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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, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 001-37994

Graphic

JBG SMITH PROPERTIES

________________________________________________________________________________

(Exact name of Registrant as specified in its charter)

Maryland

81-4307010

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

4747 Bethesda Avenue Suite 200

Bethesda MD

20814

(Address of Principal Executive Offices)

(Zip Code)

Registrant's telephone number, including area code: (240) 333-3600

_______________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, par value $0.01 per share

JBGS

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No

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

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

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, 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).

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, 

    

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).

4

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).

5

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Equity

(Unaudited)

(In thousands)

Accumulated 

Other 

Additional 

Comprehensive

Common Shares

Paid-In 

Accumulated 

 

Income

Noncontrolling

Total 

Shares

Amount

Capital

Deficit

 

(Loss)

Interests

Equity

BALANCE AS OF 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).

6

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Equity

(Unaudited)

(In thousands)

    

Accumulated 

Other 

Additional 

Comprehensive

Common Shares

Paid-In 

Accumulated

 

Income

Noncontrolling

Total 

Shares

Amount

Capital

Deficit

 

(Loss)

Interests

Equity

BALANCE AS OF DECEMBER 31, 2021

 

127,378

$

1,275

$

3,539,916

$

(609,331)

$

(15,950)

$

22,507

$

2,938,417

Net income 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).

7

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).

8

JBG SMITH PROPERTIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30,