JBG SMITH(JBGS) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for JBG SMITH Properties as of March 31, 2021, and for the three-month periods ended March 31, 2021 and 2020. It includes the Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Equity, and Cash Flows, along with accompanying notes Condensed Consolidated Balance Sheets The balance sheet shows a slight decrease in total assets from $6.08 billion at year-end 2020 to $6.02 billion as of March 31, 2021. Total liabilities also decreased from $2.34 billion to $2.29 billion, while total equity saw a minor reduction Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $6,019,317 | $6,079,547 | | Real estate, net | $4,729,356 | $4,767,941 | | Cash and cash equivalents | $208,708 | $225,600 | | Total Liabilities | $2,289,544 | $2,342,593 | | Mortgages payable, net | $1,591,883 | $1,593,738 | | Unsecured term loans, net | $398,151 | $397,979 | | Total Equity | $3,176,846 | $3,206,206 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2021, the company reported a net loss of $24.1 million, a significant shift from the $48.2 million net income in the same period of 2020. This was primarily due to the absence of a large gain on sale of real estate that occurred in Q1 2020. Total revenue increased to $165.3 million from $158.1 million year-over-year Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total revenue | $165,289 | $158,107 | | Property rental | $122,241 | $120,380 | | Third-party real estate services | $38,107 | $29,716 | | Total expenses | $167,813 | $157,931 | | Depreciation and amortization | $64,726 | $48,489 | | Gain on sale of real estate | $— | $59,477 | | NET INCOME (LOSS) | ($24,069) | $48,175 | | NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | ($20,731) | $42,925 | | EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED | ($0.16) | $0.32 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $66.5 million in Q1 2021 from $41.9 million in Q1 2020. Investing activities used $29.5 million, a reversal from providing $43.9 million in the prior year, mainly due to proceeds from a real estate sale in 2020. Financing activities used $51.8 million, primarily for dividends and share repurchases Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $66,502 | $41,916 | | Net cash (used in) provided by investing activities | ($29,515) | $43,917 | | Net cash (used in) provided by financing activities | ($51,776) | $85,670 | | Net (decrease) increase in cash | ($14,789) | $171,503 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosure on the company's organization, accounting policies, portfolio composition, debt structure, share-based compensation, segment performance, and various commitments and contingencies. Key highlights include the strategic focus on National Landing, the impact of COVID-19 on estimates, and details on financial instruments and related party transactions - JBG SMITH is a REIT focused on the Washington, D.C. area, with over half of its portfolio in National Landing, where it is the exclusive developer for Amazon's new headquarters[22] - As of March 31, 2021, the Operating Portfolio consisted of 63 assets: 42 commercial (13.3 million sq. ft.) and 21 multifamily (7,800 units)[23] - The COVID-19 pandemic has affected accounting estimates, particularly for assessing long-lived assets for impairment and the collectability of tenant receivables[32] - As of March 31, 2021, the company had construction in progress requiring an additional $351.3 million to complete, primarily over the next four years[108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operating results, emphasizing the ongoing impacts of the COVID-19 pandemic on revenue, leasing, and expenses. The report highlights the strategic importance of the National Landing development, including the Amazon headquarters project. It provides analysis of segment performance, non-GAAP measures like FFO and NOI, liquidity, and capital resources, noting a 9.2% decrease in Same Store NOI year-over-year Overview and 2021 Outlook The company's focus remains on its National Landing portfolio and its role as the developer for Amazon's new headquarters. Management expects COVID-19 to continue negatively impacting operations in 2021, affecting retail revenue, parking income, and leasing activity. Despite near-term headwinds, the company believes its concentration in the D.C. market and relationship with Amazon will provide resilience and long-term growth opportunities - Key negative impacts from COVID-19 include decreased retail revenue, a decline in parking revenue ($3.7 million or 46.5% YoY), depressed leasing activity, and lower income from the Crystal City Marriott hotel[145] Q1 2021 Rent Collections | Tenant Type | Consolidated Basis | At Our Share | | :--- | :--- | :--- | | Commercial Office | 99.5% | 99.6% | | Multifamily | 98.9% | 98.9% | | Commercial Retail | 76.4% | 74.7% | - Management expects increased government spending and Amazon's accelerated hiring in National Landing to mitigate the effects of the economic downturn and provide stimulus for future growth[148] Results of Operations The company reported a net loss of $20.7 million ($0.16 per share) for Q1 2021, compared to a net income of $42.9 million ($0.32 per share) in Q1 2020. The change was primarily driven by a $59.5 million gain on sale of real estate in the prior-year period. Third-party real estate services revenue grew 28.2% to $38.1 million, while property rental revenue increased 1.5% to $122.2 million Comparison of Key Operating Results (in thousands) | Line Item | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Property rental revenue | $122,241 | $120,380 | 1.5% | | Third-party real estate services revenue | $38,107 | $29,716 | 28.2% | | Depreciation and amortization expense | $64,726 | $48,489 | 33.5% | | Interest expense | $16,296 | $12,005 | 35.7% | | Gain on sale of real estate | $— | $59,477 | (100.0)% | - The increase in third-party services revenue was primarily due to an $11.4 million increase in development fees related to the timing of development projects[157] - Interest expense increased by $4.3 million, mainly due to a $3.6 million decrease in capitalized interest as several development properties were placed into service[167] FFO and Same Store NOI This section provides reconciliations for the non-GAAP measures of Funds from Operations (FFO) and Net Operating Income (NOI). FFO attributable to common shareholders for Q1 2021 was $42.3 million, up from $36.7 million in Q1 2020. Same Store NOI decreased by 9.2% to $75.9 million, primarily attributed to the impacts of COVID-19 on both the commercial and multifamily portfolios FFO Reconciliation (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net income (loss) attributable to common shareholders | ($20,731) | $42,925 | | Adjustments (Depreciation, Gain on Sale, etc.) | $63,059 | ($8,678) | | FFO attributable to common shareholders | $42,328 | $36,748 | - Same Store NOI decreased by $7.7 million (9.2%) in Q1 2021 compared to Q1 2020. The decrease was substantially attributable to COVID-19 impacts, including lower occupancy and higher concessions in multifamily, and lower parking revenue in commercial[175] Reportable Segments The company's performance is analyzed across its three reportable segments: Commercial, Multifamily, and Third-Party Asset Management and Real Estate Services. In Q1 2021, Commercial segment NOI saw a slight increase of 0.7% to $57.5 million, while Multifamily NOI decreased by 15.0% to $15.2 million due to COVID-19 pressures. Third-party services revenue less expenses grew significantly to $9.2 million from $0.9 million in the prior year Consolidated NOI by Segment (in thousands) | Segment | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Commercial | $57,546 | $57,127 | | Multifamily | $15,211 | $17,895 | | Total Consolidated NOI | $71,955 | $74,059 | - The Commercial segment's property revenue decrease was driven by a $4.0 million decline in parking revenue, but NOI increased slightly due to properties being placed in service and higher occupancy at certain locations[189] - The Multifamily segment's NOI decrease was due to lower occupancy, higher concessions, lower rents, and higher operating costs in same-store assets, attributed to COVID-19[190] Liquidity and Capital Resources The company's primary liquidity sources are property rental income and third-party service fees. As of March 31, 2021, the company had $248.5 million in cash and restricted cash, and $998.5 million available under its credit facility. During the quarter, the company repurchased $19.2 million of its common shares. Management believes existing cash, operating cash flows, and financing availability are adequate to fund operations and commitments for the next 12 months - As of March 31, 2021, the company had $998.5 million of availability under its credit facility[210] - During Q1 2021, the company repurchased and retired 619,749 common shares for $19.2 million at an average price of $30.96 per share[202] - Principal liquidity needs include recurring expenses, debt service, capital expenditures, development costs, dividends, and potential acquisitions[206] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risk, primarily interest rate risk associated with its variable-rate debt. The company uses derivative financial instruments, such as interest rate swaps and caps, to manage this exposure. As of March 31, 2021, a 1% change in base rates would have an annual effect of approximately $6.9 million on its consolidated variable-rate mortgages and $3.2 million on its pro rata share of unconsolidated venture debt Annual Exposure to 1% Change in Interest Rates (in thousands) | Debt Category | Balance (Mar 31, 2021) | Annual Effect of 1% Change | | :--- | :--- | :--- | | Mortgages payable: Variable rate | $677,246 | $6,867 | | Pro rata share of unconsolidated debt: Variable rate | $320,122 | $3,246 | - The company uses interest rate swap and cap agreements to hedge interest rate risk. As of March 31, 2021, it had agreements with an aggregate notional value of $862.7 million designated as cash flow hedges and $867.7 million not designated as hedges[250][251] Item 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2021. There were no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective[252] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[253] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal actions that arise in the ordinary course of business. Management does not expect the outcome of these matters to have a material adverse effect on the company's financial position, results, or cash flows - In management's opinion, the outcome of ordinary course legal actions is not expected to have a material adverse effect on the company's financial condition[254] Item 1A. Risk Factors There have been no material changes to the risk factors that were previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to the risk factors disclosed in the 2020 Annual Report have occurred[255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchases of its own equity securities. During the three months ended March 31, 2021, the company repurchased a total of 619,749 common shares at an average price of $30.96 per share under its publicly announced $500 million repurchase program Purchases of Equity Securities by the Issuer (Q1 2021) | Period | Total Common Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2021 | 261,311 | $29.93 | | February 2021 | 57,789 | $31.59 | | March 2021 | 300,649 | $31.74 | | Total | 619,749 | $30.96 | - The share repurchase program was authorized by the Board of Trustees in March 2020 for up to $500 million of outstanding common shares[258] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[259] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[260] Item 5. Other Information The company reports no other information for this period - None[261] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements, share plan amendments, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits include various amended and restated employment agreements for key executives[263] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Sections 302 and 906 are included as exhibits[263]