |
|
|
Depreciation and amortization expense | |
| 53,431 | |
| 58,062 |
General and administrative expense: | |
|
| |
|
|
Corporate and other | |
| 16,123 | |
| 15,815 |
Third-party real estate services | |
| 23,823 | |
| 27,049 |
Share-based compensation related to Formation Transaction and special equity awards | |
| 351 | |
| 2,244 |
Transaction and other costs | |
| 2,472 | |
| 899 |
Interest expense | |
| 26,842 | |
| 16,278 |
Loss on the extinguishment of debt | |
| — | |
| 591 |
Income tax benefit | |
| (16) | |
| (471) |
Net income attributable to redeemable noncontrolling interests | |
| 3,363 | |
| 10 |
Net loss attributable to noncontrolling interests | | | (224) | | | (55) |
Less: | |
|
| |
|
|
Third-party real estate services, including reimbursements revenue | |
| 22,784 | |
| 23,970 |
Other revenue | |
| 1,726 | |
| 2,196 |
Income from unconsolidated real estate ventures, net | |
| 433 | |
| 3,145 |
Interest and other income, net | |
| 4,077 | |
| 14,246 |
Gain (loss) on the sale of real estate, net | |
| 40,700 | |
| (136) |
Consolidated NOI | | $ | 77,616 | | $ | 76,969 |
23
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 |
The following is a summary of NOI by segmentsegment. Items classified in the Other column include development assets, corporate entities, land assets for which we are the threeground lessor and nine months ended September 30, 2017 and 2016:
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 |
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | ||||||||||
|
| Commercial |
| Multifamily |
| Other |
| Total | ||||
|
| (In thousands) | ||||||||||
Property rental revenue | | $ | 71,917 | | $ | 49,910 | | $ | 2,206 | | $ | 124,033 |
Parking revenue | |
| 4,138 | |
| 224 | |
| 57 | |
| 4,419 |
Total property revenue | |
| 76,055 | |
| 50,134 | |
| 2,263 | |
| 128,452 |
Property expense: | |
| | |
|
| |
|
| |
|
|
Property operating | |
| 19,371 | |
| 17,455 | |
| (1,214) | |
| 35,612 |
Real estate taxes | |
| 9,001 | |
| 5,608 | |
| 615 | |
| 15,224 |
Total property expense | |
| 28,372 | |
| 23,063 | |
| (599) | |
| 50,836 |
Consolidated NOI | | $ | 47,683 | | $ | 27,071 | | $ | 2,862 | | $ | 77,616 |
| | 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 |
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, 2023 | | | | | | | | | | | | |
Real estate, at cost | | $ | 2,567,810 | | $ | 3,055,495 | | $ | 419,938 | | $ | 6,043,243 |
Investments in unconsolidated real estate ventures | |
| 229,642 | |
| — | |
| 83,009 | |
| 312,651 |
Total assets | |
| 2,507,262 | |
| 2,444,022 | |
| 883,736 | |
| 5,835,020 |
| | | | | | | | | | | | |
December 31, 2022 | |
|
| |
|
| |
|
| |
|
|
Real estate, at cost | | $ | 2,754,832 | | $ | 2,986,907 | | $ | 416,343 | | $ | 6,158,082 |
Investments in unconsolidated real estate ventures | |
| 218,723 | |
| 304 | |
| 80,854 | |
| 299,881 |
Total assets | |
| 2,829,576 | |
| 2,483,902 | |
| 589,960 | |
| 5,903,438 |
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 eachthird-party insurance providers.
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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 loans 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, 2023, 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 $346.5 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 recapitalizationssales and sales,recapitalizations, and available cash.
Environmental Matters
Most of our properties hasassets have been subjectedsubject 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.
Other
As of March 31, 2023, we had committed tenant-related obligations totaling $60.6 million ($58.6 million related to our consolidated entities and $2.0 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, 2023, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $62.6 million. As of March 31, 2023, we had no principal payment guarantees related to our unconsolidated real estate ventures.
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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, 2023, 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, 2023, the WHI Impact Pool had completed closings of capital commitments totaling $114.4 million, which included a commitment from us of $11.2 million. As of March 31, 2023, our remaining unfunded commitment was $4.3 million.
The third-party real estate services revenue, including expense reimbursements, from thesethe JBG Legacy Funds and the WHI Impact Pool and its affiliates was $5.0 million and $5.5 million for both the three and nine months ended September 30, 2017 was $8.4 million.
Commencing in March 2023, in connection with the Formation Transaction,sale of an 80.0% interest in 4747 Bethesda Avenue, we entered intoleased our corporate offices from an unconsolidated real estate venture and incurred $158,000 of rent expense for the three months ended March 31, 2023, which is included in "General and administrative expense" in our statement of operations.
We have agreements with Building Maintenance Services ("BMS"), an entity in which we have a registration rights agreement with certain former investorsminor preferred interest, to supervise cleaning, engineering and security services at our properties. We paid BMS $2.4 million and $3.1 million during the three months ended March 31, 2023 and 2022, which is included in the legacy JBG funds that received"Property operating expenses" in our common shares in the Formation Transaction (the "Shares Registration Rights Agreement") and a separate registration rights agreement with the certain former investors in the legacy JBG funds and certain employeesstatements of JBG entities that received OP Units in the Formation Transaction (the "OP Units Registration Rights Agreement" and together with the Shares Registration Rights Agreement, the "Registration Rights Agreements"). Certain holdersoperations.
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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, 2022 filed with the Securities and Exchange Commission (the "SEC"on February 21, 2023 ("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, owns and operates a portfolio of multifamily and commercial 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. Approximately two-thirds of our portfolio is in National Landing, which is anchored by four key demand drivers: Amazon.com, Inc.'s ("REIT"Amazon") on October 27, 2016 (capitalized on November 22, 2016).new headquarters; Virginia Tech's under-construction $1 billion Innovation Campus; the submarket’s proximity to the Pentagon; and our deployment of next-generation public and private 5G digital infrastructure. In addition, our third-party asset management and real estate services business provides fee-based real estate services to 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, but exclude our: (i) 10.0% subordinated interest in one commercial building, (ii) 33.5% subordinated interest in four commercial buildings and (iii) 49.0% interest in three commercial buildings (the "L'Enfant Plaza Assets"), as well as the associated non-recourse mortgage loans, held through unconsolidated real estate ventures; these interests and debt are excluded because our investment in each real estate venture is zero, we do not anticipate receiving any near-term cash flow distributions from the real estate ventures, and we have not guaranteed their obligations or otherwise committed to providing financial support.
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, 2023 and December 31, 2016,2022, and for the three and nine months ended September 30, 2017March 31, 2023 and 2016.2022. References to theour balance sheets refer to our condensed consolidated and combined balance sheets as of September 30, 2017March 31, 2023 and December 31, 2016.2022. References to theour statements of operations refer to our condensed consolidated and combined statements of operations for the three
27
March 31, 2023 and 2016.2022. References to theour statements of cash flows refer to our condensed consolidated and combined statements of cash flows for the ninethree months ended September 30, 2017March 31, 2023 and 2016.
The accompanying unaudited financial statements and notes 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 the 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, multifamily,(multifamily, commercial, 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; this seasonality 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, 2023, our portfolio comprised: (i) 69Operating Portfolio consisted of 51 operating assets comprising 51 office31 commercial assets totaling over 13.79.7 million square feet (11.8(8.2 million square feet at our share), 1418 multifamily assets totaling 6,0166,756 units (4,232(6,756 units at our share) and four othertwo wholly owned land 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), fourfor which we are the ground lessor. Additionally, we have two under-construction multifamily assets totaling 1,334with 1,583 units (1,149(1,583 units at our share) and one other asset20 assets in the development pipeline totaling approximately 41,100 square feet (4,100 square feet at our share; (iii) one near-term development multifamily asset totaling 433 units (303 units at our share), and (iv) 42 future development assets totaling approximately 21.312.5 million square feet (17.6(9.8 million square feet at our share) of estimated potential development density.
We continue to implement 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 making, including our ownership of Citizens Broadband Radio Service wireless spectrum in National Landing and our agreements with AT&T and Federated Wireless, are advancing our efforts to make National Landing among the first 5G-operable submarkets in the nation.
We expect Amazon to occupy its new headquarters at Metropolitan Park in National Landing in June 2023. We currently have leases with Amazon totaling 1.0 million square feet across six office buildings in National Landing. We sold Amazon two of our National Landing development sites, Metropolitan Park and Pen Place. We are the developer, property manager and retail leasing agent for Amazon's new headquarters at National Landing. We are currently constructing two new office buildings for Amazon on Metropolitan Park, totaling 2.1 million square feet, inclusive of approximately 50,000 square feet of street-level retail with new shops and restaurants.
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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 repurchases and other investment decisions based on how they may impact long-term NAV per share. We intend to continue to opportunistically sell or recapitalize assets 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. 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. We anticipate 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. Curbed lending activity, however, has significantly slowed down the pace of asset sales and we expect this reduced activity to continue for the rest of 2023. In the meantime, we continue to advance our two under-construction multifamily assets in National Landing, 1900 Crystal Drive and 2000/2001 South Bell Street, totaling 1,583 units.
Our office portfolio occupancy as of March 31, 2023 increased by 10 basis points compared to December 31, 2022. Although 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 were able to execute 114,000 square feet of office leases during the first quarter, over 90% of which comprised leases in National Landing. We have 619,000 square feet of office leases expiring in 2023 with another 40,500 square feet currently in month-to-month status. Our ability to renew or re-lease this space will impact our occupancy in 2023.
Our multifamily portfolio occupancy as of March 31, 2023 decreased by 70 basis points compared to December 31, 2022 as lower leasing volume is typical for the first quarter. For first quarter lease expirations, we increased rents by 9.3% upon renewal while achieving a 54.7% renewal rate across our portfolio.
Operating Results
Key highlights of operating results for the three months ended September 30, 2017March 31, 2023 included:
● | |
net income attributable to common shareholders of $21.2 million, or $0.19 per diluted common share, compared to a net loss attributable to common shareholders of |
● | |
● | operating commercial portfolio leased and occupied percentages at our share of 87.6% and 85.2% as of March 31, 2023 compared to |
● | operating multifamily portfolio leased and occupied percentages(1) at our share of 95.0% and 92.9% as of March 31, 2023 compared to 94.5% and 93.6% as of December 31, 2022, and 94.1% and 91.6% as of March 31, 2022; |
● | the leasing of 114,000 square feet at our share, at an initial rent (2) of $50.92 per square foot and a GAAP-basis weighted average rent per square foot (3) of $51.03; and |
● | a decrease in same store (4) NOI of 0.7% to $76.1 million compared to $76.6 million for the three months ended |
(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 |
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Additionally, investing and financing activity during the three months ended September 30, 2017March 31, 2023 included:
● | a $187.6 million loan facility, collateralized by The Wren and F1RST Residences. The loan has a seven-year term and a fixed interest rate of 5.13%. This loan is the initial advance under a Fannie Mae multifamily credit facility which provides flexibility for collateral substitutions, future advances tied to performance, ability to mix fixed and floating rates, and staggered maturities. Proceeds from the loan were used, in part, to repay the $131.5 million mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%; |
the |
● | the sale of an 80.0% interest in |
● | the payment of dividends totaling $25.7 million and distributions to redeemable noncontrolling interests of $4.0 million; |
● | |
the |
● | |
the investment of |
Activity subsequent to March 31, 2023 included:
● | the increase by our Board of Trustees of our common share repurchase authorization to $1.5 billion; |
● | the repurchase and retirement of 2.8 million common shares for $40.1 million, a weighted average purchase price per share of $14.16, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended; and |
● | the declaration of a quarterly dividend of $0.225 per common share, payable on June 30, 2023 to shareholders of record as of June 23, 2023. |
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:
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.
Results of Operations
During the three months ended March 31, 2023, we sold an 80.0% interest in 4747 Bethesda Avenue to an unconsolidated real estate venture. In 2022, we sold the Universal Buildings and Pen Place, and sold 7200 Wisconsin Avenue, 1730 M Street, RTC-West/RTC-West Trophy Office/RTC-West Land and Courthouse Plaza 1 and 2 to an unconsolidated real estate venture. We collectively refer to these assets as the "Disposed Properties" in the discussion below. In 2022, we acquired the remaining 36.0% ownership interest in Atlantic Plumbing and the remaining 50.0% ownership interest in 8001 Woodmont, which were previously owned by unconsolidated real estate ventures and consolidated upon acquisition.
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Comparison of the Three Months Ended September 30, 2017March 31, 2023 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, 2023 compared to the same period in 2016:
| | | | | | | | | |
| | Three Months Ended March 31, | |||||||
|
| 2023 |
| 2022 |
| % Change |
| ||
| (Dollars in thousands) |
| |||||||
Property rental revenue | | $ | 124,033 | | $ | 131,598 |
| (5.7) | % |
Third-party real estate services revenue, including reimbursements | |
| 22,784 | |
| 23,970 |
| (4.9) | % |
Depreciation and amortization expense | |
| 53,431 | |
| 58,062 |
| (8.0) | % |
Property operating expense | |
| 35,612 | |
| 40,644 |
| (12.4) | % |
Real estate taxes expense | |
| 15,224 | |
| 18,186 |
| (16.3) | % |
General and administrative expense: | | | | | | | | | |
Corporate and other | |
| 16,123 | |
| 15,815 |
| 1.9 | % |
Third-party real estate services | |
| 23,823 | |
| 27,049 |
| (11.9) | % |
Share-based compensation related to Formation Transaction and special equity awards | |
| 351 | |
| 2,244 |
| (84.4) | % |
Income from unconsolidated real estate ventures, net | |
| 433 | |
| 3,145 |
| (86.2) | % |
Interest and other income, net | |
| 4,077 | |
| 14,246 |
| (71.4) | % |
Interest expense | |
| 26,842 | |
| 16,278 |
| 64.9 | % |
Gain (loss) on the sale of real estate, net | |
| 40,700 | |
| (136) |
| * | |
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 increaseddecreased by approximately $13.2$7.6 million, or 12.8%5.7%, to $116.5$124.0 million in 20172023 from $103.3$131.6 million in 2016.2022. The increasedecrease was primarily due to revenues of $13.8a $15.7 million associated with thedecrease in revenue from our commercial assets, acquired in the Combination, partially offset by a decrease of $0.6$7.8 million increase in revenues associated with existingrevenue from our multifamily assets. The $0.6decrease in revenue from our commercial assets was primarily due to an $18.5 million decrease related to the Disposed Properties, partially offset by a $1.2 million decrease in revenues associated with existingbad debt reserves. The increase in revenue from our multifamily assets iswas primarily due to 1150 17
Third-party real estate services revenue, including reimbursements, increaseddecreased by approximately $16.8$1.2 million, or 203.0%4.9%, to $25.1$22.8 million in 20172023 from $8.3$24.0 million in 2016.2022. The increasedecrease was primarily due to a $1.6 million decrease in development fees related to the timing of development projectsand a $668,000 decrease in asset management fees due to the sale of assets within the JBG Legacy Funds. The decrease in third-party real estate services business acquired in the Combination,revenue was partially offset by lower management fees and leasing commissions from existing arrangements with third-parties.
Depreciation and amortization expense increaseddecreased by approximately $12.6$4.6 million, or 40.1%8.0%, to $44.0$53.4 million in 20172023 from $31.4$58.1 million in 2016.2022. The increasedecrease was primarily due to a $7.3 million decrease related to the Disposed Properties and a $2.9 million decrease due to the amortization of the acquired in-place lease intangible in 2022 at The Batley. The decrease in depreciation and amortization expense associated withwas partially offset by a $6.2 million increase related to the assets acquired in the Combination.
Property operating expense increaseddecreased by approximately $2.3$5.0 million, or 8.6%12.4%, to $29.6$35.6 million in 20172023 from $27.3$40.6 million in 2016.2022. The increasedecrease was primarily due to a $6.7 million decrease related to the Disposed Properties, and a $1.5 million decrease in costs incurred related to digital infrastructure initiatives in National Landing. The decrease in property operating expenses of $4.2 million associated with the assets acquired in the Combination,expense was partially offset by a decrease$2.7 million increase related to the consolidation of $1.9 million associated with existing assets dueAtlantic Plumbing and 8001 Woodmont, and an $876,000 increase in property expenses across our multifamily portfolio, primarily related to lower tenant services expensehigher compensation expenses, cleaning expenses and lower utilities.
Real estate tax expense increaseddecreased by approximately $2.7$3.0 million, or 18.9%16.3%, to $17.2$15.2 million in 20172023 from $14.5$18.2 million in 2016.2022. The increasedecrease was primarily due to real estate tax expensea $3.3 million decrease related to the Disposed Properties, partially offset by a $727,000 increase related to the consolidation of $2.1 million associated with the assets acquired in the Combination, an increase in the tax assessmentsAtlantic Plumbing and lower capitalized real estate taxes.8001 Woodmont.
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General and administrative expense: corporate and other decreasedincreased by approximately $300,000,$308,000, or 2.9%1.9%, to $10.6$16.1 million in 20172023 from $10.9$15.8 million in 2016.2022. The decreaseincrease was primarily due to lower marketing and general office expenses,a decrease in capitalized payroll, 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$3.2 million, or 343.1%11.9%, to $21.2$23.8 million in 20172023 from $4.8$27.0 million in 2016
General and administrative expense: share-based compensation related to Formation Transaction of $14.4and special equity awards decreased by approximately $1.9 million, or 84.4%, to $351,000 in 2023 from $2.2 million in 2017 consists2022. The decrease was primarily due to the graded vesting of expense related to share-based compensationcertain awards issued in connection withprior years, which resulted in lower expense as portions of the Formation Transaction.
Income (loss) from unconsolidated real estate ventures decreased by approximately $2.3$2.7 million, or 86.2%, to a loss of $1.7$433,000 in 2023 from $3.1 million in 2017 from income of $584,000 in 2016.2022. The decrease was primarily due to lossesa $5.2 million gain at our share from intereststhe sale of various assets in 2022. The decrease in income from unconsolidated real estate ventures acquiredwas partially offset by a $1.8 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont as these assets are not yet stabilized, and an $883,000 increase related to our suspension of the equity method of accounting for the L’Enfant Plaza Assets.
Interest and other income decreased by approximately $10.2 million, or 71.4%, to $4.1 million in 2023 from $14.2 million in 2022 primarily due to a realized gain of $13.9 million in 2022 from the Combination.
Interest expense increased by approximately $2.3$10.6 million, or 17.5%64.9%, to $15.3 million for 2017 from $13.0$26.8 million in 2016.2023 from $16.3 million in 2022. The increase in interest expense was primarily due to $1.8(i) a $6.1 million of interest expense associated with the assets acquiredchange 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.
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 | — | * |
Gain on the sale of service.
FFO
FFO is a lower interest rate and for a lower outstanding principal amount.
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, 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 income (loss) income 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, | ||||
| | 2023 |
| 2022 | ||
| | | | | | |
Net income (loss) attributable to common shareholders | | $ | 21,171 | | $ | (32) |
Net income attributable to redeemable noncontrolling interests | |
| 3,363 | |
| 10 |
Net loss attributable to noncontrolling interests | |
| (224) | |
| (55) |
Net income (loss) | |
| 24,310 | |
| (77) |
(Gain) loss on the sale of real estate, net of tax | |
| (40,700) | |
| 136 |
Gain on the sale of unconsolidated real estate assets | |
| — | |
| (5,243) |
Real estate depreciation and amortization | |
| 51,611 | |
| 55,517 |
Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures | |
| 2,760 | |
| 6,870 |
FFO attributable to noncontrolling interests | |
| 224 | |
| (26) |
FFO attributable to common limited partnership units ("OP Units") | |
| 38,205 | |
| 57,177 |
FFO attributable to redeemable noncontrolling interests | |
| (5,203) | |
| (5,877) |
FFO attributable to common shareholders | | $ | 33,002 | | $ | 51,300 |
NOI which is a non-GAAP financial measure that we usemanagement uses to assess a segment’san asset'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 expense 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 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 disposed properties or properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared. During the three months ended March 31, 2023, our same store pool increased to 49 properties from 47 properties due to the inclusion of The Wren and The Batley as they were in service for the entirety of the comparable periods. 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 $4.2decreased $528,000, or 0.7%, to $76.1 million or 6.3%, and $6.3 million, or 3.1%, for the three and nine months ended September 30, 2017, respectively, as comparedMarch 31, 2023 from $76.6 million for the same period in 2022. The decrease was substantially attributable to the three(i) increased abatement and nine months ended September 30, 2016, respectively. Thehigher utilities, partially offset by an increase in same store
The following table reflectsis the reconciliation of net income (loss) income 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, | ||||
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Net income (loss) attributable to common shareholders | | $ | 21,171 | | $ | (32) |
Add: | | | | | | |
Depreciation and amortization expense | |
| 53,431 | |
| 58,062 |
General and administrative expense: | | | | | | |
Corporate and other | |
| 16,123 | |
| 15,815 |
Third-party real estate services | |
| 23,823 | |
| 27,049 |
Share-based compensation related to Formation Transaction and special equity awards | |
| 351 | |
| 2,244 |
Transaction and other costs | |
| 2,472 | |
| 899 |
Interest expense | |
| 26,842 | |
| 16,278 |
Loss on the extinguishment of debt | |
| — | |
| 591 |
Income tax benefit | |
| (16) | |
| (471) |
Net income attributable to redeemable noncontrolling interests | |
| 3,363 | |
| 10 |
Net loss attributable to noncontrolling interests | | | (224) | | | (55) |
Less: | | | | | | |
Third-party real estate services, including reimbursements revenue | |
| 22,784 | |
| 23,970 |
Other revenue | |
| 1,726 | |
| 2,196 |
Income from unconsolidated real estate ventures, net | |
| 433 | |
| 3,145 |
Interest and other income, net | |
| 4,077 | |
| 14,246 |
Gain (loss) on the sale of real estate, net | |
| 40,700 | |
| (136) |
Consolidated NOI | |
| 77,616 | |
| 76,969 |
NOI attributable to unconsolidated real estate ventures at our share | |
| 4,429 | |
| 6,967 |
Non-cash rent adjustments (1) | |
| (8,377) | |
| (1,791) |
Other adjustments (2) | |
| 6,845 | |
| 8,760 |
Total adjustments | |
| 2,897 | |
| 13,936 |
NOI | |
| 80,513 | |
| 90,905 |
Less: out-of-service NOI loss (3) | |
| (710) | |
| (1,448) |
Operating Portfolio NOI | |
| 81,223 | |
| 92,353 |
Non-same store NOI (4) | |
| 5,114 | |
| 15,716 |
Same store NOI (5) | | $ | 76,109 | | $ | 76,637 |
| | | | | | |
Change in same store NOI | |
| (0.7%) | | | |
Number of properties in same store pool | |
| 49 | | | |
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
34
operating segments into three reportable segments (multifamily, commercial, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.
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, | ||||
| | 2023 |
| 2022 | ||
| | (In thousands) | ||||
Property management fees | | $ | 4,952 | | $ | 4,808 |
Asset management fees | |
| 1,103 | |
| 1,771 |
Development fees | |
| 1,986 | |
| 3,539 |
Leasing fees | |
| 1,356 | |
| 1,839 |
Construction management fees | |
| 340 | |
| 150 |
Other service revenue | |
| 1,224 | |
| 816 |
Third-party real estate services revenue, excluding reimbursements | |
| 10,961 | |
| 12,923 |
Reimbursement revenue (1) | |
| 11,823 | |
| 11,047 |
Third-party real estate services revenue, including reimbursements | | | 22,784 | | | 23,970 |
Third-party real estate services expenses | | | 23,823 | | | 27,049 |
Third-party real estate services revenue less expenses | | $ | (1,039) | | $ | (3,079) |
(1) | 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, 2023 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. 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 income (loss) attributable to common shareholders to consolidated NOI for the three months ended March 31, 2023 and 2022.
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The following is a summary of NOI by segment:
| | | | | | |
| | Three Months Ended March 31, | ||||
| | 2023 |
| 2022 | ||
| | (In thousands) | ||||
Property revenue: | | |
|
| |
|
Commercial | | $ | 76,055 | | $ | 91,633 |
Multifamily | |
| 50,134 | |
| 42,242 |
Other (1) | |
| 2,263 | |
| 1,924 |
Total property revenue | |
| 128,452 | |
| 135,799 |
| | | | | | |
Property expense: | |
|
| |
|
|
Commercial | |
| 28,372 | |
| 37,979 |
Multifamily | |
| 23,063 | |
| 18,976 |
Other (1) | |
| (599) | |
| 1,875 |
Total property expense | |
| 50,836 | |
| 58,830 |
| | | | | | |
Consolidated NOI: | |
|
| |
|
|
Commercial | |
| 47,683 | |
| 53,654 |
Multifamily | |
| 27,071 | |
| 23,266 |
Other (1) | |
| 2,862 | |
| 49 |
Consolidated NOI | | $ | 77,616 | | $ | 76,969 |
(1) | Includes activity related to development assets, corporate entities, land assets for which |
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 revenue increaseddecreased by $8.9$15.6 million, or 9.8%17.0%, to $99.5$76.1 million in 20172023 from $90.6$91.6 million in 2016.2022. Consolidated NOI increaseddecreased by $5.7$6.0 million, or 10.7%11.1%, to $59.4$47.7 million in 20172023 from $53.7 million in 2016.2022. The decreases in property revenue and consolidated NOI were due to the Disposed Properties, partially offset by increased occupancy at 1550 Crystal Drive and 241 18th Street, and the recovery of previously reserved balances.
Multifamily: Property revenue increased by $7.9 million, or 18.7%, to $50.1 million in 2023 from $42.2 million in 2022. Consolidated NOI increased by $3.8 million, or 16.4%, to $27.1 million in 2023 from $23.3 million in 2022. The increases in property revenue and consolidated NOI were due to the consolidation of Atlantic Plumbing and 8001 Woodmont in 2022, and higher occupancy and rental rates across the portfolio. The increase in revenue andconsolidated NOI is primarily due to the Combination.
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 ("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.Units and long-term incentive partnership units ("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, and asset sales and recapitalizations, 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
Mortgage Loans
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, 2023 |
| December 31, 2022 | ||
| | | | (In thousands) | ||||
Variable rate (2) |
| 5.47% | | $ | 754,281 | | $ | 892,268 |
Fixed rate (3) |
| 4.43% | |
| 1,063,634 | |
| 1,009,607 |
Mortgage loans |
| | |
| 1,817,915 | |
| 1,901,875 |
Unamortized deferred financing costs and premium/discount, net (4) |
| | |
| (15,864) | |
| (11,701) |
Mortgage loans, net | | | | $ | 1,802,051 | | $ | 1,890,174 |
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, 2023. |
Includes variable rate mortgage loans with interest rate cap agreements. For mortgage loans with interest rate caps, the weighted average interest rate cap strike is 2.35%, and the weighted average maturity date of the interest rate caps is August 1, 2023. The interest rate cap strike is exclusive of the credit spreads associated with the mortgage loans. As of March 31, 2023, one-month London Interbank Offered Rate ("LIBOR") was 4.86% and one-month term Secured Overnight Financing Rate ("SOFR") was 4.80%. |
(3) | Includes variable rate mortgages |
(4) | |
As of September 30, 2017,March 31, 2023 and December 31, 2022, the net carrying value of real estate collateralizing our mortgages payablemortgage loans totaled $3.9$2.2 billion. Our mortgage loans 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. As of September 30, 2017, we were in compliance with all debt covenants.
In January 2023, we entered into a $1.4$187.6 million loan facility, collateralized by The Wren and F1RST Residences. The loan has a seven-year term and a fixed interest rate of 5.13%. This loan is the initial advance under a Fannie Mae multifamily credit facility which provides flexibility for collateral substitutions, future advances tied to performance, ability to mix fixed and floating rates, and staggered maturities. Proceeds from the loan were used, in part, to repay the $131.5 million mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%.
As of March 31, 2023 and December 31, 2022, we had various interest rate swap and cap agreements on certain mortgage loans with an aggregate notional value of $1.2 billion and $1.3 billion. See Note 15 to the financial statements for additional information.
Credit Facility
As of March 31, 2023 and December 31, 2022, our $1.6 billion credit facility consistingconsisted of aan undrawn $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$350.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024. The interest rate for the credit facility varies based onJanuary 2028, which has 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%.
37
The following is a summary of amounts outstanding under the credit facility as of September 30, 2017:
| | | | | | | | |
| | Effective | | | ||||
|
| Interest Rate (1) |
| March 31, 2023 |
| December 31, 2022 | ||
| | | | (In thousands) | ||||
Revolving credit facility (2) (3) |
| 5.95% | | $ | — | | $ | — |
| | | | | | | | |
Tranche A-1 Term Loan (4) |
| 2.61% | | $ | 200,000 | | $ | 200,000 |
Tranche A-2 Term Loan (4) |
| 3.39% | |
| 350,000 | |
| 350,000 |
Unsecured term loans |
| | |
| 550,000 | |
| 550,000 |
Unamortized deferred financing costs, net |
| | |
| (2,744) | |
| (2,928) |
Unsecured term loans, net | | | | $ | 547,256 | | $ | 547,072 |
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, 2023. The interest rate for our revolving credit facility excludes a 0.15% facility fee. |
As of |
(3) | As of March 31, 2023 and December 31, 2022, excludes $2.9 million and $3.3 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net" in our balance sheets. |
(4) | As of March 31, 2023 and December 31, 2022, the outstanding balance was fixed by interest rate swap agreements, which fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.14% for the Tranche A-2 Term Loan. Interest rate swaps for the Tranche A-1 Term Loan with a total notional value of $200.0 million mature in July 2024. Interest rate swaps for the Tranche A-2 Term Loan with a total notional value of $200.0 million mature in July 2024 and with a total notional value of $150.0 million mature in January 2028. We have two forward-starting interest rate swaps that will be effective July 2024 with a total notional value of $200.0 million, which will effectively fix SOFR at a weighted average interest rate of 2.61% through the maturity date. The interest rate for our Tranche A-2 Term Loan excludes a 0.15% per annum commitment fee on the undrawn $50.0 million of commitments. |
As of March 31, 2023, we had debt with a principal balance totaling $692.7 million and hedging arrangements with a notional value totaling $1.0 billion that use LIBOR as a reference rate. On November 30, 2020, the United Kingdom regulator announced its intentions to cease the publication of the one-week and two-month USD-LIBOR immediately following the December 31, 2021 publications, and the remaining USD-LIBOR tenors immediately following the June 30, 2023 publications. Though an alternative reference rate for LIBOR, the SOFR, exists, significant uncertainties still remain. We can provide no assurance regarding the future of LIBOR and when our LIBOR-based instruments will transition from LIBOR as a reference rate to SOFR or another reference rate. The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things, result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions. In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations.
Common Shares Repurchased
Our long-term capital requirements consist primarilyBoard of maturities under our credit facility and mortgage loans, construction commitments for development and redevelopment projects and costs relatedTrustees previously authorized the repurchase of up to growing our business, including acquisitions. We intend to fund these requirements through a combination of sources including debt proceeds, proceeds from asset recapitalizations and sales, capital from institutional partners that desire to form real estate venture relationships with us and available cash.
38
program, as of September 30, 2017:
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 |
During the second quarter of 2023, through the date of this filing, we repurchased and retired 2.8 million common shares for $40.1 million, a weighted average purchase price per share of $14.16, pursuant to a repurchase plan under Rule 10b5-1 of 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 are to fund:
● | normal recurring expenses; |
● | capital expenditures, including major renovations, tenant improvements and leasing costs — as of March 31, 2023, we had committed tenant-related obligations totaling $60.6 million ($58.6 million related to our consolidated entities and $2.0 million related to our unconsolidated real estate |
● | |
● | dividends to shareholders and distributions to holders of OP Units and LTIP Units — on May 4, 2023, our Board of Trustees declared a quarterly dividend of $0.225 per common share; |
● | possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests. |
We expect to fund additional capitalsatisfy these needs using one or more of the following:
● | cash and cash equivalents — as of March 31, 2023, we had cash and cash equivalents of $279.6 million; |
● | cash flows from operations; |
● | distributions from real estate ventures; |
● | borrowing capacity under our current credit facility — as of March 31, 2023, we had $1.0 billion of availability under our credit facility, including $50.0 million undrawn under our Tranche A-2 Term Loan which we will draw in May 2023; and |
● | proceeds from financings, asset sales and recapitalizations. |
While we do not expect to certaindo so during the next 12 months, we also can issue securities to raise funds.
During the three months ended March 31, 2023, there were no significant changes to the material cash requirements information presented in Item 7 of Part II of our unconsolidated investments totaling approximately $50.6 million, which we anticipate will be primarily expended over the next two to three years.
See Note 18 to the financial statements for additional information about events occurring after September 30, 2017.in the following pages under "Commitments and Contingencies."
39
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, | ||||
|
| 2023 |
| 2022 | ||
| | (In thousands) | ||||
Net cash provided by operating activities | | $ | 42,632 | | $ | 69,598 |
Net cash used in investing activities | |
| (26,673) | |
| (32,951) |
Net cash provided by (used in) financing activities | |
| 31,860 | |
| (119,529) |
Cash Flows for the NineThree Months Ended September 30, 2017
Cash and cash equivalents, were $367.9and restricted cash increased $47.8 million at September 30, 2017,to $321.9 million as of March 31, 2023, compared to $29.0$274.1 million atas of December 31, 2016, an increase of $338.9 million.2022. This increase resulted from $23.4$42.6 million of net cash provided by operating activities $88.2and $31.9 million of net cash provided by financing activities, partially offset by $26.7 million of net cash used in investing activities and $227.3 million of net cash provided by financing activities. Our outstanding debt was $2.1$2.4 billion at September 30, 2017, a $974.8 million increase from the balance atand $2.5 billion as of March 31, 2023 and December 31, 2016.
Net cash provided by operating activities of $23.4$42.6 million comprised: (i) $40.0 million of net loss of $60.3 million, (ii) $110.7income (before $56.4 million of non-cash items which include depreciation and amortization, deferred rent, equity in loss from unconsolidateda $40.7 million gain on the sale of real estate ventures, amortizationestate), (ii) $3.9 million of above- and below-market lease intangibles, unrealized gains on interest rate swaps and bad debt expense, (iii) share-based compensation of $17.2 million, (iv) return on capital from unconsolidated real estate ventures of $1.1and (iii) $1.2 million and (v) $689,000 loss on the extinguishment of debt, partially offset by (vi) $27.8 million gain on bargain purchase and (vii) the net change in operating assets and liabilitiesliabilities. Non-cash income adjustments of $18.2 million.
Net cash used in investing activities of $204.1$26.7 million primarily comprised: (i) $185.4$78.3 million of development costs, construction in progress and real estate additions and (ii) $20.0$16.9 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(iii) $69.0 million of $3.2 million in restricted cash.
Net cash provided by financing activities of $63.0$31.9 million primarily comprised :comprised: (i) $39.0$223.3 million of proceeds from borrowings from our former parent and (ii) $33.0 million of net contributions from our former parent,under mortgage loans, partially offset by (iii) $8.9(ii) $133.9 million for theof 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, 2023, we havehad investments in and advances to unconsolidated real estate ventures totaling $285.0$312.7 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 are also included in some of our guarantees are not estimable. Guarantees (excluding environmental) terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt. At times, we also have agreements with certain of our 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 theirits share of any payments made by them under certain guarantees. Guarantees (excluding environmental) customarily terminate either upon the satisfaction of specified
40
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, the aggregate amount of our principal payment guarantees was approximately $63.8 million for our unconsolidated real estate ventures.
We evaluate reconsideration events as we become aware of them. Some triggersReconsideration events include, among other criteria, amendments to be considered are additional contributions required by each partner and each partners’ abilityreal estate venture agreements or changes in the capital requirements of the real estate venture. A reconsideration event could cause us to make those contributions. Under certain of these circumstances, we may purchase our partner’s interest. Ourconsolidate an unconsolidated real estate ventures are held 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 isventure 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.
Our debt, consisting of mortgage loans 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, 2023, 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 $346.5 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 recapitalizationssales and sales,recapitalizations, and available cash.
Other
As of March 31, 2023, we had committed tenant-related obligations totaling $60.6 million ($58.6 million related to our consolidated entities and $2.0 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, 2023, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.
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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 suchthat 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 suchthese substances may be substantial, and the presence of suchthese substances, or the failure to promptly remediate suchthese substances, may adversely affect the owner’sowner's ability to sell suchthe real estate or to borrow using suchthe real estate as collateral. In connection with the ownership and operation of our assets, we may be potentially liable for suchthese 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. The release of suchthese hazardous materials and wastes 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 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.
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. Theyliabilities as a result of redevelopment. The tests 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.
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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, 2023 | | December 31, 2022 |
| |||||||||||
|
| | |
| 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): | | | | | | | | | | | | | | | | |
Mortgage loans: | | |
|
| |
|
| | |
|
| |
|
|
| |
Variable rate (1) | | $ | 754,281 |
| | 5.47% | | | $ | 2,525 | | $ | 892,268 |
| 5.21% | |
Fixed rate (2) | |
| 1,063,634 |
| | 4.43% | | |
| — | |
| 1,009,607 |
| 4.44% | |
| | $ | 1,817,915 | | | | | | $ | 2,525 | | $ | 1,901,875 | | | |
Credit facility: | | | | | | | | | | | | | | | | |
Revolving credit facility (3) | | $ | — | |
| 5.95% | | | $ | — | | $ | — |
| 5.51% | |
Tranche A-1 Term Loan (4) | |
| 200,000 | |
| 2.61% | | |
| — | |
| 200,000 |
| 2.61% | |
Tranche A-2 Term Loan (4) | |
| 350,000 | |
| 3.39% | | |
| — | |
| 350,000 |
| 3.40% | |
| | $ | 550,000 | | | | | | $ | — | | $ | 550,000 | | | |
Pro rata share of debt of unconsolidated real estate ventures (contractual balances): | | | | | | | | | | | | | | | | |
Variable rate (1) | | $ | 57,005 | |
| 5.69% | | | $ | 165 | | $ | 22,065 |
| 6.45% | |
Fixed rate (2) | |
| 33,000 | |
| 4.13% | | |
| — | |
| 33,000 |
| 4.13% | |
| | $ | 90,005 | | | | | | $ | 165 | | $ | 55,065 | | | |
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) | Includes variable rate mortgage loans with interest rate cap agreements. For consolidated mortgage loans with interest rate caps, the weighted average interest rate cap strike is 2.35%, and the weighted average maturity date of the interest rate caps is August 1, 2023. The interest rate cap strike is exclusive of the credit spreads associated with the mortgage loans. As of March 31, 2023, one-month LIBOR was 4.86% and one-month term SOFR was 4.80%. The impact of these interest rate caps is reflected in our calculation of the annual effect of a 1% change in base rates. |
Includes variable rate mortgages |
(3) | |
(4) | As of March 31, 2023 and December 31, 2022, the outstanding balance was fixed by interest rate swap agreements. As of March 31, 2023, the interest rate swaps fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.14% for the Tranche A-2 Term Loan. The interest rate for our Tranche A-2 Term Loan excludes a 0.15% per annum commitment fee on the undrawn $50.0 million of commitments. See Note 7 to the financial statements for additional information. |
The fair value of our consolidated debtmortgage loans 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 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, 2023 and
43
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 Designated as Effective Hedges
Certain derivative instruments for speculative purposes. 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 basis with realizedbasis. We assess the effectiveness of our hedges both at inception and unrealized gainson an ongoing basis. If the hedges are deemed to be effective, the fair value is recorded in "Accumulated other comprehensive income" in our balance sheets and is subsequently reclassified into earnings"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 which the change occurs.
As of September 30, 2017,March 31, 2023 and December 31, 2022, we had various interest rate swap and cap agreements assumed in the Combination. Aswith an aggregate notional value of September 30, 2017, the$1.2 billion and $1.4 billion, which were designated as effective hedges. The fair value of our interest rate swaps and caps designated as effective hedges primarily consisted of liabilitiesassets totaling $703,000$36.4 million and $53.5 million as of March 31, 2023 and December 31, 2022, included in "Accounts payable and accrued expenses""Other assets, net" in our balance sheet.
Derivative Financial Instruments Designated as Ineffective Hedges
Certain derivative financial instruments, consisting of interest rate 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 in "Interest expense" in our statements of operations. As of March 31, 2023 and December 31, 2022, we had various interest rate cap agreements with an aggregate notional value of $711.8 million, which were designated as ineffective hedges. The fair value of our interest rate cap agreements designated as ineffective hedges consisted of assets totaling $5.3 million and $8.1 million as of March 31, 2023 and December 31, 2022, included in "Other assets, net" in our balance sheets.
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.
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, 2023 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.
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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, 2023 - January 31, 2023 | | - | | $ | - | | | - | | $ | 376,514,358 |
February 1 2023 - February 28, 2023 | | - | | | - | | | - | | | 376,514,358 |
March 1, 2023 - March 31, 2023 | | 1,205,188 | | | 16.66 | | | 1,205,188 | | | 356,415,525 |
Total for the three months ended March 31, 2023 | | 1,205,188 | | | 16.66 | | | 1,205,188 | | | |
Program total since inception in March 2020 (1) | | 24,502,597 | | | 26.25 | | | 24,502,597 | | | |
(1) | During the second quarter of 2023, through the date of this filing, we repurchased and retired 2.8 million common shares for $40.1 million, a weighted average purchase price per share of $14.16, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. |
In June 2022, our Board of Trustees authorized the repurchase of up to $1.0 billion of our outstanding common shares, and in May 2023, increased the authorized repurchase amount to $1.5 billion. 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, and, in any event.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4
Not applicable.
ITEM 5. OTHER INFORMATION
On May 4, 2023, we held our 2023 Annual Meeting of Shareholders (the "Annual Meeting"). At the Annual Meeting, our shareholders voted on the (i) election of 10 trustees to the Board of Trustees (the "Board") to serve until our 2024 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, 2023. The proposals are described in detail in our Proxy Statement
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for the Annual Meeting, which was filed with the Securities and Exchange Commission on March 22, 2023. 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 10 trustees to the Board to serve until the 2024 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 | | 97,084,598 | | 1,298,479 | | 60,141 | | 3,920,563 |
Scott A. Estes |
| 98,050,072 | | 272,061 | | 121,085 | | 3,920,563 |
Alan S. Forman |
| 95,022,052 | | 3,380,709 | | 40,457 | | 3,920,563 |
Michael J. Glosserman |
| 97,905,408 | | 497,524 | | 40,286 | | 3,920,563 |
W. Matthew Kelly | | 98,254,982 | | 147,940 | | 40,296 | | 3,920,563 |
Alisa M. Mall |
| 96,260,581 | | 2,122,326 | | 60,311 | | 3,920,563 |
Carol A. Melton | | 97,526,133 | | 856,705 | | 60,380 | | 3,920,563 |
William J. Mulrow | | 94,532,875 | | 3,849,775 | | 60,568 | | 3,920,563 |
D. Ellen Shuman | | 96,919,290 | | 1,403,208 | | 120,720 | | 3,920,563 |
Robert A. Stewart | | 96,717,989 | | 1,684,056 | | 41,173 | | 3,920,563 |
Proposal 2: Advisory Vote on Executive Compensation
At the Annual Meeting, our shareholders voted affirmatively on a non-binding resolution to approve 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 |
88,591,869 |
| 9,787,656 |
| 63,693 |
| 3,920,563 |
Proposal 3: Ratification of the Appointment of Deloitte as our 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, 2023. The table below sets forth the voting results for this proposal:
Votes For |
| Votes Against |
| Abstentions |
102,048,462 |
| 267,935 |
| 47,384 |
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ITEM 6. EXHIBITS
(a) Exhibit Index
| | ||
---|---|---|---|
Exhibits | Description | ||
3.1 |
3.2 | |
3.3 | |
3.4 | |
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. |
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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 9, 2023 | /s/ M. Moina Banerjee | |
| M. Moina Banerjee | ||
| Chief Financial Officer | ||
| (Principal Financial |
| | |
| JBG SMITH Properties | |
| ||
Date: | May 9, 2023 | /s/ Angela Valdes |
| Angela Valdes | |
| Chief Accounting Officer | |
| (Principal Accounting Officer) |
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