JBG SMITH(JBGS) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for JBG SMITH Properties as of June 30, 2022, and for the three and six-month periods then ended, including the Balance Sheets, Statements of Operations, Statements of Comprehensive Income (Loss), Statements of Equity, and Statements of Cash Flows, along with detailed notes Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $6.39 billion at year-end 2021 to $5.58 billion as of June 30, 2022, primarily due to a reduction in real estate assets, while total liabilities also decreased significantly from $2.93 billion to $2.24 billion, largely driven by repayments of the revolving credit facility and mortgages Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $5,579,902 | $6,386,206 | | Real estate, net | $4,348,716 | $4,868,473 | | Cash and cash equivalents | $162,270 | $264,356 | | Total Liabilities | $2,235,305 | $2,925,064 | | Mortgages payable, net | $1,612,169 | $1,777,699 | | Revolving credit facility | $— | $300,000 | | Total Equity | $2,823,205 | $2,938,417 | Condensed Consolidated Statements of Operations For Q2 2022, the company reported a net income of $141.5 million, a significant turnaround from a $3.3 million loss in Q2 2021, primarily due to a $158.8 million gain on real estate sales, while total revenue slightly declined year-over-year Key Operating Results (in thousands, except per share data) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $145,505 | $154,644 | $307,470 | $319,933 | | Gain on the sale of real estate, net | $158,767 | $11,290 | $158,631 | $11,290 | | Net Income (Loss) | $141,494 | $(3,318) | $141,417 | $(27,387) | | Net Income (Loss) Attributable to Common Shareholders | $123,275 | $(2,973) | $123,243 | $(23,704) | | Earnings (Loss) Per Common Share - Basic and Diluted | $1.02 | $(0.03) | $0.99 | $(0.19) | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income reached $151.5 million for Q2 2022, a positive shift from a $0.9 million loss in Q2 2021, driven by net income and a $10.0 million gain from derivative financial instruments Comprehensive Income (Loss) (in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $141,494 | $(3,318) | $141,417 | $(27,387) | | Total Other Comprehensive Income | $10,016 | $2,430 | $38,867 | $12,582 | | Comprehensive Income (Loss) | $151,510 | $(888) | $180,284 | $(14,805) | Condensed Consolidated Statements of Equity Total equity decreased from $2.94 billion at year-end 2021 to $2.82 billion as of June 30, 2022, primarily due to $307.0 million in common share repurchases, partially offset by $123.2 million in net income attributable to common shareholders - For the six months ended June 30, 2022, the company repurchased 11.84 million common shares for $307.0 million[18] - Dividends declared on common shares were $0.225 per share for the quarter, totaling $27.7 million[18] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash from operating activities was $107.6 million, while investing activities provided $785.3 million, largely from real estate sales, and financing activities used $819.9 million, resulting in a net cash increase of $73.0 million Summary of Cash Flows (in thousands) | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $107,649 | $123,556 | | Net cash provided by (used in) investing activities | $785,304 | $(70,445) | | Net cash used in financing activities | $(819,930) | $(77,754) | | Net increase (decrease) in cash | $73,023 | $(24,643) | Notes to Condensed Consolidated Financial Statements This section details accounting policies and financial figures, covering the company's organization, dispositions, unconsolidated ventures, debt, share-based compensation, segment information, and commitments Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q2 and H1 2022 financial performance, strategic portfolio repositioning, capital recycling, strong multifamily segment, slower office recovery, non-GAAP measures, financing, and liquidity - The company's strategy focuses on maximizing long-term net asset value (NAV) per share through active capital allocation, including opportunistically selling non-core office assets and reinvesting proceeds into higher-yield acquisitions and development projects[143] - The multifamily portfolio occupancy improved to 92.3% (at our share) as of June 30, 2022, with asking rents above pre-pandemic levels and renewal rates increasing by approximately 8.6% for Q2 expirations[145] - The office portfolio occupancy improved to 86.1% (at our share) as of June 30, 2022, but new leasing has been slow to recover from the pandemic, which is expected to impact occupancy levels for the foreseeable future[144] Key Operating Highlights - Q2 2022 | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Income (Loss) Attributable to Common Shareholders | $123.3M | $(3.0)M | | Diluted EPS | $1.02 | $(0.03) | | Same Store NOI Increase | 13.8% | N/A | Results of Operations This subsection compares Q2 and H1 2022 operating results to prior periods, highlighting a significant net income increase driven by a $158.8 million gain on real estate sales, while property rental revenue slightly decreased and third-party services declined Comparison of Operations (Three Months Ended June 30) | (in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Property rental revenue | $117,036 | $122,819 | (4.7)% | | Third-party real estate services revenue | $22,157 | $26,745 | (17.2)% | | Gain on the sale of real estate, net | $158,767 | $11,290 | * | | Income (loss) from unconsolidated ventures | $(2,107) | $3,953 | (153.3)% | Comparison of Operations (Six Months Ended June 30) | (in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Property rental revenue | $248,634 | $245,060 | 1.5% | | Third-party real estate services revenue | $46,127 | $64,852 | (28.9)% | | Interest and other income (loss), net | $15,918 | $(29) | * | | Gain on the sale of real estate, net | $158,631 | $11,290 | * | FFO and Same Store NOI This section details non-GAAP performance, showing FFO attributable to common shareholders at $33.6 million for Q2 2022 and $84.9 million for the six-month period, with Same Store NOI growing by 13.8% in Q2 and 13.9% in H1, driven by multifamily and hotel performance FFO Attributable to Common Shareholders (in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | FFO | $33,561 | $37,860 | $84,861 | $80,188 | Same Store NOI (in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Same Store NOI | $79,328 | $69,721 | $155,416 | $136,478 | | Change in Same Store NOI | 13.8% | | 13.9% | | Liquidity and Capital Resources The company maintains liquidity through operating cash flow, asset sales, and its credit facility, with $162.3 million in cash and $999.5 million available as of June 30, 2022, funding debt repayment, share repurchases, and development expenditures - As of June 30, 2022, the company had $162.3 million in cash and cash equivalents and $999.5 million of availability under its credit facility[222] - In H1 2022, the company repurchased 11.8 million common shares for $307.0 million. The Board increased the repurchase authorization by $500.0 million in June 2022 to a total of $1.0 billion[219] - Future material cash requirements include $528.5 million for assets under construction, $74.3 million in committed tenant-related obligations, and ongoing dividends[222] - Subsequent to quarter-end, in July 2022, the company amended its Tranche A-2 Term Loan, increasing its borrowing capacity by $200.0 million and extending the maturity to January 2028[216] Quantitative and Qualitative Disclosures about Market Risk This section details the company's interest rate risk exposure from variable-rate debt, where a 1% rate change would impact consolidated debt by $8.7 million annually, with derivative instruments used for hedging and consolidated debt fair value estimated at $2.0 billion Interest Rate Risk Exposure (as of June 30, 2022) | Debt Category | Balance (in thousands) | Annual Effect of 1% Rate Change (in thousands) | | :--- | :--- | :--- | | Consolidated Debt | | | | Mortgages payable - Variable rate | $857,446 | $8,694 | | Pro Rata Share of Unconsolidated Debt | | | | Variable rate | $189,136 | $1,918 | - The company utilizes interest rate swap and cap agreements to manage interest rate risk. As of June 30, 2022, it had agreements with an aggregate notional value of $930.2 million designated as effective hedges and $692.7 million designated as ineffective hedges[255][256] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[257] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[258] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal actions in the ordinary course of business but does not expect the outcomes to have a material adverse effect on its financial position, results, or cash flows - The company states that the outcome of ordinary course legal actions is not expected to have a material adverse effect on its financial condition[259] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report[260] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common share repurchases, with approximately 8.5 million shares bought back for $213.9 million in Q2 2022, and the Board increasing the total repurchase authorization to $1.0 billion in June 2022 Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Common Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | 706,598 | $27.39 | | May 2022 | 3,465,029 | $25.31 | | June 2022 | 4,326,740 | $24.66 | | Total Q2 | 8,498,367 | $25.15 | - In June 2022, the Board of Trustees increased the authorized share repurchase amount by $500.0 million to an aggregate of $1.0 billion[263] Other Information This section discloses significant post-quarter events, including a new $400.0 million delayed draw term loan facility on July 29, 2022, increasing borrowing capacity by $200.0 million, and the retirement announcement of President and COO David P. Paul effective December 31, 2022 - On July 29, 2022, JBG SMITH LP entered into a new $400.0 million Delayed Draw Term Credit Agreement, maturing in January 2028. This increased overall borrowing capacity by $200.0 million[266][269] - David P. Paul, President and Chief Operating Officer, announced his retirement effective December 31, 2022. He will continue as a Senior Advisor for a transition period[277][278] Exhibits This section lists the exhibits filed with the Form 10-Q, including new credit agreements, an executive retirement agreement, and CEO/CFO certifications