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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 June 30, 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 July 29, 2022, JBG SMITH Properties had 114,390,891 common shares outstanding.

JBG SMITH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Page

Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended June 30, 2022 and 2021

5

Condensed Consolidated Statements of Equity (unaudited) for the three and six months ended June 30, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements (unaudited)

10

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

49

Item 4.

Controls and Procedures

50

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

54

Signatures

55

2

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

JBG SMITH PROPERTIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value amounts)

    

June 30, 2022

    

December 31, 2021

ASSETS

 

  

 

  

Real estate, at cost:

 

  

 

  

Land and improvements

$

1,217,216

$

1,378,218

Buildings and improvements

 

4,004,286

 

4,513,606

Construction in progress, including land

 

385,085

 

344,652

 

5,606,587

 

6,236,476

Less: accumulated depreciation

 

(1,257,871)

 

(1,368,003)

Real estate, net

 

4,348,716

 

4,868,473

Cash and cash equivalents

 

162,270

 

264,356

Restricted cash

 

212,848

 

37,739

Tenant and other receivables

 

46,605

 

44,496

Deferred rent receivable

 

154,487

 

192,265

Investments in unconsolidated real estate ventures

 

414,349

 

462,885

Intangible assets, net

157,819

201,956

Other assets, net

 

82,808

 

240,160

Assets held for sale

 

 

73,876

TOTAL ASSETS

$

5,579,902

$

6,386,206

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

  

Liabilities:

 

  

 

  

Mortgages payable, net

$

1,612,169

$

1,777,699

Revolving credit facility

 

 

300,000

Unsecured term loans, net

 

398,500

 

398,664

Accounts payable and accrued expenses

 

112,784

 

106,136

Other liabilities, net

 

111,852

 

342,565

Total liabilities

 

2,235,305

 

2,925,064

Commitments and contingencies

 

  

 

  

Redeemable noncontrolling interests

 

521,392

 

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; 115,862 and 127,378 shares issued and outstanding as of June 30, 2022 and December 31, 2021

 

1,160

 

1,275

Additional paid-in capital

 

3,285,511

 

3,539,916

Accumulated deficit

 

(513,746)

 

(609,331)

Accumulated other comprehensive income (loss)

 

18,640

 

(15,950)

Total shareholders' equity of JBG SMITH Properties

 

2,791,565

 

2,915,910

Noncontrolling interests

 

31,640

 

22,507

Total equity

 

2,823,205

 

2,938,417

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

5,579,902

$

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 June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

REVENUE

 

  

 

  

  

 

  

Property rental

$

117,036

$

122,819

$

248,634

$

245,060

Third-party real estate services, including reimbursements

 

22,157

 

26,745

 

46,127

 

64,852

Other revenue

 

6,312

 

5,080

 

12,709

 

10,021

Total revenue

 

145,505

 

154,644

 

307,470

 

319,933

EXPENSES

 

  

 

  

 

 

  

Depreciation and amortization

 

49,479

 

56,678

 

107,541

 

121,404

Property operating

 

35,445

 

35,000

 

76,089

 

69,731

Real estate taxes

 

14,946

 

18,558

 

33,132

 

36,868

General and administrative:

 

  

 

  

 

 

  

Corporate and other

 

14,782

 

13,895

 

30,597

 

26,370

Third-party real estate services

 

24,143

 

25,557

 

51,192

 

54,493

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

 

1,577

 

4,441

 

3,821

 

9,386

Transaction and other costs

 

1,987

 

2,270

 

2,886

 

5,960

Total expenses

 

142,359

 

156,399

 

305,258

 

324,212

OTHER INCOME (EXPENSE)

 

  

 

  

 

  

 

  

Income (loss) from unconsolidated real estate ventures, net

 

(2,107)

 

3,953

 

1,038

 

3,010

Interest and other income (loss), net

 

1,672

 

(38)

 

15,918

 

(29)

Interest expense

 

(16,041)

 

(16,773)

 

(32,319)

 

(33,069)

Gain on the sale of real estate, net

 

158,767

 

11,290

 

158,631

 

11,290

Loss on the extinguishment of debt

 

(1,038)

 

 

(1,629)

 

Total other income (expense)

 

141,253

 

(1,568)

 

141,639

 

(18,798)

INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT

 

144,399

(3,323)

 

143,851

 

(23,077)

Income tax (expense) benefit

 

(2,905)

 

5

 

(2,434)

 

(4,310)

NET INCOME (LOSS)

 

141,494

 

(3,318)

 

141,417

 

(27,387)

Net (income) loss attributable to redeemable noncontrolling interests

 

(18,248)

 

345

 

(18,258)

 

2,575

Net loss attributable to noncontrolling interests

 

29

 

 

84

 

1,108

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)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED

 

121,316

 

131,480

 

123,984

 

131,510

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 June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

NET INCOME (LOSS)

$

141,494

$

(3,318)

$

141,417

$

(27,387)

OTHER COMPREHENSIVE INCOME:

 

  

 

  

 

  

 

  

Change in fair value of derivative financial instruments

 

7,225

 

(1,404)

 

32,320

 

5,007

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

 

2,791

 

3,834

 

6,547

 

7,575

Total other comprehensive income

 

10,016

 

2,430

 

38,867

 

12,582

COMPREHENSIVE INCOME (LOSS)

 

151,510

 

(888)

 

180,284

 

(14,805)

Net (income) loss attributable to redeemable noncontrolling interests

 

(18,248)

 

345

 

(18,258)

 

2,575

Net loss attributable to noncontrolling interests

29

84

1,108

Other comprehensive income attributable to redeemable noncontrolling interests

 

(1,311)

 

(235)

 

(4,277)

 

(1,208)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JBG SMITH PROPERTIES

$

131,980

$

(778)

$

157,833

$

(12,330)

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 MARCH 31, 2022

 

124,248

$

1,243

$

3,444,793

$

(609,363)

$

9,935

$

28,438

$

2,875,046

Net income (loss) attributable to common shareholders and noncontrolling interests

 

 

 

 

123,275

 

 

(29)

 

123,246

Conversion of common limited partnership units ("OP Units") to common shares

 

72

 

1

 

1,761

 

 

 

 

1,762

Common shares repurchased

(8,499)

(84)

(213,807)

(213,891)

Common shares issued pursuant to employee incentive compensation plan and Employee Share Purchase Plan ("ESPP")

41

1,143

1,143

Dividends declared on common shares
($0.225 per common share)

(27,658)

(27,658)

Contributions from noncontrolling interests, net

 

 

 

 

 

 

3,231

 

3,231

Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation

 

 

 

51,621

 

 

(1,311)

 

 

50,310

Total other comprehensive income

 

 

 

 

 

10,016

 

 

10,016

BALANCE AS OF JUNE 30, 2022

 

115,862

$

1,160

$

3,285,511

$

(513,746)

$

18,640

$

31,640

$

2,823,205

BALANCE AS OF MARCH 31, 2021

 

131,277

$

1,314

$

3,631,277

$

(433,675)

$

(30,800)

$

8,730

$

3,176,846

Net loss attributable to common shareholders and noncontrolling interests

 

 

 

 

(2,973)

 

 

 

(2,973)

Conversion of OP Units to common shares

 

530

 

5

 

17,756

 

 

 

 

17,761

Common shares issued pursuant to employee incentive compensation plan and ESPP

34

1,090

1,090

Dividends declared on common shares
($0.225 per common share)

(29,582)

(29,582)

Contributions from noncontrolling interests, net

 

 

 

 

 

 

7,810

 

7,810

Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation

 

 

 

94

 

 

(235)

 

 

(141)

Total other comprehensive income

 

 

 

 

 

2,430

 

 

2,430

BALANCE AS OF JUNE 30, 2021

 

131,841

$

1,319

$

3,650,217

$

(466,230)

$

(28,605)

$

16,540

$

3,173,241

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

6

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 income (loss) attributable to common shareholders and noncontrolling interests

 

 

 

 

123,243

 

 

(84)

 

123,159

Conversion of OP Units to common shares

 

280

 

3

 

7,773

 

 

 

 

7,776

Common shares repurchased

(11,840)

(118)

(306,921)

(307,039)

Common shares issued pursuant to employee incentive compensation plan and ESPP

44

1,429

1,429

Dividends declared on common shares
($0.225 per common share)

(27,658)

(27,658)

Contributions from noncontrolling interests, net

 

 

 

 

 

 

9,217

 

9,217

Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation

 

 

 

43,314

 

 

(4,277)

 

 

39,037

Total other comprehensive income

 

 

 

 

 

38,867

 

 

38,867

BALANCE AS OF JUNE 30, 2022

 

115,862

$

1,160

$

3,285,511

$

(513,746)

$

18,640

$

31,640

$

2,823,205

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

 

 

 

 

(23,704)

 

 

(1,108)

 

(24,812)

Conversion of OP Units to common shares

 

649

 

6

 

21,674

 

 

 

 

21,680

Common shares repurchased

(620)

(6)

(19,197)

(19,203)

Common shares issued pursuant to employee incentive compensation plan and ESPP

34

1,339

1,339

Dividends declared on common shares
($0.225 per common share)

(29,582)

(29,582)

Contributions from noncontrolling interests, net

 

 

 

 

 

 

17,481

 

17,481

Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation

 

 

 

(11,242)

 

 

(1,208)

 

 

(12,450)

Total other comprehensive income

 

 

 

 

 

12,582

 

 

12,582

BALANCE AS OF JUNE 30, 2021

 

131,841

$

1,319

$

3,650,217

$

(466,230)

$

(28,605)

$

16,540

$

3,173,241

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

7

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Six Months Ended June 30, 

    

2022

    

2021

OPERATING ACTIVITIES:

 

  

 

  

Net income (loss)

$

141,417

$

(27,387)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

  

 

  

Share-based compensation expense

 

25,375

 

26,892

Depreciation and amortization, including amortization of deferred financing costs

 

109,697

 

123,444

Deferred rent

 

(7,237)

 

(12,170)

Income from unconsolidated real estate ventures, net

 

(1,038)

 

(3,010)

Amortization of market lease intangibles, net

 

(621)

 

(658)

Amortization of lease incentives

 

4,303

 

4,191

Loss on extinguishment of debt

 

1,629

 

Gain on the sale of real estate, net

 

(158,631)

 

(11,290)

Loss on operating lease and other receivables

 

738

 

975

Income from investments, net

(15,282)

Return on capital from unconsolidated real estate ventures

 

6,028

 

10,348

Other non-cash items

 

(4,781)

 

473

Changes in operating assets and liabilities:

 

  

 

  

Tenant and other receivables

 

(2,847)

 

11,204

Other assets, net

 

(3,669)

 

274

Accounts payable and accrued expenses

 

(1,375)

 

238

Other liabilities, net

 

13,943

 

32

Net cash provided by operating activities

 

107,649

 

123,556

INVESTING ACTIVITIES:

 

  

 

  

Development costs, construction in progress and real estate additions

 

(128,114)

 

(67,408)

Proceeds from the sale of real estate

 

923,108

 

14,370

Proceeds from the sale of investments

19,030

Distributions of capital from unconsolidated real estate ventures

 

52,465

 

4,583

Investments in unconsolidated real estate ventures and other investments

 

(81,185)

 

(21,990)

Net cash provided by (used in) investing activities

 

785,304

 

(70,445)

FINANCING ACTIVITIES:

 

  

 

  

Repayments of mortgages payable

 

(167,132)

 

(3,342)

Repayments of revolving credit facility

 

(300,000)

 

Debt issuance costs

 

(1,256)

 

(4,587)

Proceeds from common shares issued pursuant to ESPP

 

800

 

880

Common shares repurchased

(297,040)

(19,203)

Dividends paid to common shareholders

 

(56,323)

 

(59,232)

Distributions to redeemable noncontrolling interests

 

(8,196)

 

(9,712)

Distributions to noncontrolling interests

(21)

(22)

Contributions from noncontrolling interests

9,238

17,464

Net cash used in financing activities

 

(819,930)

 

(77,754)

Net increase (decrease) in cash and cash equivalents, and restricted cash

 

73,023

 

(24,643)

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

 

302,095

 

263,336

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

$

375,118

$

238,693

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

8

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Six Months Ended June 30, 

    

2022

    

2021

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

 

  

Cash and cash equivalents

$

162,270

$

201,150

Restricted cash

 

212,848

 

37,543

Cash and cash equivalents, and restricted cash

$

375,118

$

238,693

SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:

 

  

Cash paid for interest (net of capitalized interest of $3,928 and $3,256 in 2022 and 2021)

$

34,612

$

30,335

Accrued capital expenditures included in accounts payable and accrued expenses

 

57,426

 

41,662

Write-off of fully depreciated assets

 

7,993

 

43,185

Deconsolidation of real estate asset

 

 

26,476

Conversion of OP Units to common shares

 

7,776

 

21,680

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

 

1,092

 

1,320

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

9

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. Approximately two-thirds of our portfolio is in National Landing in Northern Virginia, where we serve as the developer for Amazon.com, Inc.'s ("Amazon") new 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 June 30, 2022, JBG SMITH, as its sole general partner, controlled JBG SMITH LP and owned 88.4% 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, but exclude our 10% subordinated interest in one commercial building and our 33.5% subordinated interest in four commercial buildings, as well as the associated non-recourse mortgages payable, held through unconsolidated real estate ventures as our investment in each real estate venture is zero, we do not anticipate receiving any near-term cash flow distributions from the real estate ventures and have not guaranteed their obligations or otherwise committed to providing financial support.

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 June 30, 2022, our Operating Portfolio consisted of 56 operating assets comprising 35 commercial assets totaling 10.5 million square feet (8.9 million square feet at our share), 19 multifamily assets totaling 7,359 units (6,496 units at our share) and two wholly owned land assets for which we are the ground lessor. Additionally, we have: (i) two under-construction multifamily assets with