JBG SMITH Properties — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared with Q1 2021. JBG SMITH is a Washington, D.C.-area REIT focused on commercial and multifamily real estate, with significant development activity in National Landing, Virginia. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $162.0 | $165.3 |
| Property rental revenue | $131.6 | $122.2 |
| Net loss attributable to common shareholders | $0.03 loss; reported loss per share rounded to $0.00 | $20.7 loss; $0.16 loss per share |
| Consolidated NOI (non-GAAP) | $77.0 | $72.0 |
| Same-store NOI (non-GAAP) | $88.5, up 12.0% | $79.0 |
| Cash from operating activities | $69.6 | $66.5 |
| Cash used in investing activities | $33.0 | $29.5 |
| Cash used in financing activities | $119.5 | $51.8 |
| Cash and restricted cash | $219.2 | $302.1 at Dec. 31, 2021 |
| Debt outstanding | Approximately $2.5 billion | Approximately $2.5 billion at Dec. 31, 2021 |
Revenue declined 2.0% overall as third-party real estate services revenue, including reimbursements, fell 37.1% to $24.0 million, mainly because of lower development fees and reimbursements. Property rental revenue rose 7.7%. Expenses totaled $162.9 million, versus $167.8 million; property operating expense increased 17.0% to $40.6 million. The near break-even net loss included a $13.9 million realized gain from selling equity investments and $5.2 million of the company’s share of gains on assets sold by an unconsolidated venture. These items are not a straightforward measure of recurring property earnings.
Multifamily NOI increased 53.0% to $23.3 million, reflecting The Batley acquisition and higher occupancy and rents. Commercial NOI declined 0.9% to $53.7 million. The company reported FFO attributable to common shareholders, a non-GAAP measure, of $51.3 million versus $42.3 million. FFO is not cash flow or a substitute for GAAP earnings.
At March 31, total assets were $6.32 billion and shareholders’ equity was $2.85 billion. Cash and cash equivalents were $189.1 million; the company reported $699.5 million of availability under its credit facility at quarter-end. Debt included $1.61 billion of mortgages payable net, $300 million drawn on the revolver, and $398.3 million of unsecured term loans net; additional mortgage debt associated with assets held for sale was classified separately. The company repaid $210 million on the revolver in April.
Material changes and portfolio activity
- Operating commercial portfolio leased and occupied rates were 85.2% and 83.3%, respectively, at quarter-end, compared with 87.3% and 86.9% a year earlier. Multifamily leased and occupied rates were 94.1% and 91.6%, compared with 91.5% and 86.6% a year earlier.
- Same-store NOI growth reflected multifamily occupancy, rent and concession improvements, as well as commercial rent collections and parking revenue. Commercial parking revenue was about 65% of its pre-pandemic level.
- The company repurchased 3.3 million shares for $93.1 million during the quarter. Financing cash use also included $28.7 million of common dividends.
- After quarter-end, the company sold the Universal Buildings for $228 million and formed a Fortress-affiliated venture to recapitalize four commercial assets and land parcels at a gross sales price of $580 million. Fortress contributed $131 million for a 66.5% interest; the venture obtained mortgage loans totaling $458 million, of which $402 million was drawn at closing. JBG SMITH said its interest is subordinated to Fortress’s 15% preferred return and it does not anticipate near-term distributions.
- Pen Place, classified as held for sale, was under contract to be sold to Amazon for $198 million, with closing expected in Q2 2022, subject to customary conditions.
Outlook, risks and unusual items
- Management said office leasing recovery remained slow and expected delayed return-to-office plans and decision-making to continue affecting occupancy through 2022. It reported improving multifamily occupancy and expected in-place rents to rise as leases roll; quarter-end in-place rents were about 8.5% below asking rents.
- The company expects operating cash flows, financing, recapitalizations, asset sales and existing cash to fund operations and obligations for the next 12 months. It provided no quantified earnings or FFO guidance in the supplied filing text.
- Assets under construction were expected to require another $569 million over the next two to three years. The company also had $78.6 million of committed tenant-related obligations and $68.6 million of additional capital commitments and certain recorded guarantees to unconsolidated ventures.
- Mortgages of $107.5 million on a consolidated basis, or $194.1 million at the company’s share, were scheduled to mature in 2022. Floating-rate exposure, refinancing conditions and the transition away from LIBOR are risks; the company estimated that a 1% rate increase would raise annual interest expense by approximately $13.4 million across listed consolidated debt and its proportionate share of venture debt.
- Other risks include development execution and funding, property insurance availability and cost, environmental liabilities ($18.2 million recorded), and possible future costs from legal or guarantee obligations. Management said ordinary-course legal matters were not expected to have a material adverse effect and reported no material change to previously disclosed risk factors.
- At the April 29, 2022 annual meeting, shareholders did not approve the named executive officer compensation proposal on a non-binding advisory basis. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Completion and net proceeds of the Universal Buildings sale, Fortress venture recapitalization and Pen Place sale, including the effect of the preferred-return structure and debt repayment.
- Whether office occupancy and leasing improve as return-to-office activity develops, and whether multifamily rent growth translates into sustained NOI gains.
- Funding sources and returns for the $569 million construction requirement, upcoming 2022 maturities and other tenant or venture commitments.
- Recurring operating performance excluding the realized investment gain and venture asset-sale gains; reconcile GAAP results with NOI and FFO non-GAAP measures.
- Capital allocation following substantial share repurchases, the declared $0.225 quarterly dividend, and the shareholder vote opposing executive compensation.