JBG SMITH(JBGS) - 2021 Q4 - Annual Report

Part I Business JBG SMITH is a REIT specializing in commercial and multifamily properties in the Washington, D.C. metropolitan area, focusing on "Placemaking" in National Landing Portfolio Overview as of December 31, 2021 | Portfolio Segment | Count | Square Feet (SF) / Units | At JBG SMITH Share (SF / Units) | | :--- | :--- | :--- | :--- | | Operating Commercial | 42 assets | 13.1 million SF | 11.3 million SF | | Operating Multifamily | 22 assets | 8,208 units | 6,557 units | | Under-Construction | 1 asset | 808 units | 808 units | | Near-Term Development | 11 assets | 5.3 million SF | 5.0 million SF | | Future Development | 25 assets | 14.3 million SF | 11.6 million SF | - The company's core strategy is "Placemaking," which involves developing high-quality, mixed-use properties in dense, walkable, Metro-served neighborhoods to create synergistic value, particularly focused on National Landing[67] - JBG SMITH serves as the developer, property manager, and retail leasing agent for Amazon's new headquarters in National Landing, constructing 2.1 million sq. ft. of office space and finalizing the sale of the Pen Place site for $198.0 million, an increase of $48.1 million[70] - The company is actively reallocating capital by opportunistically selling non-core office assets and land sites to fund growth and strategically shift its portfolio to be majority multifamily[66][85] - A third-party services business generates fee income from managing assets for Amazon, the Washington Housing Initiative (WHI) Impact Pool, and JBG Legacy Funds[87] Rental Revenue from U.S. Federal Government | Year | Revenue (in thousands) | % of Total Rental Revenue | | :--- | :--- | :--- | | 2021 | $83,256 | 16.2% | | 2020 | $84,086 | 17.8% | | 2019 | $86,644 | 16.7% | - The company achieved carbon neutrality across its operating portfolio in 2021 through the purchase of carbon offsets and RECs, and has surpassed $114 million in investor commitments for its managed WHI Impact Pool to address affordable workforce housing[99][100] - As of December 31, 2021, the company had 997 employees, with its workforce comprising 38% females and 56% minorities, and senior leadership having 43% female representation[126][134] Risk Factors The company faces significant risks from the COVID-19 pandemic, geographic concentration, federal government dependence, and substantial indebtedness - The COVID-19 pandemic has negatively impacted the business through decreased office demand, rent deferrals, and credit losses, with $11.2 million in credit losses against billed rent and $19.6 million against deferred rent recorded in 2020[138][141] - The portfolio is highly concentrated in the Washington D.C. metropolitan area, with over half of its assets located in National Landing, making the company susceptible to adverse local economic conditions[145] - The business is dependent on federal government spending, with the GSA as the largest single tenant, accounting for 20.3% of total annualized rent at share as of year-end 2021[146][151] - The company faces risks if the anticipated benefits from Amazon's headquarters in National Landing are less than expected or materialize over a longer period, and Amazon may vacate leased space upon completion of new buildings[147][150] - As of December 31, 2021, the company had a substantial amount of debt, with $2.5 billion in consolidated debt and a total of $2.9 billion at its share, including restrictive covenants[175] - Failure to maintain REIT qualification would subject the company to corporate income tax, reducing funds available for distribution, which requires distributing at least 90% of REIT taxable income annually[201][202] Unresolved Staff Comments As of the report date, there are no unresolved comments from the SEC staff - There are no unresolved comments from the SEC staff as of the filing date of this report[218] Properties JBG SMITH's portfolio as of December 31, 2021, includes 13.1 million square feet of commercial space and 8,208 multifamily units, with significant development pipelines Portfolio Summary (At 100%) | Asset Type | Total Square Feet / Units | % Leased | % Occupied | | :--- | :--- | :--- | :--- | | Commercial | 13,083,094 SF | 85.1% | 82.8% (Office) | | Multifamily (Operating) | 8,208 Units | 92.4% | 90.6% | Development Pipeline Summary | Pipeline | Number of Assets | Estimated Potential Density (SF) | Estimated Units | | :--- | :--- | :--- | :--- | | Near-Term | 11 | 5,259,300 | 4,225 | | Future | 25 | 11,597,600 (at share) | N/A | Top 2 Tenants by Annualized Rent (At JBG SMITH Share) | Tenant | Number of Leases | Square Feet | % of Total Annualized Rent | | :--- | :--- | :--- | :--- | | GSA | 57 | 2,197,989 | 20.3% | | Amazon | 7 | 1,025,463 | 10.1% | - Scheduled lease expirations for office and retail space show that 8.7% of square footage (at share) will expire in 2022, and another 10.7% will expire in 2023, assuming no renewals[239] Legal Proceedings The company is involved in ordinary course legal actions not expected to materially affect its financial position or results - The company states that ongoing legal actions from the ordinary course of business are not expected to have a material adverse effect on its financial results[241] Mine Safety Disclosures This item is not applicable to the company - Not applicable[242] Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities JBG SMITH's common shares trade on the NYSE, with $0.90 per share dividends declared in 2021 and $157.7 million in share repurchases - Dividends declared for the year ended December 31, 2021, totaled $0.90 per common share, paid via regular quarterly dividends of $0.225[244] 2021 Share Repurchases | Period | Total Shares Purchased | Average Price Paid | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | Year Ended 2021 | 5,370,469 | $29.34 | $157.7 million | | Q4 2021 | 2,433,636 | $28.56 | $69.5 million | - As of December 31, 2021, approximately $237.6 million remained available for repurchase under the $500.0 million program authorized in March 2020[255] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, JBG SMITH reported a net loss attributable to common shareholders of $79.3 million, with property rental revenue increasing 8.9% and FFO rising to $159.4 million Overview and Outlook The company continues its "Placemaking" strategy in National Landing, shifting its portfolio towards multifamily while navigating pandemic impacts on office leasing - The company's capital allocation strategy involves selling low-yield assets to reinvest in higher-growth opportunities, particularly multifamily development, to maximize long-term NAV per share, completing $1.7 billion in such transactions since 2017[270] - Commercial portfolio occupancy at share declined by 480 basis points from year-end 2020, and parking revenue was at 65% of pre-pandemic levels due to delayed return-to-office plans[271] - The multifamily portfolio has seen improved occupancy and leasing, with asking rents above pre-pandemic levels, though average in-place rents were approximately 9% lower at year-end[272] COVID-19 Related Financial Impacts | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Credit Losses (Billed Rent) | $1.1 million | $11.2 million | | Credit Losses (Deferred Rent) | - | $19.6 million | | Business Interruption Insurance Proceeds | $4.5 million | - | Results of Operations Property rental revenue increased by 8.9% to $499.6 million in 2021, driven by reduced COVID-related write-offs and new lease-ups, despite higher impairment losses Comparison of Operating Results (2021 vs. 2020) | Line Item (in thousands) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Property rental revenue | $499,586 | $458,958 | 8.9% | | Depreciation and amortization | $236,303 | $221,756 | 6.6% | | Loss from unconsolidated ventures | $2,070 | $20,336 | (89.8)% | | Gain on sale of real estate | $11,290 | $59,477 | (81.0)% | | Impairment loss | $25,144 | $10,232 | 145.7% | - The $40.6 million increase in property rental revenue was primarily driven by a $25.0 million positive variance from reduced rent deferrals and write-offs compared to 2020, and contributions from newly stabilized assets[302] - Loss from unconsolidated real estate ventures decreased by $18.3 million, mainly due to recognizing a proportionate share of gains from asset sales totaling $28.3 million in 2021[310] FFO (Funds From Operations) FFO attributable to common shareholders significantly increased to $159.4 million in 2021, reflecting improved operating results and gains from unconsolidated ventures FFO Reconciliation Summary (in thousands) | | 2021 | 2020 | | :--- | :--- | :--- | | Net income (loss) attributable to common shareholders | $(79,257) | $(62,303) | | Adjustments (Depreciation, Impairments, Gains, etc.) | $238,608 | $178,250 | | FFO attributable to common shareholders | $159,351 | $115,947 | NOI and Same Store NOI Same Store NOI decreased by 0.9% to $299.7 million in 2021 due to pandemic-related impacts on multifamily concessions and commercial occupancy - Same store NOI decreased by 0.9% ($2.6 million) for the year ended December 31, 2021, compared to 2020, primarily due to pandemic-related impacts on multifamily concessions and commercial occupancy and parking revenue[323] NOI and Same Store NOI (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Consolidated NOI | $291,227 | $256,829 | | Total NOI | $325,652 | $296,115 | | Same Store NOI | $299,708 | $302,331 | Reportable Segments In 2021, Commercial segment NOI increased 11.3% and Multifamily NOI grew 22.6%, while Third-Party Services revenue remained flat with shifting composition Consolidated NOI by Segment (in thousands) | Segment | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Commercial | $229,587 | $206,195 | 11.3% | | Multifamily | $67,599 | $55,145 | 22.6% | Third-Party Services Revenue Components (in thousands) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Development fees | $25,493 | $11,496 | | Reimbursement revenue | $48,124 | $56,659 | | Total Revenue | $114,003 | $113,939 | Liquidity and Capital Resources As of December 31, 2021, the company had $264.4 million in cash and $699.1 million available on its credit facility, with total consolidated debt at $2.5 billion - As of December 31, 2021, the company had $699.1 million of availability under its $1.0 billion revolving credit facility[354] Debt Summary (Consolidated, in thousands) | Debt Type | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Mortgages payable, net | $1,777,699 | $1,593,738 | | Revolving credit facility | $300,000 | $0 | | Unsecured term loans, net | $398,664 | $397,979 | | Total Debt (net) | $2,476,363 | $1,991,717 | Summary of Cash Flows (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $217,622 | $169,021 | | Net cash used in investing activities | $(368,741) | $(167,690) | | Net cash provided by financing activities | $189,878 | $119,489 | - The company has material cash requirements of $4.1 billion for future periods, primarily for debt obligations ($2.7 billion) and finance leases ($1.4 billion)[355] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, with a 1% rate increase potentially raising annual interest expense by $11.8 million, managed through derivative instruments Interest Rate Risk Exposure (as of Dec 31, 2021) | Debt Category | Balance (in thousands) | Type | Annual Effect of 1% Rate Change (in thousands) | | :--- | :--- | :--- | :--- | | Consolidated Debt | | | | | Mortgages Payable | $867,246 | Variable | $8,793 | | Revolving Credit Facility | $300,000 | Variable | $3,042 | | Unconsolidated Ventures (at share) | | | | | Mortgages Payable | $281,608 | Variable | $2,855 | - The company uses derivative instruments to hedge interest rate risk, with an aggregate notional value of $862.7 million designated as cash flow hedges and another $867.7 million not designated as accounting hedges as of December 31, 2021[392][393] - The company is exposed to risks from the planned cessation of USD-LIBOR after June 30, 2023, as $2.0 billion of its debt and $1.7 billion of its hedging arrangements use LIBOR as a reference rate[182][348] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021, including balance sheets, statements of operations, and detailed notes Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on JBG SMITH's 2021 financial statements and internal controls, identifying real estate impairment as a critical audit matter - The auditor, Deloitte & Touche LLP, issued an unqualified (clean) opinion on both the financial statements and the company's internal control over financial reporting[397][398] - The critical audit matter identified was the evaluation of real estate assets for possible indications of impairment, which required a high degree of auditor judgment to assess management's judgments[401][405] Consolidated Financial Statements As of December 31, 2021, total assets were $6.4 billion, total liabilities $2.9 billion, and the company reported a net loss of $89.7 million Key Financial Statement Data (as of and for the year ended Dec 31, 2021) | Metric (in thousands) | Amount | | :--- | :--- | | Balance Sheet | | | Total Assets | $6,386,206 | | Total Liabilities | $2,925,064 | | Total Equity | $2,938,417 | | Statement of Operations | | | Total Revenue | $634,362 | | Net Loss | $(89,725) | | Net Loss Attributable to Common Shareholders | $(79,257) | | Statement of Cash Flows | | | Net Cash from Operating Activities | $217,622 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, the $205.3 million acquisition of The Batley, debt, and $291.4 million in construction commitments - In November 2021, the company acquired The Batley, a 432-unit multifamily asset, for $205.3 million, which it intends to use in a like-kind exchange for the sale of Pen Place to Amazon[487] - The company's proportionate share of an impairment loss on the L'Enfant Plaza assets, held in an unconsolidated venture with Landmark, was $23.9 million for 2021[508] - The company has various share-based compensation plans, including time-based and performance-based LTIPs, RSUs, and Formation Awards, with $62.6 million of total unrecognized compensation expense as of December 31, 2021[588] - As of December 31, 2021, the company had construction commitments of $291.4 million to complete assets under construction and committed tenant-related obligations of $76.0 million (at share)[624][628] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosures - None reported[640] Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management and the independent auditor concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective as of December 31, 2021[641][643][644] Other Information This section details U.S. federal income tax consequences for the company and shareholders, including REIT status requirements and taxation of distributions - To maintain its REIT status, the company must distribute at least 90% of its REIT taxable income and meet several ongoing income and asset tests[664][703] - For taxable years before January 1, 2026, individual, trust, and estate shareholders may be entitled to a 20% deduction on ordinary REIT dividends under Section 199A of the Code[665][721] - Distributions to non-U.S. shareholders are generally subject to a 30% withholding tax, unless reduced by a treaty, and dispositions of shares are subject to FIRPTA rules, with exceptions for domestically controlled REITs or small stakes in publicly traded stock[751][760] - The company is subject to FATCA rules, which may impose a 30% withholding tax on certain payments to foreign financial institutions and other foreign entities that fail to comply with information reporting requirements[785] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not Applicable[797] Part III Directors, Executive Officers and Corporate Governance Information concerning directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[799] Executive Compensation Information concerning executive compensation is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[800] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership and equity compensation plans is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[801] Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[802] Principal Accounting Fees and Services Information concerning principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[803] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K - The filing includes the Consolidated Financial Statements (Item 8) and Financial Statement Schedule III - Real Estate Investments and Accumulated Depreciation[805][806] - A detailed index of exhibits is provided, including key agreements such as the Credit Agreement, the Second Amended and Restated Limited Partnership Agreement, and various employment and compensation plan documents[814][815][816] Form 10-K Summary This item is noted as "None," indicating no summary is provided under this item in the report - None[822]