JBG SMITH Properties — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods unless noted. JBG SMITH is a Washington, D.C.-area commercial and multifamily REIT, including the National Landing development partnership with Amazon. Amounts below are in millions except per-share data and percentages.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $151.0 | $167.1 | $454.1 | $482.9 |
| Net income (loss) attributable to common shareholders | $(22.8) | $9.4 | $(16.6) | $31.2 |
| Diluted earnings (loss) per share | $(0.18) | $0.06 | $(0.14) | $0.23 |
| Consolidated NOI | $66.8 | $77.8 | $205.5 | $232.8 |
| FFO attributable to common shareholders | $32.4 | $45.6 | $92.9 | $120.2 |
| Net cash from operating activities | Not separately reported for quarter | $127.9 | $112.6 |
Q3 revenue fell 9.6%; common-shareholder results swung to a loss. Nine-month results also turned to a loss, despite a $59.5 gain on the Metropolitan Park sale; 2019 included $47.1 in real-estate sale gains. Same-store NOI declined 4.4% in Q3 and 1.7% for nine months. Management’s non-GAAP FFO declined 29% and 23%, respectively.
At September 30, total assets were $6.28 billion and total equity was $3.37 billion. Cash and cash equivalents were $455.1; including restricted cash, cash totaled $492.7. Debt outstanding was approximately $2.1 billion, up $473.4 from year-end 2019. Mortgages payable, net, were $1.69 billion and unsecured term loans, net, were $397.8; the revolving facility had no borrowings. Reported remaining credit-facility availability was $998.5, net of letters of credit.
Business and operating changes
- Q3 property rental revenue declined 4.3%, reflecting disposed properties, COVID-related rent deferrals and collection losses, and weaker same-store multifamily performance; recently placed-in-service properties and Amazon-leased space partly offset declines.
- Third-party real-estate services revenue, including reimbursements, fell 22.0% in Q3 and 8.6% for nine months, including lower development, management and leasing fees.
- Commercial NOI fell 12.1% in Q3 and 11.9% for nine months. Multifamily NOI fell 21.0% and 5.3%, respectively, as lower occupancy, concessions, rents and COVID-related costs outweighed contributions from newer properties.
- At the company’s share, operating commercial portfolio leased and occupied rates were 88.4% and 85.3%; multifamily rates were 83.0% and 76.6%. Newly delivered multifamily assets weighed on reported occupancy.
- Third-quarter rent collections were 99.3% for commercial office, 98.6% for multifamily and 66.5% for retail on a consolidated basis. Retail collection weakness was pronounced versus the 98.4% 2019 historical average.
Liquidity, capital allocation and outlook
- Nine-month operating cash flow was $127.9; investing used $57.7 and financing provided $280.0. Cash and restricted cash increased $350.2 from year-end 2019.
- Investing included $245.5 of development and property additions, $154.5 of real-estate sale proceeds and $70.8 of venture distributions. Financing included new mortgage and term-loan borrowings, repayment of revolving-credit draws, $90.3 of common dividends and $74.4 of share repurchases.
- Management said existing cash, operating cash flow and anticipated financing, recapitalization and asset-sale proceeds should cover operating needs, debt amortization, capital expenditures and distributions for the next 12 months. It deferred approximately $69 million of planned discretionary capital expenditures on a consolidated basis ($73 million at its share).
- Management expected COVID-19 to continue adversely affecting operations through the remainder of 2020 and into 2021, and said the outlook remained difficult to predict. It anticipated pressure on leasing, retail collections, parking revenue, multifamily occupancy and concessions, and hotel-related income. No specific earnings or FFO guidance was provided.
- The company expected Pen Place’s sale to Amazon to close in 2021. Construction projects were generally active and on schedule, except 7900 Wisconsin Avenue, whose expected delivery had shifted to Q1 2021. Construction at 1900 Crystal Drive was paused, with a 2021 start anticipated. The company said it would be difficult to achieve its 2020 target of $200 million in asset sales or recapitalizations.
- On October 1, 2020, the company transferred its interest in the Marriott Wardman Park venture to its partner after recording a $6.5 impairment in Q2. The board declared a $0.225-per-share quarterly dividend on October 29, payable November 30, 2020.
Risks, contingencies and unusual items
- COVID-19 drove rent deferrals, tenant credit losses, lower parking income, reduced leasing activity and increased cleaning costs. The filing recorded $7.9 of billed-rent credit losses and $4.5 of deferred-rent credit losses for the first nine months, as well as $2.4 of reserves against a bankrupt parking operator’s receivables.
- Unconsolidated-venture results included the Marriott Wardman Park impairment and a $3.0 share of the Woodglen sale loss. The nine-month loss from unconsolidated ventures was $17.1.
- Variable-rate debt, refinancing needs and debt covenants pose risks; $97.1 of consolidated mortgages ($211.8 at the company’s share) were scheduled to mature before the end of 2021. The filing also highlights LIBOR transition uncertainty.
- Commitments included $34.0 to complete construction in progress and $56.9 of additional capital commitments and certain recorded guarantees to unconsolidated ventures. Consolidated-entity principal payment guarantees were $8.3. Environmental liabilities were $17.9; management said ordinary-course legal matters were not expected to be material.
- Management cited uncertainty around pandemic duration, tenant solvency, eviction restrictions, asset impairment and rent-receivable collectability, capital-market access, construction delays, and potential effects on the company’s walkable, transit-oriented “Placemaking” strategy.
Investor verification priorities
- Track retail rent collections, tenant concessions, credit losses and subsequent rent recovery, alongside office and multifamily leasing and occupancy.
- Verify the timing, proceeds and conditions for the expected 2021 Pen Place sale and progress on the development pipeline.
- Assess debt maturities, covenant headroom, interest-rate exposure, liquidity availability and the ability to fund capital needs without relying on asset sales.
- Monitor whether deferred discretionary spending, the quarterly dividend and share repurchases remain consistent with operating cash generation.
- Review subsequent-period results for further COVID-related impairments, venture obligations, construction delays and changes in management’s outlook.