JBG SMITH(JBGS) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items for the three months ended March 31, 2023, and 2022 Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $5,835,020 | $5,903,438 | | Real estate, net | $4,687,588 | $4,823,082 | | Cash and cash equivalents | $279,553 | $241,098 | | Total Liabilities | $2,638,202 | $2,708,016 | | Total Equity | $2,739,040 | $2,714,112 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including revenue, expenses, and net income (loss) over specific periods | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Total revenue | $152,962 | $161,965 | | Total expenses | $147,036 | $162,899 | | Net income (loss) | $24,310 | $(77) | | Net income (loss) attributable to common shareholders | $21,171 | $(32) | | Earnings (loss) per common share - basic and diluted | $0.19 | $0.00 | | Gain (loss) on the sale of real estate, net | $40,700 | $(136) | Condensed Consolidated Statements of Comprehensive Income This section details the company's comprehensive income, including net income and other comprehensive income items | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income (loss) | $24,310 | $(77) | | Change in fair value of derivative financial instruments | $(8,969) | $25,095 | | Comprehensive income attributable to JBG SMITH Properties | $7,563 | $25,853 | Condensed Consolidated Statements of Equity This section presents changes in the company's equity, including common shares repurchased and net income attributable to shareholders | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | | Total Equity | $2,739,040 | $2,714,112 | | Common shares repurchased (Q1 activity) | $(20,098) | $(93,148) | | Net income (loss) attributable to common shareholders and noncontrolling interests (Q1 activity) | $20,947 | $(87) | Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 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) | | Net increase (decrease) in cash and cash equivalents, and restricted cash | $47,819 | $(82,882) | | Cash and cash equivalents, and restricted cash, end of period | $321,892 | $219,213 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, significant transactions, and financial statement line items - JBG SMITH Properties operates as a Maryland real estate investment trust (REIT), focusing on multifamily and commercial assets in the Washington, D.C. metropolitan area, with approximately two-thirds of its portfolio in National Landing[22] - The company's operating portfolio as of March 31, 2023, includes 51 operating assets (31 commercial, 18 multifamily, 2 land assets) and 22 assets in the development pipeline[23] - Revenue is primarily derived from leases with multifamily and commercial tenants, and fee-based real estate services[24] - The company sold an 80.0% interest in 4747 Bethesda Avenue for a gross sales price of $196.0 million in March 2023, retaining a 20.0% interest[36][39] | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Investments in unconsolidated real estate ventures | $312,651 | $299,881 | | Mortgage loans, net | $1,802,051 | $1,890,174 | | Redeemable noncontrolling interests | $457,778 | $481,310 | | Environmental liabilities | $17,990 | $17,990 | - A new $187.6 million loan facility was secured in January 2023, collateralized by The Wren and F1RST Residences, with proceeds used to repay a $131.5 million mortgage loan[58] - The company's $1.6 billion credit facility includes an undrawn $1.0 billion revolving credit facility and $550.0 million in unsecured term loans[60][61] | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Property rental revenue | $124,033 | $131,598 | | Share-based compensation expense | $10,428 | $12,904 | | Consolidated NOI | $77,616 | $76,969 | - The Board of Trustees increased the common share repurchase authorization to $1.5 billion in May 2023, and the company repurchased 1.2 million common shares for $20.1 million in Q1 2023[83] - A quarterly dividend of $0.225 per common share was declared on May 4, 2023[86] - As of March 31, 2023, construction commitments require an additional $346.5 million to complete over the next three years, and tenant-related obligations totaled $60.6 million[106][108] - Related party transactions include fee-based real estate services to JBG Legacy Funds and WHI Impact Pool, totaling $5.0 million in Q1 2023[117] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and future outlook. It covers business overview, strategic initiatives, operating performance, non-GAAP financial measures like FFO and NOI, liquidity, capital resources, and commitments Organization and Basis of Presentation This section describes the company's structure as a Maryland REIT and its operational focus within the Washington, D.C. metropolitan area - JBG SMITH operates as a Maryland REIT, owning and operating multifamily and commercial assets in Metro-served submarkets of the Washington, D.C. metropolitan area[122] - Approximately two-thirds of the portfolio is in National Landing, anchored by Amazon's new headquarters, Virginia Tech's Innovation Campus, proximity to the Pentagon, and 5G digital infrastructure[122] - The company maintains its REIT status and participates in taxable REIT subsidiaries[127] Overview This section provides a high-level summary of the company's operating portfolio, development pipeline, and strategic initiatives - As of March 31, 2023, the operating portfolio consisted of 51 operating assets, including 31 commercial assets (9.7 million sq ft), 18 multifamily assets (6,756 units), and two wholly owned land assets[131] - The development pipeline includes two under-construction multifamily assets (1,583 units) and 20 assets with 12.5 million sq ft of estimated potential development density[131] - The company is implementing a 'Placemaking' strategy in National Landing, including new multifamily and office developments, retail, streetscape improvements, and 5G digital infrastructure[132] - Amazon is expected to occupy its new headquarters at Metropolitan Park in National Landing in June 2023, with JBG SMITH serving as developer, property manager, and retail leasing agent for 2.1 million sq ft of new office buildings[133][134] Outlook This section outlines the company's strategic focus on capital allocation, asset sales, and portfolio shifts, along with recent occupancy trends - The company's strategy focuses on active capital allocation to maximize long-term net asset value (NAV) per share through opportunistic sales, recapitalizations, and investments in higher-yield acquisitions and development projects[135] - Proceeds from asset sales will fund growth and advance the strategic shift of the portfolio to majority multifamily, though curbed lending activity has slowed the pace of sales[135] - Office portfolio occupancy increased by 10 basis points to 87.6% (leased) and 85.2% (occupied) as of March 31, 2023, with 114,000 square feet of office leases executed in Q1, over 90% in National Landing[136][139] - Multifamily portfolio occupancy decreased by 70 basis points to 95.0% (leased) and 92.9% (occupied) as of March 31, 2023, with renewal rents increasing by 9.3% and a 54.7% renewal rate for Q1 lease expirations[137][139] Operating Results This section summarizes the company's financial performance, key investing and financing activities, and subsequent events impacting operations | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income attributable to common shareholders | $21.2 million | $(32,000) | | Earnings per diluted common share | $0.19 | $0.00 | | Third-party real estate services revenue, including reimbursements | $22.8 million | $24.0 million | | Same store NOI | $76.1 million | $76.6 million | - Key investing and financing activities in Q1 2023 included a $187.6 million loan facility, sale of a development parcel for $5.5 million, sale of an 80.0% interest in 4747 Bethesda Avenue, $25.7 million in dividends paid, $20.1 million in common shares repurchased, and $78.3 million invested in development and construction[141] - Subsequent to March 31, 2023, the Board increased the common share repurchase authorization to $1.5 billion, and the company repurchased 2.8 million common shares for $40.1 million, and declared a quarterly dividend of $0.225 per common share[141] Comparison of the Three Months Ended March 31, 2023 to 2022 This section provides a detailed comparative analysis of financial performance metrics between the two reporting periods | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | % Change | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------- | | 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)% | | Interest expense | $26,842 | $16,278 | 64.9% | | Gain (loss) on the sale of real estate, net | $40,700 | $(136) | * | | Income from unconsolidated real estate ventures, net | $433 | $3,145 | (86.2)% | | Interest and other income, net | $4,077 | $14,246 | (71.4)% | - The decrease in property rental revenue was primarily due to a $15.7 million decrease from commercial assets, partially offset by a $7.8 million increase from multifamily assets[145] - The significant increase in interest expense was primarily driven by a $6.1 million change in the fair value of ineffective interest rate caps, rising interest rates on existing loans, and new mortgage loans[156] FFO This section defines and presents Funds From Operations (FFO), a key non-GAAP measure for assessing the company's operating performance | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | FFO attributable to common shareholders | $33,002 | $51,300 | - FFO (Funds From Operations) is a non-GAAP financial measure used to assess operating performance, excluding real estate depreciation and amortization expense, and gains/losses from real estate sales[158] NOI and Same Store NOI This section presents Net Operating Income (NOI) and Same Store NOI, key metrics for evaluating property-level operational efficiency | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------- | :--------------------------------------------- | :--------------------------------------------- | | Consolidated NOI | $77,616 | $76,969 | | Same store NOI | $76,109 | $76,637 | | Change in same store NOI | (0.7)% | - | - The 0.7% decrease in same store NOI was primarily due to increased abatement and higher utilities in the commercial portfolio, partially offset by higher occupancy and rents in the multifamily portfolio[165] Reportable Segments This section provides a breakdown of financial performance by commercial and multifamily property segments | Segment | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | % Change (NOI) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Commercial Property Revenue | $76,055 | $91,633 | (17.0)% | | Commercial Consolidated NOI | $47,683 | $53,654 | (11.1)% | | Multifamily Property Revenue | $50,134 | $42,242 | 18.7% | | Multifamily Consolidated NOI | $27,071 | $23,266 | 16.4% | - The decrease in Commercial NOI was primarily due to Disposed Properties, partially offset by increased occupancy and recovery of previously reserved balances[175] - The increase in Multifamily NOI was driven by the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancy and rental rates across the portfolio, partially offset by increased operating costs[176] Liquidity and Capital Resources This section details the company's sources of liquidity, debt structure, and material cash requirements for future operations and investments - Primary sources of liquidity include property rental income, third-party real estate services, proceeds from financings, recapitalizations, asset sales, and the issuance of securities[177] | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------- | :----------------------------- | :----------------------------- | | Mortgage loans, net | $1,802,051 | $1,890,174 | | Unsecured term loans, net | $547,256 | $547,072 | - The company's $1.6 billion credit facility includes an undrawn $1.0 billion revolving credit facility and $550.0 million in unsecured term loans[181][182] - The Board of Trustees increased the common share repurchase authorization to $1.5 billion in May 2023. In Q1 2023, 1.2 million common shares were repurchased for $20.1 million[184] - Material cash requirements include normal recurring expenses, debt service ($143.0 million consolidated, $165.0 million at our share maturing in 2023), capital expenditures ($60.6 million tenant-related), and development expenditures ($346.5 million for assets under construction)[187] - As of March 31, 2023, the company had $279.6 million in cash and cash equivalents and $1.0 billion of availability under its credit facility[188] Summary of Cash Flows This section summarizes the company's cash flow activities, highlighting changes in cash and restricted cash from operating, investing, and financing sources | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 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 and cash equivalents, and restricted cash increased by $47.8 million to $321.9 million as of March 31, 2023, driven by operating and financing activities, partially offset by investing activities[190] Unconsolidated Real Estate Ventures This section details the company's investments in and commitments to unconsolidated real estate ventures - As of March 31, 2023, investments in unconsolidated real estate ventures totaled $312.7 million, accounted for using the equity method[195] - The company had additional capital commitments and certain recorded guarantees to its unconsolidated real estate ventures and other investments totaling $62.6 million as of March 31, 2023[199] Commitments and Contingencies This section outlines the company's insurance coverage, construction commitments, tenant obligations, and potential tax-related indemnifications - The company maintains general liability insurance ($150.0 million per occurrence), property and rental value insurance ($1.5 billion per occurrence), and terrorism coverage ($2.0 billion per occurrence)[201] - As of March 31, 2023, assets under construction require an additional $346.5 million to complete over the next three years[204] - Committed tenant-related obligations totaled $60.6 million as of March 31, 2023, and principal payment guarantees for consolidated entities amounted to $8.3 million[205][207] - The company has a Tax Matters Agreement with Vornado, potentially requiring indemnification for tax liabilities related to the Formation Transaction[209] Environmental Matters This section addresses the company's environmental liabilities and the assessment of potential environmental contamination risks - Environmental liabilities totaled $18.0 million as of March 31, 2023, and December 31, 2022[107][211] - Environmental assessments have not revealed any material environmental contamination that is expected to have a material adverse effect on the company's overall business, financial condition, or results of operations[211] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risks, primarily interest rate risk, and outlines its strategies for managing these risks through derivative financial instruments Interest Rate Risk This section analyzes the company's exposure to interest rate fluctuations on its consolidated and unconsolidated debt | Debt Type | March 31, 2023 Balance (in thousands) | Weighted Average Effective Interest Rate (Mar 31, 2023) | | :------------------------------------------------ | :------------------------------------ | :------------------------------------------ | | Consolidated Mortgage loans: Variable rate | $754,281 | 5.47% | | Consolidated Mortgage loans: Fixed rate | $1,063,634 | 4.43% | | Pro rata share of debt of unconsolidated real estate ventures: Variable rate | $57,005 | 5.69% | | Pro rata share of debt of unconsolidated real estate ventures: Fixed rate | $33,000 | 4.13% | - The estimated fair value of consolidated debt was $2.3 billion as of March 31, 2023[212] Hedging Activities This section describes the company's use of derivative financial instruments to manage interest rate risk, including effective and ineffective hedges - The company uses derivative financial instruments, such as interest rate swap and cap agreements, to manage its exposure to interest rate risk[213] - As of March 31, 2023, effective hedges included interest rate swap and cap agreements with an aggregate notional value of $1.2 billion, recorded at fair value in 'Accumulated other comprehensive income'[215] - Ineffective hedges, consisting of interest rate cap agreements with an aggregate notional value of $711.8 million, have realized and unrealized gains or losses recorded in 'Interest expense'[216] ITEM 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as assessed by management - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[217] Changes in Internal Control over Financial Reporting This section reports on any material changes to the company's internal control over financial reporting during the quarter - There have been no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2023[218] PART II – OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and shareholder meeting results ITEM 1. Legal Proceedings This section states that the company is involved in routine legal actions, but their outcomes are not anticipated to have a material adverse effect on its financial position, results of operations, or cash flows - The outcome of legal actions in the ordinary course of business is not expected to have a material adverse effect on the company's financial condition, results of operations, or cash flows[219] ITEM 1A. Risk Factors This section confirms that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's Annual Report[221] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's common share repurchase program, including the number of shares repurchased during the quarter and the increased authorization limit for future repurchases | Period | Total Number Of Common Shares Purchased | Average Price Paid Per Common Share | | :------------------------------------ | :------------------------------------ | :---------------------------------- | | March 1, 2023 - March 31, 2023 | 1,205,188 | $16.66 | | Total for the three months ended March 31, 2023 | 1,205,188 | $16.66 | | Program total since inception in March 2020 | 24,502,597 | $26.25 | - In May 2023, the Board of Trustees increased the common share repurchase authorization to $1.5 billion[223] - During the second quarter of 2023, through the date of filing, the company repurchased and retired an additional 2.8 million common shares for $40.1 million[222] ITEM 3. Defaults Upon Senior Securities This section explicitly states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[224] ITEM 4. Mine Safety Disclosures This section indicates that the disclosure requirements for mine safety are not applicable to the company's operations - Mine safety disclosures are not applicable to the registrant[225] ITEM 5. Other Information This section reports the voting results from the 2023 Annual Meeting of Shareholders, covering the election of trustees, the advisory vote on executive compensation, and the ratification of the independent registered public accounting firm - Shareholders voted to elect 10 trustees to the Board of Trustees[230] - Shareholders approved, on a non-binding advisory basis, the compensation of the named executive officers[231] - Shareholders ratified the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2023[231] ITEM 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certifications, and XBRL data files - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1)[233] - XBRL Instance Document and Taxonomy Extension files (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF) are included[233] Signatures This section contains the required signatures of the company's principal financial and accounting officers, certifying the accuracy and completeness of the quarterly report - The report was signed by M. Moina Banerjee, Chief Financial Officer, and Angela Valdes, Chief Accounting Officer, on May 9, 2023[237][238]