Share-Based Payments and Employee Benefits

12 Months Ended

Dec. 31, 2024

Share-Based Payments and Employee Benefits

Share-Based Payments and Employee Benefits

15.          Share-Based Payments and Employee Benefits

OP UNITS

Certain OP Units issued in the Combination to the former owners of JBG/Operating Partners, L.P. vested over a period of 60 months based on continued employment. Compensation expense for these OP Units was recognized over the graded vesting period through July 2022. The total-grant date fair value of the OP Units that vested for the year ended December 31, 2022 was $14.7 million.

JBG SMITH 2017 Omnibus Share Plan

On June 23, 2017, our Board of Trustees adopted the JBG SMITH 2017 Omnibus Share Plan (the "Plan"), effective as of July 17, 2017, and authorized the reservation of 10.3 million common shares pursuant to the Plan. In April 2021, our shareholders approved an amendment to the Plan to increase the common shares reserved for issuance under the Plan by 8.0 million common shares, and in April 2024, our shareholders approved an amendment to the Plan to increase the common shares reserved for issuance under the Plan by 7.5 million common shares to 25.8 million total common shares. As of December 31, 2024, there were 10.2 million common shares available for issuance under the Plan.

Formation Awards

The formation awards issued in the Combination ("Formation Awards") were structured in the form of profits interests in JBG SMITH LP that provided for a share of appreciation determined by the increase in the value of a common share at the time of conversion over the volume-weighted average price of a common share at the time the formation unit was granted. The Formation Awards, subject to certain conditions, generally vested 25% on each of the third and fourth anniversaries and 50% on the fifth anniversary of the date granted, subject to continued employment. Compensation expense for these awards was recognized over a five-year period through July 2022.

The value of vested Formation Awards is realized through conversion of the award into a number of LTIP Units, and subsequent conversion into a number of OP Units determined based on the difference between the volume-weighted average price of a common share at the time the Formation Award was granted and the value of a common share on the conversion date. The conversion ratio between Formation Awards and LTIP Units, which starts at zero, is the quotient of: (i) the excess of the value of a common share on the conversion date above the per share value at the time the Formation Award was granted over (ii) the value of a common share as of the date of conversion. Formation Awards have a finite 10-year term over which their value is allowed to increase and during which they may be converted into LTIP Units (and in turn, OP Units). Holders of Formation Awards will not receive distributions or allocations of net income (net loss) prior to conversion to LTIP Units.

The total-grant date fair value of the Formation Awards that vested for the year ended December 31, 2022 was $8.9 million.

Time-Based LTIP Units and LTIP Units

During each of the three years in the period ended December 31, 2024, we granted to certain employees 974,140, 979,138 and 644,995 LTIP Units with time-based vesting requirements ("Time-Based LTIP Units") and a weighted average grant-date fair value of $15.93, $17.56 and $27.39 per unit that primarily vest ratably over four years subject to continued employment. Compensation expense for these units is primarily being recognized over a four-year period.

During each of the three years in the period ended December 31, 2024, we granted 209,047, 280,342 and 252,206 fully vested LTIP Units to certain employees, who elected to receive all or a portion of their cash bonuses related to prior service as LTIP Units. The LTIP Units had a grant-date fair value of $14.27, $15.90 and $22.19 per unit.

During each of the three years in the period ended December 31, 2024, as part of their annual compensation, we granted to non-employee trustees a total of 141,422, 155,523 and 95,084 fully vested LTIP Units with a grant-date fair value of $12.40, $11.30 and $20.90 per unit. The LTIP Units may not be sold while a trustee is serving on the Board of Trustees.

The aggregate grant-date fair value of the Time-Based LTIP Units and LTIP Units granted (collectively "Granted LTIPs") for each of the three years in the period ended December 31, 2024 was $20.3 million, $23.4 million and $25.7 million. Holders of the Granted LTIPs have the right to convert vested units into OP Units, which are then subsequently exchangeable for our common shares. Granted LTIPs do not have redemption rights, but any OP Units into which units are converted are entitled to redemption rights. Granted LTIPs, generally, vote with the OP Units and do not have any separate voting rights except in connection with actions that would materially and adversely affect the rights of the Granted LTIPs. The Granted LTIPs were valued based on the closing common share price on the date of grant, less a discount for post-grant restrictions. The discount was determined using Monte Carlo simulations based on the following significant assumptions:

	Year Ended December 31,
	2024	2023	2022
Expected volatility	33.0 % to 35.0%	26.0% to 31.0%	30.0% to 41.0%
Risk-free interest rate	4.4% to 4.8%	3.4% to 4.9%	0.4% to 2.9%
Post-grant restriction periods	2 to 6 years	2 to 6 years	2 to 6 years

The following is a summary of the Granted LTIPs activity:

		Weighted
	Unvested	Average Grant-
	Shares	Date Fair Value
Unvested as of December 31, 2023	1,865,712	$	24.62
Granted	1,324,609		15.29
Vested	(796,398)		20.16
Forfeited	(136,447)		20.29
Unvested as of December 31, 2024	2,257,476		20.99

The total-grant date fair value of the Granted LTIPs that vested for each of the three years in the period ended December 31, 2024 was $16.1 million, $28.0 million and $27.2 million.

Appreciation-Only LTIP Units ("AO LTIP Units")

During each of the three years in the period ended December 31, 2024, we granted to certain employees 1.9 million, 1.7 million and 1.5 million performance-based AO LTIP Units with a weighted average grant-date fair value of $3.79, $3.73 and $4.44 per unit. The AO LTIP Units are structured in the form of profits interests that provide for a share of appreciation determined by the increase in the value of a common share at the time of conversion over the participation threshold of $18.93, $20.83 and $32.30 for each of the three years in the period ended December 31, 2024. The AO LTIP Units are subject to a total shareholder return ("TSR") modifier whereby the number of AO LTIP Units that will ultimately be earned will be increased or reduced by as much as 25%. The AO LTIP Units have a three-year performance period with 50% of the AO LTIP Units earned vesting at the end of the three-year performance period and the remaining 50% vesting on the fourth anniversary of the grant date, subject to continued employment. The AO LTIP Units expire on the tenth anniversary of their grant date.

The aggregate grant-date fair value of the AO LTIP Units granted for each of the three years in the period ended December 31, 2024 was $7.1 million, $6.4 million and $6.6 million, valued using Monte Carlo simulations based on the following significant assumptions:

	Year Ended December 31,
	2024	2023	2022
Expected volatility	32.0%	30.0%	27.0%
Dividend yield	3.2%	3.2%	2.7%
Risk-free interest rate	4.1%	4.1%	1.6%

The following is a summary of the AO LTIP Units activity:

		Weighted
	Unvested	Average Grant-
	Shares	Date Fair Value
Unvested as of December 31, 2023	3,099,950	$	4.07
Granted	1,876,312		3.79
Forfeited	(6,615)		4.44
Unvested as of December 31, 2024	4,969,647		3.96

Performance-Based LTIP Units

LTIP Units with performance-based vesting requirements ("Performance-Based LTIP Units") are performance-based equity compensation pursuant to which participants have the opportunity to earn LTIP Units based on the relative performance of the TSR of our common shares compared to the companies in the FTSE Nareit Equity Office Index, over the defined performance period beginning on the grant date, inclusive of dividends and stock price appreciation.

Our Performance-Based LTIP Units granted in January 2020 had a three-year performance period. 50% of the Performance-Based LTIP Units would have vested at the end of the three-year performance period and the remaining 50% would have vested on the fourth anniversary of the date of grant, subject to continued employment. However, the Performance-Based LTIP Units did not achieve a positive absolute TSR at the end of the three-year performance period, but achieved at least the threshold level of the relative performance criteria. Therefore, 50% of the units were forfeited, and the remaining units will vest if and when we achieve a positive TSR during the succeeding seven years, measured at the end of each quarter. Compensation expense for these units was recognized over a four-year period through January 2024. 

Our Performance-Based LTIP Units granted in July 2021 have a six-year performance period. 50% vest on the fifth anniversary of the grant date and 25% on each of the sixth and seventh anniversaries of the grant date, subject to continued employment, based on our achievement of four share price targets during the performance period commencing on the first anniversary of the grant date and ending on the sixth anniversary of the grant date. Additionally, in January 2022, we granted to certain employees 21,705 Performance-Based LTIP Units with a grant-date fair value of $17.68 per unit that vest over the same time period. Compensation expense for these units is being recognized over a seven-year period.

The aggregate grant-date fair value of the Performance-Based LTIP Units for the year ended December 31, 2022 was $384,000, valued using Monte Carlo simulations based on the following significant assumptions:

	Year Ended
	December 31, 2022
Expected volatility		28.0%
Dividend yield		2.7%
Risk-free interest rate		1.5%

The following is a summary of the Performance-Based LTIP Units activity:

		Weighted
	Unvested	Average Grant-
	Shares	Date Fair Value
Unvested as of December 31, 2023	765,830	$	22.58
Forfeited	(60,076)		23.07
Unvested as of December 31, 2024	705,754		22.54

RSUs

During each of the three years in the period ended December 31, 2024, we granted to certain non-executive employees

74,842, 78,681 and 39,536 RSUs with time-based vesting requirements ("Time-Based RSUs") and a weighted average grant-date fair value of $17.21, $18.94 and $29.36 per unit. Vesting requirements and compensation expense recognition for the Time-Based RSUs are primarily consistent to those of the Time-Based LTIP Units granted during each of the three years in the period ended December 31, 2024.

The aggregate grant-date fair value of the RSUs granted during each of the three years in the period ended December 31, 2024 was $1.3 million, $1.5 million and $1.2 million. The Time-Based RSUs were valued based on the closing common share price on the date of grant.

The following is a summary of the Time-Based RSUs activity:

		Weighted
	Unvested	Average Grant-
	Shares	Date Fair Value
Unvested as of December 31, 2023	70,750	$	22.46
Granted	74,842		17.21
Vested	(37,484)		21.25
Forfeited	(2,905)		17.21
Unvested as of December 31, 2024	105,203		19.30

The aggregate total-grant date fair value of the RSUs that vested for each of the three years in the period ended December 31, 2024 was $796,000, $1.1 million and $271,000.

ESPP

The ESPP authorized the issuance of up to 2.1 million common shares. The ESPP provides eligible employees an option to contribute up to $25,000 in any calendar year, through payroll deductions, toward the purchase of our common shares at a discount of 15.0% of the closing price of a common share on relevant determination dates. As of December 31, 2024, there were 1.6 million common shares available for issuance under the ESPP.

Pursuant to the ESPP, employees purchased 71,221, 84,673 and 79,040 common shares for $945,000, $1.1 million and $1.5 million during each of the three years in the period ended December 31, 2024, valued using the Black Scholes model based on the following significant assumptions:

	Year Ended December 31,
	2024	2023	2022
Expected volatility	26.0% to 48.0%	30.0% to 37.0%	23.0% to 30.0%
Dividend yield	4.2% to 4.6%	2.4% to 6.3%	1.6% to 4.1%
Risk-free interest rate	5.3% to 5.6%	4.7% to 5.4%	0.2% to 2.4%
Expected life	3 months	6 months	6 months

Share-Based Compensation Expense

The following is a summary of share-based compensation expense:

	Year Ended December 31,
	2024		2023		2022
	(In thousands)
Time-Based LTIP Units	$	16,826	$	16,822	$	19,378
AO LTIP Units and Performance-Based LTIP Units		8,598		10,647		12,615
LTIP Units		1,552		1,000		1,000
Other equity awards (1)		4,475		5,394		6,610
Share-based compensation expense - other		31,451		33,863		39,603
Share-based compensation related to Formation Transaction and special equity awards (2)		—		549		5,391
Total share-based compensation expense		31,451		34,412		44,994
Less: amount capitalized		(1,927)		(2,312)		(3,722)
Share-based compensation expense	$	29,524	$	32,100	$	41,272

(1) Primarily comprising compensation expense for: (i) fully vested LTIP Units issued to certain employees in lieu of all or a portion of any cash bonuses earned, (ii) RSUs and (iii) shares issued under our ESPP.

(2) Included in "General and administrative expense: Share-based compensation related to Formation Transaction and special equity awards" in our consolidated statements of operations. Includes share-based compensation expense for awards issued in connection with the Formation Transaction and with our successful pursuit of Amazon's headquarters in National Landing all of which were fully expensed as of December 31, 2023.

As of December 31, 2024, we had $22.1 million of total unrecognized compensation expense related to unvested share-based payment arrangements, which is expected to be recognized over a weighted average period of 2.2 years.

Employee Benefits

We have a 401(k) defined contribution plan covering substantially all of our officers and employees which permits participants to defer compensation up to the maximum amount permitted by law. We provide a discretionary matching contribution. Employer contributions vest after one year of service. Our contributions for each of the three years in the period ended December 31, 2024 were $1.9 million, $2.3 million and $2.4 million.

2025 Grants

In January 2025, we granted (i) 549,292 AO LTIP Units with a participation threshold of $16.98 and expiration on the fifth anniversary of their grant date, (ii) 735,682 Time-Based LTIP Units, which require a three-year post vesting hold for certain executives, (iii) 98,029 Time-Based RSUs and (iv) 957,000 LTIP Units with performance-based vesting requirements to certain employees. Additionally, we granted 162,301 fully vested LTIP Units to certain employees who elected to receive all or a portion of their cash bonus earned, related to 2024 service, as LTIP Units.