JBG SMITH Properties — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparative periods are the corresponding 2020 periods. JBG SMITH is a Washington, D.C.-area REIT focused on commercial and multifamily properties, with substantial exposure to National Landing and Amazon’s headquarters development.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $154.6 million | $145.0 million | $319.9 million | $303.1 million |
| Net income (loss) attributable to common shareholders | $(3.0) million | $(36.8) million | $(23.7) million | $6.1 million |
| Diluted earnings (loss) per share | $(0.03) | $(0.28) | $(0.19) | $0.04 |
| Consolidated NOI | $72.4 million | $64.6 million | $144.4 million | $138.7 million |
| FFO attributable to common shareholders | $37.9 million | $23.7 million | $80.2 million | $60.5 million |
| Operating cash flow | Not separately presented for the quarter | $123.6 million | $85.5 million |
- Q2 property rental revenue was $122.8 million, up 6.4%; third-party real estate services revenue, including reimbursements, was $26.7 million, down 1.6%.
- Q2 same-store NOI increased 0.4% to $76.5 million; for the first half it declined 4.6% to $152.2 million. Multifamily NOI was pressured by concessions, lower rents and higher expenses; commercial performance benefited from improved rent collections and newly placed-in-service properties.
- At June 30, total assets were $6.01 billion, cash and cash equivalents were $201.2 million, and restricted cash was $37.5 million. Debt was approximately $2.0 billion: $1.60 billion of mortgage principal and $400 million of unsecured term loans; the $1.0 billion revolving facility had no borrowings. Available credit facility capacity was $998.5 million, net of letters of credit.
- Six-month investing cash outflow was $70.4 million, including $67.4 million of development and real estate additions and $22.0 million invested in unconsolidated ventures. Financing cash outflow was $77.8 million, including $59.2 million of common dividends and $19.2 million of share repurchases.
- Commercial portfolio leased/occupied percentages at the company’s share were 85.9%/84.4% at quarter-end; multifamily was 91.6%/86.3%. In-service multifamily was 95.0% leased and 89.8% occupied.
Changes versus comparable periods
- Q2 revenue rose 6.7% year over year, while the common-shareholder loss narrowed from $36.8 million to $3.0 million. The comparison reflects, among other items, a 2020 loss from unconsolidated ventures and a 2021 $11.3 million gain on contributed land.
- First-half common-shareholder results shifted from $6.1 million of income to a $23.7 million loss. The 2020 period included a $59.5 million gain from the sale of Metropolitan Park, compared with an $11.3 million land-contribution gain in 2021.
- First-half interest expense increased 19.1% to $33.1 million, primarily because less interest was capitalized as projects entered service and average debt balances were higher. Depreciation and amortization increased 20.1% to $121.4 million.
- First-half operating cash flow increased to $123.6 million from $85.5 million. Cash and restricted cash ended the period at $238.7 million, down from $263.3 million at year-end 2020.
Outlook, risks and notable items
- Management did not provide specific quantified earnings guidance. It said operating cash flow, financing, recapitalizations and asset sales, together with existing cash, should fund operations and expected needs for the next 12 months.
- Management expects COVID-19 to continue to adversely affect 2021 operations and remains cautious about the medium-term office outlook. Regional office vacancy remained high, companies had not fully returned to offices, commercial occupancy declined 250 basis points sequentially, and commercial parking revenue remained about 50% below pre-pandemic levels. Retail tenant openings had reached 95%; management expected additional rent deferrals to decline absent renewed restrictions.
- The company intends to opportunistically dispose of at least another $1.5 billion of non-core office assets and land, following $1.6 billion of sales, recapitalizations and ground leases since its 2017 formation, to fund growth and shift toward a majority-multifamily portfolio.
- Construction assets required an estimated additional $330.7 million to complete, expected primarily over three years. Tenant-related obligations were $68.9 million; commitments and certain recorded guarantees to unconsolidated ventures totaled $62.7 million. The company also reported $18.2 million of environmental liabilities.
- In April, the company formed two 50%-owned Potomac Yard ventures for about 2.0 million square feet of mixed-use development and recognized an $11.3 million gain on contributed land. A $17.5 million promote payment was made in connection with the transaction, including $4.2 million to certain non-employee trustees and executives.
- In July, the company entered into an $85 million, seven-year mortgage at LIBOR plus 1.60%, and declared a quarterly dividend of $0.225 per share. The filing highlights uncertainty around LIBOR transition, interest rates, tenant collections, leasing and property valuations. It reported no material change to previously disclosed risk factors and no expected material adverse effect from ordinary-course legal matters.
Important facts for investors to verify
- Whether commercial leasing and occupancy stabilize, and how office return patterns affect rent, parking revenue and tenant demand.
- Whether multifamily rents recover and concessions and operating costs ease, particularly at properties cited as under pressure.
- Execution, timing and proceeds from planned asset sales, and how proceeds will fund development and portfolio repositioning.
- Funding and completion costs for the $330.7 million construction requirement, alongside venture and tenant commitments and debt obligations.
- The persistence of rent deferrals, cash-basis tenant accounting, credit losses and COVID-related estimates; management notes actual results could differ materially.
- The underlying recurring earnings trend: GAAP results and FFO include gains, venture-sale items and other adjustments; FFO is a non-GAAP measure and is not operating cash flow.