JBG SMITH Announces Third Quarter 2020 Results

JBG SMITH (NYSE: JBGS), a leading owner and developer of high-growth, mixed-use properties in the Washington, DC market, today filed its Form 10-Q for the quarter ended September 30, 2020 and reported its financial results.

Additional information regarding our results of operations, properties and tenants can be found in our Third Quarter 2020 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com. We encourage investors to consider the information presented here with the information in that document.

Third Quarter 2020 Financial Results

  • Net loss attributable to common shareholders was $22.8 million, or $0.18 per diluted share.
  • Funds From Operations (“FFO”) attributable to common shareholders was $32.4 million, or $0.24 per diluted share.
  • Core Funds From Operations (“Core FFO”) attributable to common shareholders was $40.2 million, or $0.30 per diluted share.

Nine Months Ended September 30, 2020 Financial Results

  • Net loss attributable to common shareholders was $16.6 million, or $0.14 per diluted share.
  • FFO attributable to common shareholders was $92.9 million, or $0.69 per diluted share.
  • Core FFO attributable to common shareholders was $126.4 million, or $0.94 per diluted share.

Operating Portfolio Highlights

  • Annualized Net Operating Income (“NOI”) for the three months ended September 30, 2020 was $291.1 million, compared to $307.0 million for the three months ended June 30, 2020, at our share.
  • The operating commercial portfolio was 88.4% leased and 85.3% occupied as of September 30, 2020, compared to 90.4% and 88.1% as of June 30, 2020, at our share.
  • The operating multifamily portfolio was 83.0% leased and 76.6% occupied as of September 30, 2020, compared to 85.8% and 82.3% as of June 30, 2020, at our share. These decreases were due in part to the movement of The Wren (formerly referred to as 965 Florida Avenue) into our recently delivered operating multifamily portfolio during the quarter. The in-service operating multifamily portfolio was 92.8% leased and 88.1% occupied as of September 30, 2020, compared to 93.3% leased and 90.2% occupied as of June 30, 2020.
  • We executed approximately 98,000 square feet of office leases at our share in the third quarter, comprising approximately 9,000 square feet of new leases and approximately 89,000 square feet of second-generation leases, which generated a 3.1% rental rate increase on a GAAP basis and a 0.4% rental rate decrease on a cash basis. We executed approximately 603,000 square feet of office leases at our share during the nine months ended September 30, 2020, comprising approximately 89,000 square feet of new leases and approximately 514,000 square feet of second-generation leases, which generated a 4.3% rental rate increase on a GAAP basis and a 1.0% rental rate increase on a cash basis.
  • Same Store Net Operating Income (“SSNOI”) at our share decreased 4.4% to $72.0 million for the three months ended September 30, 2020, compared to $75.4 million for the three months ended September 30, 2019. SSNOI at our share decreased 1.7% to $220.1 million for the nine months ended September 30, 2020, compared to $223.9 million for the nine months ended September 30, 2019. The decreases in SSNOI were substantially all attributable to the COVID-19 pandemic, including (i) lower occupancy, higher concessions, lower rents, higher operating costs, and an increase in uncollectable operating lease receivables at our multifamily properties, (ii) rent deferrals and a decline in parking revenue at our commercial properties, and (iii) lower occupancy at the Crystal City Marriott. These declines were partially offset by the burn-off of rent abatement across our commercial portfolio, which led to same store NOI growth for the same store pool of commercial assets. The reported same store pools as of September 30, 2020 include only the assets that were in-service for the entirety of both periods being compared.
  • During the third quarter, NOI for our operating portfolio decreased 7.6% to $72.3 million, and Adjusted EBITDA decreased 20.7% to $65.4 million as compared to the third quarter of 2019. NOI was negatively impacted by $14.8 million associated with the COVID-19 pandemic, comprising $5.1 million of reserves and rent deferrals for office and retail tenants, a $4.9 million decline in NOI in our same store multifamily assets, a $3.9 million decline in parking revenue, and a $0.9 million decline in NOI from the Crystal City Marriott. While the COVID-19 pandemic has impacted these income streams in the short term, we expect these revenues to recover post pandemic. Adjusted EBITDA was negatively impacted by $22.1 million, including the $14.8 million decline in NOI noted above and $0.9 million of straight-line rent reserves both associated with the COVID-19 pandemic, and a $6.4 million decline in Third-Party Asset Management and Real Estate Services fees, primarily related to decreases in development fees due to changes in the timing of projects and a decrease in management fees from the sale of JBG Legacy Fund assets. The $5.1 million of reserves and rent deferrals for office and retail tenants that impacted NOI include (i) $1.3 million of rent deferrals, (ii) $2.3 million of rent deferrals from expected lease modifications, and (iii) $1.5 million of other reserves.

During the third quarter, we entered into rent deferral agreements with tenants totaling $1.3 million. Additionally, we recognized $2.3 million of credit losses for rent deferral agreements that are in negotiation. Our financial results in future periods will not be negatively impacted by the collectability of deferred rents from these tenants because we have fully written off the receivable balances. No revenue related to these executed or pending rent deferrals is included in our third quarter NOI, Adjusted EBITDA or Core FFO.

THIRD QUARTER 2020 RENT COLLECTION

OFFICE

RESIDENTIAL

RETAIL

% of Rent Collected (1)

99.4%

98.5%

63.1%

Variance to Average 2019 Rent Collected

(0.3%)

(1.4%)

(35.3%)

$ Paid / $ Unpaid

$92.3M / $0.6M

$29.3M / $0.4M

$6.2M / $3.6M

________________
(1)

Excludes $0.7 million of deferred and abated rents, consisting of $0.6 million for office tenants and $0.1 million for retail tenants. Including these deferred and abated rents, our rent collections for the third quarter of 2020 would have been 98.7% for office tenants and 62.2% for retail tenants. Our rent collections for October kept pace with our third quarter rent collections.

Development Portfolio Highlights

Under-Construction

  • As of September 30, 2020, there were two assets under construction (one commercial asset and one multifamily asset), consisting of approximately 274,000 square feet and 161 units, both at our share.

Near-Term Development Pipeline

  • During the third quarter, we modified our definition of Near-Term Development Pipeline to include select assets that could commence construction over the next three years, subject to receipt of full entitlements, completion of design and market conditions.
  • As of September 30, 2020, there were 10 near-term development assets consisting of 5.6 million square feet of estimated potential development density.

Future Development Pipeline

  • As of September 30, 2020, there were 28 future development assets consisting of 11.5 million square feet of estimated potential development density at our share, including the 2.1 million square feet held for sale to Amazon.com, Inc. ("Amazon").

Third-Party Asset Management and Real Estate Services Business

  • For the three months ended September 30, 2020, revenue from third-party real estate services, including reimbursements, was $27.0 million. Excluding reimbursements and service revenue from our interests in consolidated and unconsolidated real estate ventures, revenue from our third-party asset management and real estate services business was $12.5 million, primarily driven by $4.2 million of property management fees, $2.6 million of development fees, $2.2 million of asset management fees and $1.8 million of other service revenue.

Balance Sheet

  • We had $2.1 billion of debt ($2.5 billion including our share of debt of unconsolidated real estate ventures) as of September 30, 2020. Of the $2.5 billion of debt at our share, approximately 61% was fixed-rate, and rate caps were in place for approximately 81% of our variable rate debt.
  • The weighted average interest rate of our debt at share was 3.18% as of September 30, 2020.
  • As of September 30, 2020, our total enterprise value was approximately $5.9 billion, comprising 146.5 million common shares and units valued at $3.9 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.5 billion, less cash and cash equivalents at our share of $465.5 million.
  • As of September 30, 2020, we had $455.1 million of cash and cash equivalents ($465.5 million of cash and cash equivalents at our share), and $998.5 million of capacity under our credit facility.
  • Net Debt to Annualized Adjusted EBITDA at our share for the three months ended September 30, 2020 was 7.7x and our Net Debt / Total Enterprise Value was 33.9% as of September 30, 2020. On a trailing 12-month basis, our Net Debt to Adjusted EBITDA was 7.3x as of September 30, 2020.

Investing and Financing Activities

  • Closed on three separate mortgage loans with an aggregate principal balance of $385.0 million, collateralized by The Bartlett, 1221 Van Street and 220 20th Street.
  • Repaid $500.0 million outstanding on our revolving credit facility.
  • Repurchased and retired 1.4 million common shares for $38.4 million, an average purchase price of $26.64 per share.
  • Invested $25.3 million to acquire between 30 and 40 megahertz of 5G wireless spectrum licenses across National Landing.

Subsequent to September 30, 2020

  • Transferred our interest in the venture that owns The Marriott Wardman Park hotel to our venture partner.

Dividends

  • On October 29, 2020, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on November 30, 2020 to shareholders of record as of November 13, 2020.

About JBG SMITH

JBG SMITH is an S&P 400 company that owns, operates, invests in and develops a dynamic portfolio of high-growth mixed-use properties in and around Washington, DC. Through an intense focus on placemaking, JBG SMITH cultivates vibrant, amenity-rich, walkable neighborhoods throughout the Capital region, including National Landing where it serves as the exclusive developer for Amazon’s new headquarters. JBG SMITH’s portfolio currently comprises 20.7 million square feet of high-growth office, multifamily and retail assets, 98% at our share of which are Metro-served. It also maintains a development pipeline encompassing 17.1 million square feet of mixed-use development opportunities. For more information on JBG SMITH please visit www.jbgsmith.com.

Forward-Looking Statements

Certain statements contained herein may constitute “forward-looking statements” as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Consequently, the future results of JBG SMITH Properties (“JBG SMITH”, the “Company”, "we", "us", "our" or similar terms) may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximate”, "hypothetical", "potential", “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “would”, “may” or similar expressions in this earnings release. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on our financial condition, results of operations, cash flows, liquidity, performance, tenants, the real estate market and the global economy and financial markets. The extent to which the COVID-19 pandemic continues to impact us and our tenants depends on future developments, many of which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, and whether the residential market in the Washington, DC region and any of our properties will be materially impacted by the expiration of various moratoriums on residential evictions, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. We also note the following forward-looking statements: the impact of COVID-19 and the ensuing economic turmoil on our Company, net operating income, same store net operating income, net asset value, stock price, occupancy rates, revenue from our multifamily and commercial portfolios, operating costs, deferrals of rent, uncollectable operating lease receivables, parking revenue, and burn-off of rent abatement; the impact of disruptions to the credit and capital markets on our ability to access capital, including refinancing maturing debt; changes to the amount and manner in which tenants use space; whether we incur additional costs or make additional concessions or offer other incentives to existing or prospective tenants to reconfigure space; whether the Washington, DC region will be more resilient than other parts of the country in any recession resulting from COVID-19; our annual dividend per share and dividend yield; annualized net operating income; in the case of our construction and near-term development assets, estimated square feet, estimated number of units and in the case of our future development assets, estimated potential development density; expected key Amazon transaction terms and timeframes for closing any Amazon transactions not yet closed; planned infrastructure and education improvements related to Amazon’s additional headquarters and the Virginia Tech Innovation Campus; the economic impact of Amazon’s additional headquarters on the DC region and National Landing; the impact of our role as the exclusive developer, property manager and retail leasing agent in connection with Amazon’s new headquarters; our development plans related to Amazon’s additional headquarters; whether any of our tenants succeed in obtaining government assistance under the CARES Act and other programs and use any resulting proceeds to make lease payments owed to us; whether we can access agency debt secured by our currently-unencumbered multifamily assets timely, on reasonable terms or at all; whether the delay in our planned 2020 discretionary operating asset capital expenditures will have any negative impact on our properties or our ability to generate revenue; and the allocation of capital to our share repurchase plan and any impact on our stock price.

Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. These factors include, among others: adverse economic conditions in the Washington, DC metropolitan area, including in relation to COVID-19, the timing of and costs associated with development and property improvements, financing commitments, and general competitive factors. For further discussion of factors that could materially affect the outcome of our forward-looking statements and other risks and uncertainties, see “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Cautionary Statement Concerning Forward-Looking Statements in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019 and other periodic reports the Company files with the Securities and Exchange Commission. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date hereof.

Pro Rata Information

We present certain financial information and metrics in this release “at JBG SMITH Share,” which refers to our ownership percentage of consolidated and unconsolidated assets in real estate ventures (collectively, “real estate ventures”) as applied to these financial measures and metrics. Financial information “at JBG SMITH Share” is calculated on an asset-by-asset basis by applying our percentage economic interest to each applicable line item of that asset’s financial information. “At JBG SMITH Share” information, which we also refer to as being “at share,” “our pro rata share” or “our share,” is not, and is not intended to be, a presentation in accordance with GAAP. Given that a substantial portion of our assets are held through real estate ventures, we believe this form of presentation, which presents our economic interests in the partially owned entities, provides investors valuable information regarding a significant component of our portfolio, its composition, performance and capitalization.

We do not control the unconsolidated real estate ventures and do not have a legal claim to our co-venturers’ share of assets, liabilities, revenue and expenses. The operating agreements of the unconsolidated real estate ventures generally allow each co-venturer to receive cash distributions to the extent there is available cash from operations. The amount of cash each investor receives is based upon specific provisions of each operating agreement and varies depending on certain factors including the amount of capital contributed by each investor and whether any investors are entitled to preferential distributions.

With respect to any such third-party arrangement, we would not be in a position to exercise sole decision-making authority regarding the property, real estate venture or other entity, and may, under certain circumstances, be exposed to economic risks not present were a third-party not involved. We and our respective co-venturers may each have the right to trigger a buy-sell or forced sale arrangement, which could cause us to sell our interest, or acquire our co-venturers’ interests, or to sell the underlying asset, either on unfavorable terms or at a time when we otherwise would not have initiated such a transaction. Our real estate ventures may be subject to debt, and the repayment or refinancing of such debt may require equity capital calls. To the extent our co-venturers do not meet their obligations to us or our real estate ventures or they act inconsistent with the interests of the real estate venture, we may be adversely affected. Because of these limitations, the non-GAAP “at JBG SMITH Share” financial information should not be considered in isolation or as a substitute for our financial statements as reported under GAAP.

Non-GAAP Financial Measures

This release includes non-GAAP financial measures. For these measures, we have provided an explanation of how these non-GAAP measures are calculated and why JBG SMITH’s management believes that the presentation of these measures provides useful information to investors regarding JBG SMITH’s financial condition and results of operations. Reconciliations of certain non-GAAP measures to the most directly comparable GAAP financial measure are included in this earnings release. Our presentation of non-GAAP financial measures may not be comparable to similar non-GAAP measures used by other companies. In addition to "at share" financial information, the following non-GAAP measures are included in this release:

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), EBITDA for Real Estate ("EBITDAre") and Adjusted EBITDA

Management uses EBITDA and EBITDAre, non-GAAP financial measures, as supplemental operating performance measures and believes they help investors and lenders meaningfully evaluate and compare our operating performance from period-to-period by removing from our operating results the impact of our capital structure (primarily interest charges from our outstanding debt and the impact of our interest rate swaps) and certain non-cash expenses (primarily depreciation and amortization on our assets). EBITDAre is computed in accordance with the definition established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines EBITDAre as GAAP net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization expenses, gains and losses on sales of real estate and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, including our share of such adjustments of unconsolidated real estate ventures. These supplemental measures may help investors and lenders understand our ability to incur and service debt and to make capital expenditures. EBITDA and EBITDAre are not substitutes for net income (loss) (computed in accordance with GAAP) and may not be comparable to similarly titled measures used by other companies.

“Adjusted EBITDA,” a non-GAAP financial measure, represents EBITDAre adjusted for items we believe are not representative of ongoing operating results, such as transaction and other costs, gain (loss) on the extinguishment of debt, distributions in excess of our investment in unconsolidated real estate ventures, lease liability adjustments and share-based compensation expense related to the Formation Transaction and special equity awards. We believe that adjusting such items not considered part of our comparable operations, provides a meaningful measure to evaluate and compare our performance from period-to-period.

Because EBITDA, EBITDAre and Adjusted EBITDA have limitations as analytical tools, we use EBITDA, EBITDAre and Adjusted EBITDA to supplement GAAP financial measures. Additionally, we believe that users of these measures should consider EBITDA, EBITDAre and Adjusted EBITDA in conjunction with net income (loss) and other GAAP measures in understanding our operating results.

Funds from Operations ("FFO"), Core FFO and Funds Available for Distribution (“FAD")

FFO is a non-GAAP financial measure computed in accordance with the definition established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement. NAREIT defines FFO as net income (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, including our share of such adjustments for unconsolidated real estate ventures.

"Core FFO" represents FFO adjusted to exclude items (net of tax) which we believe are not representative of ongoing operating results, such as transaction and other costs, gains (or losses) on extinguishment of debt, distributions in excess of our investment in unconsolidated real estate ventures, share-based compensation expense related to the Formation Transaction and special equity awards, lease liability adjustments, amortization of the management contracts intangible and the mark-to-market of derivative instruments.

"FAD" is a non-GAAP financial measure and represents FFO less recurring tenant improvements, leasing commissions and other capital expenditures, net deferred rent activity, third-party lease liability assumption payments, recurring share-based compensation expense, accretion of acquired below-market leases, net of amortization of acquired above-market leases, amortization of debt issuance costs and other non-cash income and charges. FAD is presented solely as a supplemental disclosure that management believes provides useful information as it relates to our ability to fund dividends.

We believe FFO, Core FFO and FAD are meaningful non‑GAAP financial measures useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because these non‑GAAP measures exclude real estate depreciation and amortization expense and other non-comparable income and expenses, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. FFO, Core FFO and FAD do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as a performance measure or cash flow as a liquidity measure. FFO, Core FFO and FAD may not be comparable to similarly titled measures used by other companies.

Net Operating Income ("NOI") and Annualized NOI

“NOI” is a non-GAAP financial measure management uses to assess a segment’s performance. The most directly comparable GAAP measure is net income (loss) attributable to common shareholders. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only property related revenue (which includes base rent, tenant reimbursements and other operating revenue, net of free rent and payments associated with assumed lease liabilities) less operating expenses and ground rent, if applicable. NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and amortization of acquired above-market leases and below-market ground lease intangibles. Management uses NOI as a supplemental performance measure for our assets and believes it provides useful information to investors because it reflects only those revenue and expense items that are incurred at the asset level, excluding non-cash items. In addition, NOI is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. However, because NOI excludes depreciation and amortization and captures neither the changes in the value of our assets that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our assets, all of which have real economic effect and could materially impact the financial performance of our assets, the utility of NOI as a measure of the operating performance of our assets is limited. NOI presented by us may not be comparable to NOI reported by other REITs that define these measures differently. We believe that to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) attributable to common shareholders as presented in our financial statements. NOI should not be considered as an alternative to net income (loss) attributable to common shareholders as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions. Annualized NOI, for all assets except Crystal City Marriott, represents NOI for the three months ended September 30, 2020 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing 12‑month NOI as of September 30, 2020. Management believes Annualized NOI provides useful information in understanding our financial performance over a 12‑month period, however, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized NOI. Actual NOI for any 12‑month period will depend on a number of factors beyond our ability to control or predict, including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay rent by one or more of our tenants and the destruction of one or more of our assets due to terrorist attack, natural disaster or other casualty, among others. We do not undertake any obligation to update our calculation to reflect events or circumstances occurring after the date of this earnings release. There can be no assurance that the annualized NOI shown will reflect our actual results of operations over any 12‑month period.

Same Store and Non-Same Store

“Same store” refers to the pool of assets that were in-service for the entirety of both periods being compared, except for assets for which significant redevelopment, renovation, or repositioning occurred during either of the periods being compared.

“Non-same store” refers to all operating assets excluded from the same store pool.

Definitions

GAAP

"GAAP" refers to accounting principles generally accepted in the United States of America.

In-Service

‘‘In-service’’ refers to commercial or multifamily assets that are at or above 90% leased or have been operating and collecting rent for more than 12 months as of September 30, 2020.

Formation Transaction

"Formation Transaction" refers collectively to the spin-off on July 17, 2017 of substantially all of the assets and liabilities of Vornado Realty Trust’s Washington, DC segment, which operated as Vornado / Charles E. Smith, and the acquisition of the management business and certain assets and liabilities of The JBG Companies.

JBG Legacy Funds

“JBG Legacy Funds” refers to the legacy funds formerly organized by The JBG Companies.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

in thousands

September 30, 2020

December 31, 2019

ASSETS

Real estate, at cost:

Land and improvements

$

1,314,106

$

1,240,455

Buildings and improvements

4,225,616

3,880,973

Construction in progress, including land

400,933

654,091

5,940,655

5,775,519

Less accumulated depreciation

(1,227,027)

(1,119,571)

Real estate, net

4,713,628

4,655,948

Cash and cash equivalents

455,111

126,413

Restricted cash

37,602

16,103

Tenant and other receivables, net

47,460

52,941

Deferred rent receivable

184,394

169,721

Investments in unconsolidated real estate ventures

463,026

543,026

Other assets, net

302,014

253,687

Assets held for sale

74,089

168,412

TOTAL ASSETS

$

6,277,324

$

5,986,251

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Liabilities:

Mortgages payable, net

$

1,690,723

$

1,125,777

Revolving credit facility

200,000

Unsecured term loans, net

397,808

297,295

Accounts payable and accrued expenses

111,440

157,702

Other liabilities, net

216,494

206,042

Total liabilities

2,416,465

1,986,816

Commitments and contingencies

Redeemable noncontrolling interests

490,921

612,758

Total equity

3,369,938

3,386,677

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

6,277,324

$

5,986,251

________________

Note: For complete financial statements, please refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

in thousands, except per share data

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

REVENUE

Property rental

$

118,680

$

123,963

$

354,519

$

365,702

Third-party real estate services, including reimbursements

26,987

34,587

83,870

91,765

Other revenue

5,368

8,527

15,705

25,426

Total revenue

151,035

167,077

454,094

482,893

EXPENSES

Depreciation and amortization

56,481

46,862

157,586

141,576

Property operating

37,572

35,800

105,867

100,087

Real estate taxes

17,354

16,740

53,422

52,241

General and administrative:

Corporate and other

11,086

11,015

37,478

34,888

Third-party real estate services

28,207

29,809

86,260

86,585

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

7,133

9,549

25,432

30,203

Transaction and other costs

845

2,059

7,526

9,928

Total expenses

158,678

151,834

473,571

455,508

OTHER INCOME (EXPENSE)

Income (loss) from unconsolidated real estate ventures, net

(965)

(1,144)

(17,142)

647

Interest and other income (loss), net

(640)

1,021

2,363

Interest expense

(16,885)

(10,583)

(44,660)

(40,864)

Gain on sale of real estate

8,088

59,477

47,121

Loss on extinguishment of debt

(33)

(1,889)

Total other income (expense)

(17,850)

(4,279)

(1,337)

7,378

INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT

(25,493)

10,964

(20,814)

34,763

Income tax (expense) benefit

488

(432)

3,721

689

NET INCOME (LOSS)

(25,005)

10,532

(17,093)

35,452

Net (income) loss attributable to redeemable noncontrolling interests

2,212

(1,172)

445

(4,271)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

(22,793)

$

9,360

$

(16,648)

$

31,181

EARNINGS (LOSS) PER COMMON SHARE:

Basic

$

(0.18)

$

0.06

$

(0.14)

$

0.23

Diluted

$

(0.18)

$

0.06

$

(0.14)

$

0.23

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

Basic

133,620

134,127

133,924

129,527

Diluted

133,620

134,127

133,924

129,527

 ________________

Note: For complete financial statements, please refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

EBITDA, EBITDAre AND ADJUSTED EBITDA (NON-GAAP)

(Unaudited)

dollars in thousands

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

EBITDA, EBITDAre and Adjusted EBITDA

Net income (loss)

$

(25,005)

$

10,532

$

(17,093)

$

35,452

Depreciation and amortization expense

56,481

46,862

157,586

141,576

Interest expense (1)

16,885

10,583

44,660

40,864

Income tax expense (benefit)

(488)

432

(3,721)

(689)

Unconsolidated real estate ventures allocated share of above adjustments

9,987

8,664

31,516

26,827

EBITDA attributable to noncontrolling interests in consolidated real estate ventures

(4)

(7)

(5)

EBITDA

$

57,856

$

77,073

$

212,941

$

244,025

Gain on sale of real estate

(8,088)

(59,477)

(47,121)

(Gain) loss on sale of unconsolidated real estate assets

2,952

(335)

Impairment of investment in unconsolidated real estate venture (2)

6,522

EBITDAre

$

57,856

$

68,985

$

162,938

$

196,569

Transaction and other costs (3)

845

2,059

7,526

9,928

Loss on extinguishment of debt

33

1,889

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

7,133

9,549

25,432

30,203

Earnings (losses) and distributions in excess of our investment in unconsolidated real estate venture (4)

(436)

(165)

(307)

(6,838)

Lease liability adjustments

1,991

1,991

Unconsolidated real estate ventures allocated share of above adjustments

1,465

Adjusted EBITDA

$

65,398

$

82,419

$

197,087

$

233,742

Net Debt to Annualized Adjusted EBITDA (5)

7.7

x

5.3

x

7.6

x

5.6

x

September 30, 2020

September 30, 2019

Net Debt (at JBG SMITH Share) (6)

Consolidated indebtedness (7)

$

2,081,456

$

1,652,303

Unconsolidated indebtedness (7)

393,398

322,692

Total consolidated and unconsolidated indebtedness

2,474,854

1,974,995

Less: cash and cash equivalents

465,532

237,288

Net Debt (at JBG SMITH Share)

$

2,009,322

$

1,737,707

________________

Note: All EBITDA measures as shown above are attributable to common limited partnership units (“OP Units”).

(1)

Interest expense includes the amortization of deferred financing costs and the ineffective portion of any interest rate swaps or caps, net of capitalized interest.

(2)

During the second quarter of 2020, we determined that our investment in the venture that owns The Marriott Wardman Park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment charge of $6.5 million, which reduced the net book value of our investment to zero, and we suspended equity loss recognition for the venture after June 30, 2020. On October 1, 2020, we transferred our interest in this venture to our venture partner.

(3)

Includes demolition costs, integration and severance costs, pursuit costs related to other completed, potential and pursued transactions, as well as other expenses. For the nine months ended September 30, 2020, includes a charitable commitment to the Washington Housing Conservancy, a non-profit that acquires and owns affordable workforce housing in the Washington DC metropolitan region.

(4)

During the nine months ended September 30, 2019, we received distributions of $6.4 million from 1101 17th Street.

(5)

Adjusted EBITDA for the nine months ended September 30, 2020 and 2019 is annualized by multiplying by 1.33 calculated using Net Debt below.

(6)

Excludes information related to the venture that owns The Marriott Wardman Park hotel as of September 30, 2020 as we suspended equity loss recognition for the venture after June 30, 2020. On October 1, 2020, we transferred our interest in the related venture to our venture partner.

(7)

Net of premium/discount and deferred financing costs.

FFO, CORE FFO AND FAD (NON-GAAP)

(Unaudited)

in thousands, except per share data

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

FFO and Core FFO

Net income (loss) attributable to common shareholders

$

(22,793)

$

9,360

$

(16,648)

$

31,181

Net income (loss) attributable to redeemable noncontrolling interests

(2,212)

1,172

(445)

4,271

Net income (loss)

(25,005)

10,532

(17,093)

35,452

Gain on sale of real estate

(8,088)

(59,477)

(47,121)

(Gain) loss on sale from unconsolidated real estate ventures

2,952

(335)

Real estate depreciation and amortization

54,004

44,164

149,590

133,507

Impairment of investment in unconsolidated real estate venture (1)

6,522

Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures

7,350

4,713

21,730

14,170

FFO attributable to noncontrolling interests in consolidated real estate ventures

(4)

(7)

(5)

FFO Attributable to OP Units

$

36,345

$

51,321

$

104,217

$

135,668

FFO attributable to redeemable noncontrolling interests

(3,945)

(5,705)

(11,353)

(15,502)

FFO attributable to common shareholders

$

32,400

$

45,616

$

92,864

$

120,166

FFO attributable to OP Units

$

36,345

$

51,321

$

104,217

$

135,668

Transaction and other costs, net of tax (2)

798

1,941

7,176

9,414

(Gain) loss from mark-to-market on derivative instruments

203

2

173

50

Loss on extinguishment of debt

33

1,889

Earnings (losses) and distributions in excess of our investment in unconsolidated real estate venture (3)

(436)

(165)

(307)

(6,838)

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

7,133

9,549

25,432

30,203

Lease liability adjustments

1,991

1,991

Amortization of management contracts intangible, net of tax

1,072

1,287

3,288

3,862

Unconsolidated real estate ventures allocated share of above adjustments

(55)

127

1,848

1,507

Core FFO Attributable to OP Units

$

45,060

$

66,053

$

141,860

$

177,746

Core FFO attributable to redeemable noncontrolling interests

(4,891)

(7,342)

(15,457)

(20,297)

Core FFO attributable to common shareholders

$

40,169

$

58,711

$

126,403

$

157,449

FFO per common share - diluted

$

0.24

$

0.34

$

0.69

$

0.93

Core FFO per common share - diluted

$

0.30

$

0.44

$

0.94

$

1.22

Weighted average shares - diluted (FFO and Core FFO)

133,880

134,127

134,224

129,527

See footnotes under table below.

 

FFO, CORE FFO AND FAD (NON-GAAP)

(Unaudited)

in thousands, except per share data

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

FAD

Core FFO attributable to OP Units

$

45,060

$

66,053

$

141,860

$

177,746

Recurring capital expenditures and second-generation tenant improvements and leasing commissions (4)

(11,395)

(14,872)

(34,089)

(57,245)

Straight-line and other rent adjustments (5)

(4,935)

(10,348)

(9,898)

(25,895)

Third-party lease liability assumption payments

(784)

(1,413)

(3,024)

(3,732)

Share-based compensation expense

7,642

6,129

27,129

17,153

Amortization of debt issuance costs

829

701

2,124

2,546

Unconsolidated real estate ventures allocated share of above adjustments

(1,687)

(943)

(3,880)

(2,434)

Non-real estate depreciation and amortization

1,002

925

3,471

2,753

FAD available to OP Units (A)

$

35,732

$

46,232

$

123,693

$

110,892

Distributions to common shareholders and unitholders (6) (B)

$

33,743

$

34,006

$

101,724

$

99,296

FAD Payout Ratio (B÷A) (7)

94.4

%

73.6

%

82.2

%

89.5

%

Capital Expenditures

Maintenance and recurring capital expenditures

$

3,096

$

7,000

$

12,195

$

19,747

Share of maintenance and recurring capital expenditures from unconsolidated real estate ventures

327

439

836

779

Second-generation tenant improvements and leasing commissions

6,779

6,713

19,335

35,225

Share of second-generation tenant improvements and leasing commissions from unconsolidated real estate ventures

1,193

720

1,723

1,494

Recurring capital expenditures and second-generation tenant improvements and leasing commissions

11,395

14,872

34,089

57,245

Non-recurring capital expenditures

4,840

8,365

17,267

20,557

Share of non-recurring capital expenditures from unconsolidated real estate ventures

54

84

394

114

First-generation tenant improvements and leasing commissions

4,033

6,501

27,733

31,694

Share of first-generation tenant improvements and leasing commissions from unconsolidated real estate ventures

674

507

1,661

1,159

Non-recurring capital expenditures

9,601

15,457

47,055

53,524

Total JBG SMITH Share of Capital Expenditures

$

20,996

$

30,329

$

81,144

$

110,769

________________

(1)

During the second quarter of 2020, we determined that our investment in the venture that owns The Marriott Wardman Park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment charge of $6.5 million, which reduced the net book value of our investment to zero, and we suspended equity loss recognition for the venture after June 30, 2020. On October 1, 2020, we transferred our interest in this venture to our venture partner.

(2)

Includes demolition costs, integration and severance costs, pursuit costs related to other completed, potential and pursued transactions, as well as other expenses. For the nine months ended September 30, 2020, includes a charitable commitment to the Washington Housing Conservancy, a non-profit that acquires and owns affordable workforce housing in the Washington DC metropolitan region.

(3)

During the nine months ended September 30, 2019, we received distributions of $6.4 million from 1101 17th Street.

(4)

Includes amounts, at JBG SMITH Share, related to unconsolidated real estate ventures.

(5)

Includes straight-line rent, above/below market lease amortization and lease incentive amortization.

(6)

The distribution for the nine months ended September 30, 2019 excludes a special dividend of $0.10 per common share that was paid in January 2019.

(7)

The FAD payout ratio on a quarterly basis is not necessarily indicative of an amount for the full year due to fluctuation in timing of capital expenditures, the commencement of new leases and the seasonality of our operations.

NOI RECONCILIATIONS (NON-GAAP)

(Unaudited)

dollars in thousands

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Net income (loss) attributable to common shareholders

$

(22,793)

$

9,360

$

(16,648)

$

31,181

Add:

Depreciation and amortization expense

56,481

46,862

157,586

141,576

General and administrative expense:

Corporate and other

11,086

11,015

37,478

34,888

Third-party real estate services

28,207

29,809

86,260

86,585

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

7,133

9,549

25,432

30,203

Transaction and other costs

845

2,059

7,526

9,928

Interest expense

16,885

10,583

44,660

40,864

Loss on extinguishment of debt

33

1,889

Income tax expense (benefit)

(488)

432

(3,721)

(689)

Net income (loss) attributable to redeemable noncontrolling interests

(2,212)

1,172

(445)

4,271

Less:

Third-party real estate services, including reimbursements revenue

26,987

34,587

83,870

91,765

Other revenue (1)

2,292

2,196

5,438

5,951

Income (loss) from unconsolidated real estate ventures, net

(965)

(1,144)

(17,142)

647

Interest and other income (loss), net

(640)

1,021

2,363

Gain on sale of real estate

8,088

59,477

47,121

Consolidated NOI

66,830

77,754

205,497

232,849

NOI attributable to unconsolidated real estate ventures at our share

7,130

5,500

23,206

15,745

Non-cash rent adjustments (2)

(4,934)

(10,348)

(9,898)

(25,894)

Other adjustments (3)

2,881

3,181

9,236

10,120

Total adjustments

5,077

(1,667)

22,544

(29)

NOI

$

71,907

$

76,087

$

228,041

$

232,820

Less: out-of-service NOI loss (4)

(442)

(1,342)

(2,774)

(3,603)

Operating Portfolio NOI

$

72,349

$

77,429

$

230,815

$

236,423

Non-same store NOI (5)

303

2,031

10,689

12,518

Same store NOI (6)

$

72,046

$

75,398

$

220,126

$

223,905

Change in same store NOI

(4.4)

%

(1.7)

%

Number of properties in same store pool

55

53

_______________

(1)

Excludes parking revenue of $3.1 million and $10.3 million for the three and nine months ended September 30, 2020, and $6.3 million and $19.5 million for the three and nine months ended September 30, 2019.

(2)

Adjustment to exclude straight-line rent, above/below market lease amortization and lease incentive amortization.

(3)

Adjustment to include other revenue and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue and allocated corporate general and administrative expenses to operating properties.

(4)

Includes the results of our Under-Construction assets, and Near-Term and Future Development Pipelines.

(5)

Includes the results of properties that were not in-service for the entirety of both periods being compared and properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

Includes the results of the properties that are owned, operated and in-service for the entirety of both periods being compared except for properties that are being phased out of service for future development.

Contacts:

Moina Banerjee
Executive Vice President, Head of Capital Markets
(240) 333‑3655
mbanerjee@jbgsmith.com

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