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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 September 30, 2021

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 October 29, 2021, JBG SMITH Properties had 129,725,289 common shares outstanding.

JBG SMITH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Page

Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2021 and 2020

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2021 and 2020

5

Condensed Consolidated Statements of Equity (unaudited) for the three and nine months ended September 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020

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

52

Signatures

53

2

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

JBG SMITH PROPERTIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value amounts)

    

September 30, 2021

    

December 31, 2020

ASSETS

 

  

 

  

Real estate, at cost:

 

  

 

  

Land and improvements

$

1,358,299

$

1,391,472

Buildings and improvements

 

4,368,477

 

4,341,103

Construction in progress, including land

 

299,359

 

268,056

 

6,026,135

 

6,000,631

Less: accumulated depreciation

 

(1,346,107)

 

(1,232,690)

Real estate, net

 

4,680,028

 

4,767,941

Cash and cash equivalents

 

194,277

 

225,600

Restricted cash

 

34,900

 

37,736

Tenant and other receivables

 

51,128

 

55,903

Deferred rent receivable

 

187,882

 

170,547

Investments in unconsolidated real estate ventures

 

486,052

 

461,369

Other assets, net

 

300,537

 

286,575

Assets held for sale

 

74,174

 

73,876

TOTAL ASSETS

$

6,008,978

$

6,079,547

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

  

Liabilities:

 

  

 

  

Mortgages payable, net

$

1,674,285

$

1,593,738

Revolving credit facility

 

 

Unsecured term loans, net

 

398,493

 

397,979

Accounts payable and accrued expenses

 

105,307

 

103,102

Other liabilities, net

 

200,204

 

247,774

Total liabilities

 

2,378,289

 

2,342,593

Commitments and contingencies

 

  

 

  

Redeemable noncontrolling interests

 

526,913

 

530,748

Shareholders' equity:

 

  

 

  

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

 

 

Common shares, $0.01 par value - 500,000 shares authorized; 129,704 and 131,778 shares issued and outstanding as of September 30, 2021 and December 31, 2020

 

1,298

 

1,319

Additional paid-in capital

 

3,606,462

 

3,657,643

Accumulated deficit

 

(495,033)

 

(412,944)

Accumulated other comprehensive loss

 

(25,446)

 

(39,979)

Total shareholders' equity of JBG SMITH Properties

 

3,087,281

 

3,206,039

Noncontrolling interests

 

16,495

 

167

Total equity

 

3,103,776

 

3,206,206

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

6,008,978

$

6,079,547

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 September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

REVENUE

 

  

 

  

  

 

  

Property rental

$

125,900

$

118,680

$

370,960

$

354,519

Third-party real estate services, including reimbursements

 

25,842

 

26,987

 

90,694

 

83,870

Other revenue

 

5,280

 

5,368

 

15,301

 

15,705

Total revenue

 

157,022

 

151,035

 

476,955

 

454,094

EXPENSES

 

  

 

  

 

 

  

Depreciation and amortization

 

56,726

 

56,481

 

178,130

 

157,586

Property operating

 

40,198

 

37,572

 

109,929

 

105,867

Real estate taxes

 

18,259

 

17,354

 

55,127

 

53,422

General and administrative:

 

  

 

  

 

 

  

Corporate and other

 

12,105

 

11,086

 

38,475

 

37,478

Third-party real estate services

 

25,542

 

28,207

 

80,035

 

86,260

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

 

3,480

 

7,133

 

12,866

 

25,432

Transaction and other costs

 

2,951

 

845

 

8,911

 

7,526

Total expenses

 

159,261

 

158,678

 

483,473

 

473,571

OTHER INCOME (EXPENSE)

 

  

 

  

 

  

 

  

Income (loss) from unconsolidated real estate ventures, net

 

20,503

 

(965)

 

23,513

 

(17,142)

Interest and other income, net

 

192

 

 

163

 

1,021

Interest expense

 

(17,243)

 

(16,885)

 

(50,312)

 

(44,660)

Gain on sale of real estate

 

 

 

11,290

 

59,477

Loss on extinguishment of debt

 

 

 

 

(33)

Total other income (expense)

 

3,452

 

(17,850)

 

(15,346)

 

(1,337)

INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT

 

1,213

(25,493)

 

(21,864)

 

(20,814)

Income tax (expense) benefit

 

(217)

 

488

 

(4,527)

 

3,721

NET INCOME (LOSS)

 

996

 

(25,005)

 

(26,391)

 

(17,093)

Net (income) loss attributable to redeemable noncontrolling interests

 

(103)

 

2,212

 

2,472

 

445

Net loss attributable to noncontrolling interests

 

 

 

1,108

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

893

$

(22,793)

$

(22,811)

$

(16,648)

EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED

$

0.00

$

(0.18)

$

(0.18)

$

(0.14)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED

 

131,351

 

133,620

 

131,456

 

133,924

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 September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

NET INCOME (LOSS)

$

996

$

(25,005)

$

(26,391)

$

(17,093)

OTHER COMPREHENSIVE INCOME (LOSS):

 

  

 

  

 

  

 

  

Change in fair value of derivative financial instruments

 

(329)

 

(278)

 

4,678

 

(39,489)

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

 

3,901

 

3,823

 

11,476

 

8,137

Other comprehensive income (loss)

 

3,572

 

3,545

 

16,154

 

(31,352)

COMPREHENSIVE INCOME (LOSS)

 

4,568

 

(21,460)

 

(10,237)

 

(48,445)

Net (income) loss attributable to redeemable noncontrolling interests

 

(103)

 

2,212

 

2,472

 

445

Net loss attributable to noncontrolling interests

1,108

Other comprehensive (income) loss attributable to redeemable noncontrolling interests

 

(413)

 

(309)

 

(1,621)

 

3,446

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JBG SMITH PROPERTIES

$

4,052

$

(19,557)

$

(8,278)

$

(44,554)

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

5

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Equity

(Unaudited)

(In thousands)

Accumulated 

Additional 

Other 

Common Shares

Paid-In 

Accumulated 

 

Comprehensive

Noncontrolling

Total 

Shares

Amount

Capital

Deficit

 

Loss

Interests

Equity

BALANCE AS OF JUNE 30, 2021

 

131,841

$

1,319

$

3,650,217

$

(466,230)

$

(28,605)

$

16,540

$

3,173,241

Net income attributable to common shareholders and noncontrolling interests

 

 

 

 

893

 

 

 

893

Conversion of common limited partnership units to common shares

 

180

 

2

 

5,668

 

 

 

 

5,670

Common shares repurchased

(2,317)

(23)

(68,907)

(68,930)

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

210

210

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

(29,696)

(29,696)

Distributions to noncontrolling interests

 

 

 

 

 

 

(45)

 

(45)

Redeemable noncontrolling interests redemption value adjustment and other comprehensive income allocation

 

 

 

19,274

 

 

(413)

 

 

18,861

Other comprehensive income

 

 

 

 

 

3,572

 

 

3,572

BALANCE AS OF SEPTEMBER 30, 2021

 

129,704

$

1,298

$

3,606,462

$

(495,033)

$

(25,446)

$

16,495

$

3,103,776

BALANCE AS OF JUNE 30, 2020

 

133,708

$

1,338

$

3,742,205

$

(255,162)

$

(47,886)

$

191

$

3,440,686

Net loss attributable to common shareholders and noncontrolling interests

 

 

 

 

(22,793)

 

 

 

(22,793)

Conversion of common limited partnership units to common shares

 

169

 

2

 

4,794

 

 

 

 

4,796

Common shares repurchased

(1,439)

(15)

(38,362)

 

 

(38,377)

Common shares issued pursuant to ESPP

186

186

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

(30,020)

(30,020)

Distributions to noncontrolling interests

 

 

 

 

 

 

(12)

 

(12)

Redeemable noncontrolling interests redemption value adjustment and other comprehensive income allocation

 

 

 

12,236

 

 

(309)

 

 

11,927

Other comprehensive income

 

 

 

 

 

3,545

 

 

3,545

BALANCE AS OF SEPTEMBER 30, 2020

 

132,438

$

1,325

$

3,721,059

$

(307,975)

$

(44,650)

$

179

$

3,369,938

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

6

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Equity

(Unaudited)

(In thousands)

    

Accumulated 

Additional 

Other 

Common Shares

Paid-In 

Accumulated

 

Comprehensive

Noncontrolling 

Total 

Shares

Amount

Capital

Deficit

 

Loss

Interests

Equity

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

 

 

 

 

(22,811)

 

 

(1,108)

 

(23,919)

Conversion of common limited partnership units to common shares

 

829

 

8

 

27,342

 

 

 

 

27,350

Common shares repurchased

(2,937)

(29)

(88,104)

(88,133)

Common shares issued pursuant to employee incentive compensation plan and ESPP

34

1,549

1,549

Dividends declared on common shares
($0.45 per common share)

(59,278)

(59,278)

Contributions from noncontrolling interests, net

 

 

 

 

 

 

17,436

 

17,436

Redeemable noncontrolling interests redemption value adjustment and other comprehensive income allocation

 

 

 

8,032

 

 

(1,621)

 

 

6,411

Other comprehensive income

 

 

 

 

 

16,154

 

 

16,154

BALANCE AS OF SEPTEMBER 30, 2021

 

129,704

$

1,298

$

3,606,462

$

(495,033)

$

(25,446)

$

16,495

$

3,103,776

BALANCE AS OF DECEMBER 31, 2019

 

134,148

$

1,342

$

3,633,042

$

(231,164)

$

(16,744)

$

201

$

3,386,677

Net loss attributable to common shareholders and noncontrolling interests

 

 

 

 

(16,648)

 

 

 

(16,648)

Conversion of common limited partnership units to common shares

 

1,112

 

12

 

40,662

 

 

 

 

40,674

Common shares repurchased

(2,857)

(29)

(79,540)

(79,569)

Common shares issued pursuant to ESPP

35

1,320

1,320

Dividends declared on common shares
($0.45 per common share)

(60,163)

(60,163)

Distributions to noncontrolling interests

 

 

 

 

 

 

(22)

 

(22)

Redeemable noncontrolling interests redemption value adjustment and other comprehensive loss allocation

 

 

 

125,575

 

 

3,446

 

 

129,021

Other comprehensive loss

 

 

 

 

 

(31,352)

 

 

(31,352)

BALANCE AS OF SEPTEMBER 30, 2020

 

132,438

$

1,325

$

3,721,059

$

(307,975)

$

(44,650)

$

179

$

3,369,938

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

7

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2021

    

2020

OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(26,391)

$

(17,093)

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

 

  

 

  

Share-based compensation expense

 

38,320

 

53,183

Depreciation and amortization, including amortization of deferred financing costs

 

181,217

 

160,395

Deferred rent

 

(17,463)

 

(19,124)

(Income) loss from unconsolidated real estate ventures, net

 

(23,513)

 

17,142

Amortization of market lease intangibles, net

 

(896)

 

(356)

Amortization of lease incentives

 

6,083

 

5,144

Loss on extinguishment of debt

 

 

33

Gain on sale of real estate

 

(11,290)

 

(59,477)

Loss on operating lease and other receivables

 

1,071

 

14,750

Return on capital from unconsolidated real estate ventures

 

13,212

 

3,697

Other non-cash items

 

583

 

265

Changes in operating assets and liabilities:

 

  

 

  

Tenant and other receivables

 

3,704

 

(4,757)

Other assets, net

 

(12,059)

 

(11,566)

Accounts payable and accrued expenses

 

5,954

 

1,366

Other liabilities, net

 

(4,120)

 

(15,747)

Net cash provided by operating activities

 

154,412

 

127,855

INVESTING ACTIVITIES:

 

  

 

  

Development costs, construction in progress and real estate additions

 

(108,361)

 

(245,456)

Deposits for real estate and other acquisitions

 

(10,263)

 

(25,274)

Proceeds from sale of real estate

 

14,370

 

154,493

Distributions of capital from unconsolidated real estate ventures

 

40,188

 

70,818

Investments in unconsolidated real estate ventures and other

 

(32,685)

 

(12,277)

Net cash used in investing activities

 

(96,751)

 

(57,696)

FINANCING ACTIVITIES:

 

  

 

  

Borrowings under mortgages payable

 

85,000

 

580,105

Borrowings under revolving credit facility

 

 

500,000

Borrowings under unsecured term loans

 

 

100,000

Repayments of mortgages payable

 

(4,462)

 

(6,680)

Repayments of revolving credit facility

 

 

(700,000)

Debt issuance costs

 

(5,747)

 

(14,856)

Finance lease payments

 

 

(3,281)

Proceeds from common shares issued pursuant to ESPP

 

880

 

887

Common shares repurchased

(82,300)

(74,434)

Dividends paid to common shareholders

 

(88,928)

 

(90,347)

Distributions to redeemable noncontrolling interests

 

(13,705)

 

(11,333)

Distributions to noncontrolling interests

(22)

(23)

Contributions from noncontrolling interests

17,464

Net cash (used in) provided by financing activities

 

(91,820)

 

280,038

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

 

(34,159)

 

350,197

Cash and cash equivalents and restricted cash, beginning of period

 

263,336

 

142,516

Cash and cash equivalents and restricted cash, end of period

$

229,177

$

492,713

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

 

  

Cash and cash equivalents

$

194,277

$

455,111

Restricted cash

 

34,900

 

37,602

Cash and cash equivalents and restricted cash

$

229,177

$

492,713

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

8

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2021

    

2020

SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:

 

  

Cash paid for interest (net of capitalized interest of $4,854 and $11,545 in 2021 and 2020)

$

46,010

$

40,744

Accrued capital expenditures included in accounts payable and accrued expenses

 

41,660

 

51,092

Write-off of fully depreciated assets

 

46,278

 

29,393

Deconsolidation of real estate asset

 

26,476

 

Conversion of common limited partnership units to common shares

 

27,350

 

40,674

Derecognition of operating lease right-of-use assets

(13,151)

Derecognition of liabilities related to operating lease right-of-use assets

(13,151)

Recognition of finance lease right-of-use assets

 

 

42,354

Recognition of liabilities related to finance lease right-of-use assets

 

 

40,684

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

 

1,761