JBG SMITH Properties — 2022 Q3 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; filed November 1, 2022. JBG SMITH is a Washington, D.C.-area REIT focused on commercial and multifamily properties, with approximately two-thirds of its portfolio in National Landing, Northern Virginia. Its portfolio included 56 operating assets, two multifamily developments under construction, and additional near- and future-development land.
Financial performance
Amounts below are in millions, except per-share data. Revenue and GAAP results are consolidated; figures may reflect asset sales, acquisitions and other non-recurring items.
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $147.6 | $157.0 | $455.1 | $477.0 |
| Net income (loss) attributable to common shareholders | $(19.3) | $0.9 | $104.0 | $(22.8) |
| Diluted earnings (loss) per share | $(0.17) | $0.00 | $0.86 | $(0.18) |
| Consolidated NOI | $72.9 | $71.2 | $221.0 | $215.5 |
| Nareit FFO attributable to common shareholders | $40.1 | $36.0 | $125.0 | $116.2 |
| Net cash provided by operating activities | Not presented quarterly | $130.4 | $154.4 |
For Q3, property rental revenue fell 4.8% to $119.8 million, principally reflecting dispositions; multifamily revenue growth partly offset lower commercial revenue. Same-store NOI increased 11.5% to $78.1 million in Q3 and 13.0% to $231.5 million for the nine months. Q3 commercial NOI declined 13.3% to $46.4 million, while multifamily NOI rose 53.0% to $24.5 million. The filing does not present a conventional operating-margin measure.
- Cash and liquidity: Cash and cash equivalents were $258.9 million at quarter-end; restricted cash was $213.0 million, bringing combined cash and restricted cash to $471.9 million. The company reported $949.5 million of credit-facility availability, including $50.0 million undrawn under its term loan. It stated that expected operating cash flow, existing cash and financing and disposition sources should meet needs over the next 12 months. The filing also says $188.0 million of restricted cash held by a qualified intermediary was released in October.
- Debt: Consolidated debt was approximately $2.4 billion, versus $2.5 billion at December 31, 2021. This comprised $1.75 billion of mortgages, $550 million of unsecured term loans and $100 million drawn on the revolver at quarter-end. The revolver balance was repaid in October. Mortgage weighted-average effective rates were 4.60% variable and 4.40% fixed; term-loan balances were hedged. The company has material floating-rate exposure, partly offset by swaps and caps.
- Capital allocation: Nine-month investing cash flow was $674.4 million, including $923.1 million of real-estate sale proceeds and $218.8 million of development and property additions. Financing cash outflow was $635.0 million, including $361.0 million of share repurchases and $82.1 million of common dividends paid. A $0.225-per-share quarterly dividend was declared for payment in November.
Material changes and notable items
- Revenue declined year over year, but the drivers differed: commercial rental revenue was reduced by sold properties, while multifamily revenue benefited from higher occupancy, rents and the acquisition of The Batley and Atlantic Plumbing.
- Q3 GAAP results included a $15.4 million impairment recorded through unconsolidated ventures, contributing to a $13.9 million net loss from ventures, compared with $20.5 million of venture income a year earlier. Nine-month results included a $158.6 million gain on real-estate sales and $13.9 million of realized gains on investments; these helped produce positive nine-month GAAP earnings.
- The company sold Universal Buildings, Pen Place and a development parcel, and transferred four commercial assets and related land into a Fortress-affiliated venture. Gross sale prices were $429.3 million for the first group and $580.0 million for the venture transaction. Dispositions and venture activity reduced the commercial portfolio and changed the comparison with 2021.
- Commercial leased and occupied percentages at the company’s share were 88.3% and 85.9% at September 30; multifamily leased and occupied percentages were 95.5% and 93.7%. Management said office leasing recovery remained slow, with delayed return-to-office plans and decision-making expected to weigh on occupancy. Multifamily occupancy improved during the quarter; in-place rents were 8.4% below asking rents, and Q3 renewals achieved a 6.7% rent increase at a 57.1% renewal rate.
- Management reported office leasing of 207,000 square feet at its share during Q3, more than half of it new National Landing leases. Commercial parking revenue was about 79% of pre-pandemic levels.
Outlook, risks and contingencies
- No quantitative earnings or FFO guidance is provided. Management expects to fund operations, debt amortization, capital spending and distributions over the next 12 months through operating cash flow, cash, borrowing capacity, asset sales and recapitalizations. Its stated strategy is to dispose opportunistically of non-core office properties and land, reinvesting proceeds in acquisitions, development and a portfolio increasingly weighted toward multifamily.
- Assets under construction were expected to require a further $468.1 million to complete, primarily over the next two to three years. Committed tenant-related obligations totaled $67.3 million; additional capital commitments and certain recorded guarantees to unconsolidated ventures and other investments totaled $64.0 million.
- Key exposures include office leasing and occupancy uncertainty, higher interest rates and refinancing conditions, construction costs and completion funding, and the availability and cost of insurance. Management noted that insurance may not remain available on equivalent terms and that uninsured losses or deductibles could be material.
- Environmental liabilities were $18.0 million. Ordinary-course legal matters were not expected by management to have a material adverse effect. The company also disclosed potential obligations under guarantees and a tax matters agreement with Vornado; some future guarantee payments are not estimable.
- Management stated that disclosure controls were effective and that there were no material changes to internal control over financial reporting. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of the Q3 and nine-month earnings profile is recurring property performance versus disposition gains, investment gains and venture impairments; review FFO and NOI reconciliations alongside GAAP results.
- Current office leasing, occupancy, tenant concessions and return-to-office trends, particularly in National Landing, and whether multifamily occupancy and rent growth continue.
- Debt maturities, covenants, floating-rate exposure and hedge effectiveness, including the effect of SOFR and benchmark-rate transitions; confirm post-quarter revolver repayment and liquidity.
- Funding and execution of the $468.1 million remaining construction requirement, tenant obligations, venture commitments and any post-quarter acquisitions.
- Whether planned asset sales and capital redeployment support liquidity and the stated portfolio strategy without excessive reliance on dispositions or additional borrowing.