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UNITED STATES

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 March 31, 2022

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

Graphic

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 Avenue Suite 200

Bethesda MD

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 No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No

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 Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

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-2 of the Exchange Act) Yes No

As of April 29, 2022, JBG SMITH Properties had 123,548,107 common shares outstanding.

JBG SMITH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Page

Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Equity (unaudited) for the three months ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

Item 4.

Controls and Procedures

43

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

45

Item 5.

Other Information

45

Item 6.

Exhibits

46

Signatures

47

2

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

JBG SMITH PROPERTIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value amounts)

    

March 31, 2022

    

December 31, 2021

ASSETS

 

  

 

  

Real estate, at cost:

 

  

 

  

Land and improvements

$

1,212,501

$

1,378,218

Buildings and improvements

 

3,968,601

 

4,513,606

Construction in progress, including land

 

348,523

 

344,652

 

5,529,625

 

6,236,476

Less: accumulated depreciation

 

(1,216,402)

 

(1,368,003)

Real estate, net

 

4,313,223

 

4,868,473

Cash and cash equivalents

 

189,140

 

264,356

Restricted cash

 

30,073

 

37,739

Tenant and other receivables

 

45,702

 

44,496

Deferred rent receivable

 

151,024

 

192,265

Investments in unconsolidated real estate ventures

 

461,444

 

462,885

Intangible assets, net

162,139

201,956

Other assets, net

 

71,385

 

240,160

Assets held for sale

 

891,750

 

73,876

TOTAL ASSETS

$

6,315,880

$

6,386,206

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

  

Liabilities:

 

  

 

  

Mortgages payable, net

$

1,613,082

$

1,777,699

Revolving credit facility

 

300,000

 

300,000

Unsecured term loans, net

 

398,332

 

398,664

Accounts payable and accrued expenses

 

108,436

 

106,136

Other liabilities, net

 

106,929

 

342,565

Liabilities related to assets held for sale

 

368,006

 

Total liabilities

 

2,894,785

 

2,925,064

Commitments and contingencies

 

  

 

  

Redeemable noncontrolling interests

 

546,049

 

522,725

Shareholders' equity:

 

  

 

  

Preferred shares, $0.01 par value - 200,000 shares authorized; none issued

 

 

Common shares, $0.01 par value - 500,000 shares authorized; 124,248 and 127,378 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

1,243

 

1,275

Additional paid-in capital

 

3,444,793

 

3,539,916

Accumulated deficit

 

(609,363)

 

(609,331)

Accumulated other comprehensive income (loss)

 

9,935

 

(15,950)

Total shareholders' equity of JBG SMITH Properties

 

2,846,608

 

2,915,910

Noncontrolling interests

 

28,438

 

22,507

Total equity

 

2,875,046

 

2,938,417

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

6,315,880

$

6,386,206

See accompanying notes to the condensed consolidated financial statements (unaudited).

3

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

Three Months Ended March 31, 

    

2022

    

2021

REVENUE

  

 

  

Property rental

$

131,598

$

122,241

Third-party real estate services, including reimbursements

 

23,970

 

38,107

Other revenue

 

6,397

 

4,941

Total revenue

 

161,965

 

165,289

EXPENSES

 

 

  

Depreciation and amortization

 

58,062

 

64,726

Property operating

 

40,644

 

34,731

Real estate taxes

 

18,186

 

18,310

General and administrative:

 

 

  

Corporate and other

 

15,815

 

12,475

Third-party real estate services

 

27,049

 

28,936

Share-based compensation related to Formation Transaction and special equity awards

 

2,244

 

4,945

Transaction and other costs

 

899

 

3,690

Total expenses

 

162,899

 

167,813

OTHER INCOME (EXPENSE)

 

  

 

  

Income (loss) from unconsolidated real estate ventures, net

 

3,145

 

(943)

Interest and other income, net

 

14,246

 

9

Interest expense

 

(16,278)

 

(16,296)

Loss on the sale of real estate

 

(136)

 

Loss on the extinguishment of debt

 

(591)

 

Total other income (expense)

 

386

 

(17,230)

LOSS BEFORE INCOME TAX (EXPENSE) BENEFIT

 

(548)

 

(19,754)

Income tax (expense) benefit

 

471

 

(4,315)

NET LOSS

 

(77)

 

(24,069)

Net (income) loss attributable to redeemable noncontrolling interests

 

(10)

 

2,230

Net loss attributable to noncontrolling interests

 

55

 

1,108

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

(32)

$

(20,731)

LOSS PER COMMON SHARE - BASIC AND DILUTED

$

$

(0.16)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED

 

126,682

 

131,540

See accompanying notes to the condensed consolidated financial statements (unaudited).

4

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

NET LOSS

$

(77)

$

(24,069)

OTHER COMPREHENSIVE INCOME (LOSS):

 

  

 

  

Change in fair value of derivative financial instruments

 

25,095

 

6,411

Reclassification of net loss on derivative financial instruments from accumulated other comprehensive income (loss) into interest expense

 

3,756

 

3,741

Other comprehensive income

 

28,851

 

10,152

COMPREHENSIVE INCOME (LOSS)

 

28,774

 

(13,917)

Net (income) loss attributable to redeemable noncontrolling interests

 

(10)

 

2,230

Net loss attributable to noncontrolling interests

55

1,108

Other comprehensive income attributable to redeemable noncontrolling interests

 

(2,966)

 

(973)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JBG SMITH PROPERTIES

$

25,853

$

(11,552)

See accompanying notes to the condensed consolidated financial statements (unaudited).

5

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, 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 common limited partnership units ("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 Employee Share Purchase Plan ("ESPP")

3

286

286

Contributions from noncontrolling interests, net

 

 

 

 

 

 

5,986

 

5,986

Redeemable noncontrolling interests redemption value adjustment and 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

BALANCE AS OF DECEMBER 31, 2020

 

131,778

$

1,319

$

3,657,643

$

(412,944)

$

(39,979)

$

167

$

3,206,206

Net loss attributable to common shareholders and noncontrolling interests

 

 

 

 

(20,731)

 

 

(1,108)

 

(21,839)

Conversion of OP Units to common shares

 

119

 

1

 

3,918

 

 

 

 

3,919

Common shares repurchased

(620)

(6)

(19,197)

(19,203)

Common shares issued pursuant to employee incentive compensation plan and ESPP

249

249

Contributions from noncontrolling interests, net

 

 

 

 

 

 

9,671

 

9,671

Redeemable noncontrolling interests redemption value adjustment and other comprehensive income allocation

 

 

 

(11,336)

 

 

(973)

 

 

(12,309)

Other comprehensive income

 

 

 

 

 

10,152

 

 

10,152

BALANCE AS OF MARCH 31, 2021

 

131,277

$

1,314

$

3,631,277

$

(433,675)

$

(30,800)

$

8,730

$

3,176,846

See accompanying notes to the condensed consolidated financial statements (unaudited).

6

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(77)

$

(24,069)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

  

 

  

Share-based compensation expense

 

12,904

 

13,236

Depreciation and amortization, including amortization of deferred financing costs

 

59,162

 

65,747

Deferred rent

 

(3,706)

 

(6,594)

(Income) loss from unconsolidated real estate ventures, net

 

(3,145)

 

943

Amortization of market lease intangibles, net

 

(353)

 

(458)

Amortization of lease incentives

 

2,374

 

2,345

Loss on the sale of real estate

 

136

 

Loss on operating lease and other receivables

 

587

 

501

Income from investments, net

(14,071)

Return on capital from unconsolidated real estate ventures

 

2,879

 

5,952

Other non-cash items

 

(3,105)

 

(633)

Changes in operating assets and liabilities:

 

  

 

  

Tenant and other receivables

 

(1,793)

 

9,836

Other assets, net

 

(1,367)

 

2,115

Accounts payable and accrued expenses

 

(4,575)

 

(842)

Other liabilities, net

 

23,748

 

(1,577)

Net cash provided by operating activities

 

69,598

 

66,502

INVESTING ACTIVITIES:

 

  

 

  

Development costs, construction in progress and real estate additions

 

(52,686)

 

(28,499)

Proceeds from the sale of real estate

 

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

 

(7,230)

 

(1,016)

Net cash used in investing activities

 

(32,951)

 

(29,515)

FINANCING ACTIVITIES:

 

  

 

  

Repayments of mortgages payable

 

(1,178)

 

(2,234)

Debt issuance costs

 

(531)

 

(4,587)

Common shares repurchased

(91,148)

(19,203)

Dividends paid to common shareholders

 

(28,665)

 

(29,650)

Distributions to redeemable noncontrolling interests

 

(4,005)

 

(5,785)

Contributions from noncontrolling interests

5,998

9,683

Net cash used in financing activities

 

(119,529)

 

(51,776)

Net decrease in cash and cash equivalents, and restricted cash

 

(82,882)

 

(14,789)

Cash and cash equivalents, and restricted cash, beginning of period

 

302,095

 

263,336

Cash and cash equivalents, and restricted cash, end of period

$

219,213

$

248,547

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, 

    

2022

    

2021

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD:

 

  

Cash and cash equivalents

$

189,140

$

208,708

Restricted cash

 

30,073

 

39,839

Cash and cash equivalents, and restricted cash

$

219,213

$

248,547

SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:

 

  

Cash paid for interest (net of capitalized interest of $1,771 and $1,710 in 2022 and 2021)

$

18,219

$

14,929

Accrued capital expenditures included in accounts payable and accrued expenses

 

60,044

 

38,668

Write-off of fully depreciated assets

 

8,341

 

39,920

Conversion of OP Units to common shares

 

6,014

 

3,919

Cash paid for amounts included in the measurement of lease liabilities for operating leases

 

546

 

610

See accompanying notes to the condensed consolidated financial statements (unaudited).

8

JBG SMITH PROPERTIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Organization and Basis of Presentation

Organization

JBG SMITH Properties ("JBG SMITH"), a Maryland real estate investment trust ("REIT"), owns and operates a portfolio of commercial and multifamily 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. Over half of our portfolio is in National Landing in Northern Virginia, where we serve as the developer for Amazon.com, Inc.'s ("Amazon") new over five million square foot headquarters and where Virginia Tech's $1 billion Innovation Campus is under construction. In addition, our third-party asset management and real estate services business provides fee-based real estate services to Amazon, 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 Properties LP ("JBG SMITH LP"), our operating partnership. As of March 31, 2022, JBG SMITH, as its sole general partner, controlled JBG SMITH LP and owned 89.0% 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.

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 Realty Trust's ("Vornado") Washington, D.C. segment. On July 18, 2017, we acquired the management business, and certain assets and liabilities of JBG (the "Combination"). The Separation and the Combination are collectively referred to as the "Formation Transaction."

As of March 31, 2022, our Operating Portfolio consisted of 62 operating assets comprising 41 commercial assets totaling 13.0 million square feet (11.3 million square feet at our share), 20 multifamily assets totaling 7,715 units (6,502 units at our share) and one wholly-owned land asset for which we are the ground lessor. Additionally, we have: (i) two under-construction multifamily assets with 1,583 units (1,583 units at our share); (ii) nine near-term development assets totaling 4.1 million square feet (3.9 million square feet at our share) of estimated potential development density; and (iii) 20 future development assets totaling 13.0 million square feet (10.5 million square feet at our share) of estimated potential development density.

We derive our revenue primarily from leases with commercial and multifamily tenants, which 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, our third-party asset management and real estate services business provides fee-based real estate services.

Basis of Presentation

The accompanying unaudited condensed consolidated 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 condensed consolidated 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 for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results that may be expected for a full year. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 22, 2022 ("Annual Report").

9

The accompanying condensed consolidated financial statements include our accounts and those of our wholly owned subsidiaries and consolidated variable interest entities ("VIEs"), including JBG SMITH LP. See Note 5 for additional information on our VIEs. The portions of the equity and net income (loss) of consolidated entities that are not attributable to us are presented separately as amounts attributable to noncontrolling interests in our condensed consolidated financial statements.

References to our financial statements refer to our condensed consolidated financial statements as of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021. References to our balance sheets refer to our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021. References to our statements of operations refer to our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021. References to our statements of comprehensive income (loss) refer to our condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2022 and 2021.

Income Taxes

We have elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). 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. We currently adhere and intend to continue to adhere to these requirements and to maintain our REIT status in future periods. We also participate in the activities conducted by our subsidiary entities that have elected to be treated as taxable REIT subsidiaries under the Code. As such, we are subject to federal, state and local taxes on the income from these activities.

Reclassification

Intangible assets, net, totaling $202.0 million were reclassified from "Other assets, net" to "Intangible assets, net" on our balance sheet as of December 31, 2021 in order to present intangible assets separately from other assets, which is consistent with our current year presentation.

2.Summary of Significant Accounting Policies

Significant Accounting Policies

There were no material changes to our significant accounting policies disclosed in our Annual Report.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and 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. The most significant of these estimates include: (i) the underlying cash flows and holding periods used in assessing impairment of our real estate assets; (ii) the determination of useful lives for tangible and intangible assets; and (iii) the assessment of the collectability of receivables, including deferred rent receivables. Longer estimated holding periods for real estate assets directly reduce the likelihood of recording an impairment loss. If there is a change in the strategy for an asset or if market conditions dictate an earlier sale date, an impairment loss may be recognized, and such loss could be material.

Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, 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 optional and may be elected over the period of March 12, 2020 through December 31, 2022 as reference rate reform activities occur. During the three months ended March 31, 2022, we elected to apply the hedge accounting expedient that allows us to continue to assess whether the underlying hedged forecasted transaction remains probable without regard to the replacement of the contractually specified rate. We have

10

elected to apply the hedge accounting expedients related to (i) the assertion that our hedged forecasted transactions remain probable and (ii) the assessments of effectiveness for future London Interbank Offered Rate ("LIBOR") indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves our past presentation of our derivatives. We will continue to evaluate the impact of the guidance and may apply other elections, as applicable.

3.Dispositions and Assets Held for Sale

Dispositions

The following is a summary of the disposition activity for the three months ended March 31, 2022:

Loss on

Gross

Cash

the Sale

Sales

Proceeds

of Real

Date Disposed

    

Assets

    

Segment

    

Location

    

Price

    

from Sale

    

Estate

March 28, 2022

Development Parcel

Other

Arlington, Virginia

$

3,250

$

3,149

$

(136)

During the three months ended March 31, 2022, one of our unconsolidated real estate ventures disposed of several assets. See Note 4 for additional information.

On April 1, 2022, we sold the Universal Buildings, commercial assets located in Washington D.C., for a gross sales price of $228.0 million, which were classified as assets held for sale as of March 31, 2022.

On April 13, 2022, we formed an unconsolidated real estate venture with affiliates of Fortress Investment Group LLC ("Fortress") to recapitalize a 1.6 million square foot office portfolio and land parcels for a gross sales price of $580.0 million comprising four wholly owned commercial assets (7200 Wisconsin Avenue, 1730 M Street, RTC-West/RTC-West Trophy Office/RTC-West Land ("RTC-West") and Courthouse Plaza 1 and 2), which were classified as assets held for sale as of March 31, 2022. Fortress contributed $131.0 million for a 66.5% interest in the venture. In connection with the transaction, the real estate venture obtained mortgage loans totaling $458.0 million secured by the properties, of which $402.0 million was drawn at closing. We will provide asset management, property management and leasing services to the venture. Because our interest in the venture is subordinated to a 15% preferred return to Fortress, we do not anticipate receiving any near-term cash flow distributions from it.

Assets Held for Sale

The following is a summary of assets held for sale:

Liabilities Related

Total

Assets Held

to Assets Held

Assets

    

Segment

    

Location

    

Square Feet

    

for Sale (1)

    

for Sale (2)

(In thousands)

March 31, 2022

Pen Place (3)

Other

Arlington, Virginia

2,082

$

73,876

$

298

Universal Buildings (4)

Commercial

Washington, D.C.

659

168,599

15,854

7200 Wisconsin Avenue (4)

Commercial

Bethesda, Maryland

271

113,471

1,471

1730 M Street (4)

Commercial

Washington, D.C.

205

77,284

89,515

RTC-West (4) (5)

Commercial / Other

Reston, Virginia

1,835

191,774

121,206

Courthouse Plaza 1 and 2 (4)

Commercial

Arlington, Virginia

633

266,746

139,662

5,685

$

891,750

$

368,006

December 31, 2021

Pen Place (3)

Other

Arlington, Virginia

2,082

$

73,876

$

11

(1)Includes $180.5 million of finance lease right-of-use assets related to ground leases at 1730 M Street and Courthouse Plaza 1 and 2. The remaining assets primarily represent the carrying value of real estate.
(2)Includes $164.8 million of mortgages payable related to 1730 M Street and RTC-West, which were repaid in April 2022, and $163.5 million of liabilities related to finance lease right-of-use assets related to 1730 M Street and Courthouse Plaza 1 and 2.
(3)Under contract for sale to Amazon for $198.0 million, which we expect to close during the second quarter of 2022. Total square feet represent estimated or approved potential development density.
(4)These assets were disposed of or recapitalized in April 2022.
(5)Total square feet include 1.4 million square feet of estimated potential development density.

4.Investments in Unconsolidated Real Estate Ventures

The following is a summary of our investments in unconsolidated real estate ventures:

Effective

Ownership

Real Estate Venture Partners

    

Interest (1)

    

March 31, 2022

    

December 31, 2021

(In thousands)

Prudential Global Investment Management

 

50.0%

$

207,221

$

208,421

Landmark Partners ("Landmark")

 

1.8% - 49.0%

 

26,369

 

28,298

CBREI Venture

 

5.0% - 64.0%

 

57,051

 

57,812

Canadian Pension Plan Investment Board ("CPPIB")

 

55.0%

 

48,179

 

48,498

J.P. Morgan Global Alternatives ("J.P. Morgan") (2)

50.0%

56,220

52,769

Berkshire Group

 

50.0%

 

52,030

52,770

Brandywine Realty Trust

 

30.0%

 

13,756

 

13,693

Other

 

 

618

624

Total investments in unconsolidated real estate ventures (3)

$

461,444

$

462,885

(1)Reflects our effective ownership interests in the underlying real estate as of March 31, 2022. 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)As of March 31, 2022 and December 31, 2021, our total investments in unconsolidated real estate ventures were greater than our share of the net book value of the underlying assets by $17.6 million and $18.6 million, resulting principally from capitalized interest and our zero investment balance in the real estate venture with CPPIB that owns 1101 17th Street.

We provide leasing, property management and other real estate services to our unconsolidated real estate ventures. We recognized revenue, including expense reimbursements, of $5.5 million and $5.9 million for the three months ended March 31, 2022 and 2021, for such services.

We evaluate reconsideration events as we become aware of them. Reconsideration events include amendments to real estate venture agreements or changes in our partner's ability to make contributions to the venture. Under certain circumstances, we may purchase our partner's interest. A reconsideration event could cause us to consolidate an unconsolidated real estate venture in the future or deconsolidate a consolidated entity.

The following is a summary of disposition activity by our unconsolidated real estate ventures for the three months ended March 31, 2022:

Mortgages

Proportionate

Real Estate

Gross

Payable

Share of

Venture

Ownership

Sales

Repaid by

Aggregate

Date Disposed

    

Partner

Assets

Percentage

    

Price

Venture

Gain (1)

(In thousands)

January 27, 2022

 

Landmark

The Alaire, The Terano and
12511 Parklawn Drive

1.8% - 18.0%

 

$

137,500

$

79,829

$

5,243

(1)Included in "Income (loss) from unconsolidated real estate ventures, net" in our statement of operations.

12

The following is a summary of the debt of our unconsolidated real estate ventures:

Weighted

Average Effective

    

Interest Rate (1)

    

March 31, 2022

    

December 31, 2021

(In thousands)

Variable rate (2)

 

2.97%

$

740,782

$

785,369

Fixed rate (3)

 

4.16%

 

275,403

 

309,813

Mortgages payable

 

1,016,185

 

1,095,182

Unamortized deferred financing costs

 

(4,431)

 

(5,239)

Mortgages payable, net (4)

$

1,011,754

$

1,089,943

(1)Weighted average effective interest rate as of March 31, 2022.
(2)Includes variable rate mortgages payable with interest rate cap agreements.
(3)Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.
(4)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 financial information for our unconsolidated real estate ventures:

    

March 31, 2022

    

December 31, 2021

 

(In thousands)

Combined balance sheet information:

Real estate, net

$

2,019,377

$

2,116,290

Other assets, net

 

246,848

 

264,397

Total assets

$

2,266,225

$

2,380,687

Mortgages payable, net

$

1,011,754

$

1,089,943

Other liabilities, net

 

93,685

 

118,752

Total liabilities

 

1,105,439

 

1,208,695

Total equity

 

1,160,786

 

1,171,992

Total liabilities and equity

$

2,266,225

$

2,380,687

Three Months Ended March 31, 

    

2022

    

2021

 

(In thousands)

Combined income statement information:

Total revenue

$

42,874

$

48,217

Operating income (1)

 

48,426

 

1,714

Net income (loss) (1)

 

39,283

 

(6,526)

(1)Includes the gain from the sale of The Alaire, The Terano and 12511 Parklawn Drive totaling $45.1 million during the three months ended March 31, 2022.

5.Variable Interest Entities

We hold various interests in entities deemed to be VIEs, which 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/or does not hold sufficient equity at risk, or conducts substantially all its operations on behalf of an 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

13

influence over significant business activities, our voting rights and any noncontrolling interest kick-out or participating rights.

Unconsolidated VIEs

As of March 31, 2022 and December 31, 2021, we had interests in entities deemed to be VIEs. Although we are engaged to act as the managing partner in charge of day-to-day operations of these entities, 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's economic performance. We account for our investment in these entities under the equity method. As of March 31, 2022 and December 31, 2021, the net carrying amounts of our investment in these entities was $146.1 million and $145.2 million, 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 (loss) from unconsolidated real estate ventures, net" in our statements of operations. Our maximum loss exposure in these entities is limited to our investments, construction commitments and debt guarantees. See Note 17 for additional information.

Consolidated VIEs

JBG SMITH LP is our most significant consolidated VIE. We hold 89.0% of the limited partnership interest in JBG SMITH LP, act as the general partner and exercise full responsibility, discretion and control over its day-to-day management. The noncontrolling interests of JBG SMITH LP do not have substantive liquidation rights, substantive kick-out rights without cause or substantive participating rights that could be exercised by a simple majority of noncontrolling interest limited partners (including by such a limited partner unilaterally). Because the noncontrolling interest holders do not have these rights, JBG SMITH LP is a VIE. As general partner, we have the power to direct the activities of JBG SMITH LP that most significantly affect its economic performance, and through our majority interest, we have both the right to receive benefits from and the obligation to absorb losses of JBG SMITH LP. Accordingly, we are the primary beneficiary of JBG SMITH LP and consolidate it in our financial statements. Because we conduct our business and hold our assets and liabilities through JBG SMITH LP, its total assets and liabilities comprise substantially all of our consolidated assets and liabilities.

As of March 31, 2022 and December 31, 2021, excluding the operating partnership, we consolidated three VIEs with total assets of $300.2 million and $269.7 million, and liabilities of $21.8 million and $13.9 million. The assets of the VIEs can only be used to settle the obligations of the VIEs, and the liabilities include third-party liabilities of the VIEs for which the creditors or beneficial interest holders do not have recourse against us.

6.Other Assets, Net

The following is a summary of other assets, net:

    

March 31, 2022

    

December 31, 2021

(In thousands)

Prepaid expenses

$

16,564

$

17,104

Derivative agreements, at fair value

15,478

951

Deferred financing costs, net

 

10,671

 

11,436

Deposits

 

1,845

 

1,938

Operating lease right-of-use assets

1,591

1,660

Finance lease right-of-use assets (1)

180,956

Other (2) (3)

 

25,236

 

26,115