JBG SMITH Properties [JBGS] Filings

10-Q 1 jbgs-20220930x10q.htm 10-Q

Table of Contents

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, 2022

☐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

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 28, 2022, JBG SMITH Properties had 113,787,934 common shares outstanding.

Table of Contents

JBG SMITH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	Page
	Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Equity (unaudited) for the three and nine months ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 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	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 4.	Controls and Procedures	51

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	53
Item 6.	Exhibits	53
	Signatures	55

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

JBG SMITH PROPERTIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value amounts)


	September 30, 2022		December 31, 2021
ASSETS
Real estate, at cost:
Land and improvements	$	1,273,947	$	1,378,218
Buildings and improvements		4,117,823		4,513,606
Construction in progress, including land		471,867		344,652
		5,863,637		6,236,476
Less: accumulated depreciation		(1,299,818)		(1,368,003)
Real estate, net		4,563,819		4,868,473
Cash and cash equivalents		258,871		264,356
Restricted cash		212,998		37,739
Tenant and other receivables		48,221		44,496
Deferred rent receivable		161,994		192,265
Investments in unconsolidated real estate ventures		360,846		462,885
Intangible assets, net		155,812		201,956
Other assets, net		133,419		240,160
Assets held for sale		—		73,876
TOTAL ASSETS	$	5,895,980	$	6,386,206

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgages payable, net	$	1,741,605	$	1,777,699
Revolving credit facility		100,000		300,000
Unsecured term loans, net		546,888		398,664
Accounts payable and accrued expenses		130,408		106,136
Other liabilities, net		98,831		342,565
Total liabilities		2,617,732		2,925,064
Commitments and contingencies
Redeemable noncontrolling interests		491,479		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; 113,764 and 127,378 shares issued and outstanding as of September 30, 2022 and December 31, 2021		1,138		1,275
Additional paid-in capital		3,265,659		3,539,916
Accumulated deficit		(558,788)		(609,331)
Accumulated other comprehensive income (loss)		46,870		(15,950)
Total shareholders' equity of JBG SMITH Properties		2,754,879		2,915,910
Noncontrolling interests		31,890		22,507
Total equity		2,786,769		2,938,417
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY	$	5,895,980	$	6,386,206

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

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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,
	2022		2021		2022		2021
REVENUE
Property rental	$	119,811	$	125,900	$	368,445	$	370,960
Third-party real estate services, including reimbursements		21,845		25,842		67,972		90,694
Other revenue		5,958		5,280		18,667		15,301
Total revenue		147,614		157,022		455,084		476,955
EXPENSES
Depreciation and amortization		50,056		56,726		157,597		178,130
Property operating		36,380		40,198		112,469		109,929
Real estate taxes		14,738		18,259		47,870		55,127
General and administrative:
Corporate and other		12,072		12,105		42,669		38,475
Third-party real estate services		21,230		25,542		72,422		80,035
Share-based compensation related to Formation Transaction and special equity awards		548		3,480		4,369		12,866
Transaction and other costs		1,746		2,951		4,632		8,911
Total expenses		136,770		159,261		442,028		483,473
OTHER INCOME (EXPENSE)
Income (loss) from unconsolidated real estate ventures, net		(13,867)		20,503		(12,829)		23,513
Interest and other income, net		984		192		16,902		163
Interest expense		(17,932)		(17,243)		(50,251)		(50,312)
Gain on the sale of real estate, net		—		—		158,631		11,290
Loss on the extinguishment of debt		(1,444)		—		(3,073)		—
Total other income (expense)		(32,259)		3,452		109,380		(15,346)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE		(21,415)		1,213		122,436		(21,864)
Income tax expense		(166)		(217)		(2,600)		(4,527)
NET INCOME (LOSS)		(21,581)		996		119,836		(26,391)
Net (income) loss attributable to redeemable noncontrolling interests		2,546		(103)		(15,712)		2,472
Net (income) loss attributable to noncontrolling interests		(258)		—		(174)		1,108
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(19,293)	$	893	$	103,950	$	(22,811)
EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED	$	(0.17)	$	0.00	$	0.86	$	(0.18)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED		114,360		131,351		120,741		131,456

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

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JBG SMITH PROPERTIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
NET INCOME (LOSS)	$	(21,581)	$	996	$	119,836	$	(26,391)
OTHER COMPREHENSIVE INCOME:
Change in fair value of derivative financial instruments		32,939		(329)		65,259		4,678
Reclassification of net (income) loss on derivative financial instruments from accumulated other comprehensive income (loss) into interest expense		(333)		3,901		6,214		11,476
Total other comprehensive income		32,606		3,572		71,473		16,154
COMPREHENSIVE INCOME (LOSS)		11,025		4,568		191,309		(10,237)
Net (income) loss attributable to redeemable noncontrolling interests		2,546		(103)		(15,712)		2,472
Net (income) loss attributable to noncontrolling interests		(258)		—		(174)		1,108
Other comprehensive income attributable to redeemable noncontrolling interests		(4,376)		(413)		(8,653)		(1,621)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JBG SMITH PROPERTIES	$	8,937	$	4,052	$	166,770	$	(8,278)

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

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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 JUNE 30, 2022	115,862	$	1,160	$	3,285,511	$	(513,746)	$	18,640	$	31,640	$	2,823,205
Net income (loss) attributable to common shareholders and noncontrolling interests	—		—		—		(19,293)		—		258		(19,035)
Conversion of common limited partnership units ("OP Units") to common shares	213		2		4,889		—		—		—		4,891
Common shares repurchased	(2,311)		(24)		(53,979)		—		—		—		(54,003)
Common shares issued pursuant to employee incentive compensation plan and Employee Share Purchase Plan ("ESPP")	—		—		377		—		—		—		377
Dividends declared on common shares ($0.225 per common share)	—		—		—		(25,749)		—		—		(25,749)
Distributions to noncontrolling interests, net	—		—		—		—		—		(8)		(8)
Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation	—		—		28,861		—		(4,376)		—		24,485
Total other comprehensive income	—		—		—		—		32,606		—		32,606
BALANCE AS OF SEPTEMBER 30, 2022	113,764	$	1,138	$	3,265,659	$	(558,788)	$	46,870	$	31,890	$	2,786,769

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 OP 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 ESPP	—		—		210		—		—		—		210
Dividends declared on common shares ($0.225 per common share)	—		—		—		(29,696)		—		—		(29,696)
Distributions to noncontrolling interests, net	—		—		—		—		—		(45)		(45)
Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation	—		—		19,274		—		(413)		—		18,861
Total 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

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

Table of Contents

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 attributable to common shareholders and noncontrolling interests	—		—		—		103,950		—		174		104,124
Conversion of OP Units to common shares	493		5		12,662		—		—		—		12,667
Common shares repurchased	(14,151)		(142)		(360,900)		—		—		—		(361,042)
Common shares issued pursuant to employee incentive compensation plan and ESPP	44		—		1,806		—		—		—		1,806
Dividends declared on common shares ($0.45 per common share)	—		—		—		(53,407)		—		—		(53,407)
Contributions from noncontrolling interests, net	—		—		—		—		—		9,209		9,209
Redeemable noncontrolling interests redemption value adjustment and total other comprehensive income allocation	—		—		72,175		—		(8,653)		—		63,522
Total other comprehensive income	—		—		—		—		71,473		—		71,473
BALANCE AS OF SEPTEMBER 30, 2022	113,764	$	1,138	$	3,265,659	$	(558,788)	$	46,870	$	31,890	$	2,786,769

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 OP 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 total other comprehensive income allocation	—		—		8,032		—		(1,621)		—		6,411
Total 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

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

Table of Contents

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2022		2021
OPERATING ACTIVITIES:
Net income (loss)	$	119,836	$	(26,391)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation expense		32,324		38,320
Depreciation and amortization, including amortization of deferred financing costs		160,797		181,217
Deferred rent		(14,764)		(17,463)
(Income) loss from unconsolidated real estate ventures, net		12,829		(23,513)
Amortization of market lease intangibles, net		(874)		(896)
Amortization of lease incentives		6,175		6,083
Loss on the extinguishment of debt		3,073		—
Gain on the sale of real estate, net		(158,631)		(11,290)
Loss on operating lease and other receivables		1,392		1,071
Income from investments, net		(14,733)		—
Return on capital from unconsolidated real estate ventures		8,483		13,212
Other non-cash items		(7,352)		583
Changes in operating assets and liabilities:
Tenant and other receivables		(5,044)		3,704
Other assets, net		(20,552)		(12,059)
Accounts payable and accrued expenses		(3,648)		5,954
Other liabilities, net		11,055		(4,120)
Net cash provided by operating activities		130,366		154,412
INVESTING ACTIVITIES:
Development costs, construction in progress and real estate additions		(218,835)		(108,361)
Acquisition of real estate		(15,232)		—
Deposits for real estate and other acquisitions		(1,750)		(10,263)
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		54,759		40,188
Investments in unconsolidated real estate ventures and other investments		(86,678)		(32,685)
Net cash provided by (used in) investing activities		674,402		(96,751)
FINANCING ACTIVITIES:
Borrowings under mortgages payable		134,263		85,000
Borrowings under revolving credit facility		100,000		—
Borrowings under unsecured term loans		150,000		—
Repayments of mortgages payable		(268,627)		(4,462)
Repayments of revolving credit facility		(300,000)		—
Debt issuance and modification costs		(5,135)		(5,747)
Proceeds from common shares issued pursuant to ESPP		800		880
Common shares repurchased		(361,042)		(82,300)
Dividends paid to common shareholders		(82,072)		(88,928)
Distributions to redeemable noncontrolling interests		(12,398)		(13,705)
Distributions to noncontrolling interests		(166)		(22)
Contributions from noncontrolling interests		9,383		17,464
Net cash used in financing activities		(634,994)		(91,820)
Net increase (decrease) in cash and cash equivalents, and restricted cash		169,774		(34,159)
Cash and cash equivalents, and restricted cash, beginning of period		302,095		263,336
Cash and cash equivalents, and restricted cash, end of period	$	471,869	$	229,177

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

Table of Contents

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


		Nine Months Ended September 30,

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