JBG SMITH Properties — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. JBG SMITH is a Washington, D.C.-area REIT focused on commercial and multifamily properties, with about two-thirds of its portfolio in National Landing. Its operating portfolio included 31 commercial assets and 18 multifamily assets; it also had two multifamily projects under construction.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $153.0 million | $162.0 million | Down 5.6% |
| Net income (loss) attributable to common shareholders | $21.2 million | $(0.03) million | Improved |
| Diluted earnings per share | $0.19 | $0.00 | Improved |
| Consolidated NOI | $77.6 million | $77.0 million | Up 0.8% |
| Same-store NOI | $76.1 million | $76.6 million | Down 0.7% |
| Net cash provided by operating activities | $42.6 million | $69.6 million | Down 38.7% |
| FFO attributable to common shareholders | $33.0 million | $51.3 million | Down 35.7% |
FFO is a non-GAAP measure. Q1 2023 GAAP earnings included a $40.7 million gain on the sale of an 80% interest in 4747 Bethesda Avenue; the sale generated $69.0 million of cash proceeds. The gain makes the year-over-year improvement in GAAP net income less indicative of recurring operations. Interest expense rose 64.9% to $26.8 million, while property rental revenue fell 5.7% to $124.0 million.
Balance sheet, debt and liquidity
- Total assets were $5.84 billion and total liabilities were $2.64 billion at March 31, 2023. Cash and cash equivalents were $279.6 million; including restricted cash, cash totaled $321.9 million.
- Debt principal was approximately $2.4 billion, versus $2.5 billion at year-end. Mortgage loans had $1.818 billion principal outstanding (weighted average effective rates: 5.47% variable and 4.43% fixed); unsecured term loans totaled $550 million. The $1.0 billion revolving facility was undrawn, with $1.0 billion of stated facility availability, including a $50 million term-loan advance expected in May.
- Variable-rate consolidated mortgages totaled $754.3 million. Interest-rate caps on certain mortgages had a weighted average strike of 2.35% and average maturity of August 1, 2023. Management estimated a 1 percentage-point base-rate increase would add $2.5 million to annual interest exposure on those loans.
- Operating cash flow was $42.6 million; investing activities used $26.7 million and financing activities provided $31.9 million. Development and real estate additions used $78.3 million; dividends paid were $25.7 million and share repurchases were $20.1 million.
Material changes and operating trends
- Commercial property revenue declined 17.0% and commercial NOI declined 11.1%, primarily reflecting disposed properties. Multifamily revenue rose 18.7% and NOI rose 16.4%, reflecting acquired properties and higher occupancy and rents, partly offset by operating-cost increases.
- Management reported office leased and occupied rates of 87.6% and 85.2%, respectively, at its share, as of March 31. Multifamily leased and occupied rates were 95.0% and 92.9%. Office occupancy was nearly flat versus year-end; multifamily occupancy declined 70 basis points, which management said is typical for the first quarter.
- The company leased 114,000 square feet of office space during the quarter, over 90% in National Landing. Multifamily renewals achieved a 54.7% renewal rate and 9.3% rent increases for first-quarter expirations.
- Third-party real estate services revenue, including reimbursements, decreased 4.9% to $22.8 million; reported segment revenue less expenses was a $1.0 million loss, compared with a $3.1 million loss a year earlier.
Outlook, risks and contingencies
- Management said operating cash flows, financing, asset-sale and recapitalization proceeds, together with cash balances, are expected to be adequate for operations, debt amortization, capital spending, dividends and distributions over the next 12 months. The filing provides no specific earnings or FFO guidance.
- Management expects reduced asset-sale activity to continue for the rest of 2023 because of constrained lending. It continues construction of two National Landing multifamily properties totaling 1,583 units. Amazon was expected to occupy Metropolitan Park in June 2023; the company reported 1.0 million square feet of Amazon leases across six National Landing office buildings.
- Assets under construction require an estimated additional $346.5 million to complete, primarily over the next three years. Scheduled 2023 debt maturities were $143.0 million on a consolidated basis ($165.0 million at the company’s share). Tenant-related obligations totaled $60.6 million.
- Risks include office leasing delays and 2023 lease expirations (619,000 square feet, plus 40,500 square feet month-to-month), refinancing and interest-rate exposure, construction funding and costs, and the availability and cost of insurance. Environmental liabilities were $18.0 million. Legal matters were described as ordinary-course and not expected by management to materially affect results; guarantees and certain future venture obligations may be difficult to estimate.
- In May 2023, the board increased the share repurchase authorization to $1.5 billion. Through the filing date, the company had repurchased 2.8 million additional shares for $40.1 million and declared a $0.225-per-share quarterly dividend.
Important facts for investors to verify
- How much of the quarter’s reported net income reflects the 4747 Bethesda Avenue sale gain, and what recurring earnings or FFO trends indicate.
- Progress on office leasing, occupied rates and renewals, particularly the 2023 expiration schedule and delayed return-to-office decisions.
- Funding and completion costs for the $346.5 million construction commitment, and the timing and economics of asset sales amid reduced lending activity.
- Debt maturities, variable-rate exposure and mortgage cap expirations, including the expected May term-loan draw and refinancing needs.
- Whether operating cash flow and planned capital recycling can sustain dividends, development spending and further repurchases without weakening liquidity.