JBG SMITH Properties — Q3 2021 Form 10-Q
Business context and reporting period
For the quarter and nine months ended September 30, 2021. JBG SMITH is a Washington, D.C.-area REIT focused on commercial and multifamily real estate, with more than half its portfolio in National Landing, Virginia. It also provides third-party real estate services. Unless otherwise noted, dollar amounts below are in millions.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $157.0 | $151.0 | $477.0 | $454.1 |
| Net income (loss) attributable to common shareholders | $0.9 | $(22.8) | $(22.8) | $(16.6) |
| Diluted earnings (loss) per share | $0.00 | $(0.18) | $(0.18) | $(0.14) |
| Consolidated NOI | $71.2 | $66.8 | $215.5 | $205.5 |
| FFO attributable to common shareholders | $36.0 | $32.4 | $116.2 | $92.9 |
- Q3 property rental revenue rose 6.1% to $125.9 million; third-party services revenue, including reimbursements, declined 4.2% to $25.8 million.
- Same-store NOI was essentially flat year over year at $72.7 million in Q3; it declined 3.3% to $223.3 million for the nine-month period.
- Nine-month cash from operations was $154.4 million, versus $127.9 million a year earlier. Investing activities used $96.8 million and financing activities used $91.8 million.
- Cash and cash equivalents were $194.3 million, plus $34.9 million of restricted cash, at September 30. Net real estate was $4.68 billion and total assets were $6.01 billion.
- Consolidated debt was approximately $2.07 billion: $1.68 billion of mortgages and $400 million of term loans; the $1.0 billion revolving facility was undrawn. The company reported $998.6 million of facility availability, net of letters of credit. Mortgage weighted-average effective rates were 2.08% variable and 4.32% fixed; term-loan rates were fixed through swaps.
Material changes versus comparable periods
- Q3 returned to a small common-shareholder profit from a substantial year-earlier loss, helped principally by a $23.1 million share of a gain on the sale of 500 L’Enfant Plaza through an unconsolidated venture. Nine-month common-shareholder losses widened to $22.8 million from $16.6 million.
- Nine-month revenue rose 5.0%; property rental revenue increased 4.6%, while development-fee timing helped lift third-party services revenue 8.1%. Depreciation and amortization rose 13.0% and interest expense rose 12.7% year over year.
- Consolidated NOI increased 6.5% for the nine months. Commercial NOI rose 6.8%; multifamily NOI was nearly unchanged. Same-store NOI fell, reflecting office occupancy and parking weakness and multifamily rent concessions, partly offset by lower cleaning costs and improved rent collections.
- Operating commercial portfolio occupancy was 82.6% at September 30, down from 84.4% at June 30 and 85.3% a year earlier. Multifamily occupancy improved to 90.2%, from 86.3% at June 30 and 76.6% a year earlier.
- The company repurchased 2.9 million shares for $88.1 million in the first nine months, paid $88.9 million in common dividends, and invested $108.4 million in development and property additions.
Outlook, risks, contingencies and unusual items
- Management expects operating cash flow, existing cash and proceeds from financings, recapitalizations and asset sales to fund operations, debt service, capital spending and distributions for the next 12 months. It cautioned that COVID-19 makes 2021 results difficult to predict and could materially reduce revenue, NOI, net income or FFO. No specific earnings or FFO guidance was provided.
- Management expected continued pressure on office occupancy through year-end and into 2022, citing delayed office returns and regional vacancy. Commercial parking revenue remained about 60% below pre-pandemic levels. Multifamily demand, occupancy and market rents were improving.
- The company plans opportunistic sales or recapitalizations, including at least $1.4 billion of additional non-core office assets and land over time, to fund growth and shift the portfolio toward majority multifamily. Pen Place’s sale to Amazon was expected in Q2 2022. The company had agreed to acquire the 432-unit Batley for approximately $205 million, expected to close in 2021, as a like-kind exchange replacement property.
- Development commitments included $320.3 million of estimated remaining costs over roughly three years. Additional commitments included $76.9 million of tenant-related obligations and $66.1 million of capital commitments and certain recorded guarantees to unconsolidated ventures. Payment timing and amounts may depend on conditions.
- Variable-rate mortgages totaled $762.2 million; the filing estimates a 1% base-rate increase would add about $7.7 million to annual interest expense on these consolidated mortgages. LIBOR transition uncertainty could affect borrowing costs and contracts. Derivatives had a $28.4 million fair-value liability, and $14.6 million of hedge losses was expected to be reclassified to interest expense within 12 months.
- Unusual items included an $11.3 million gain on contributed land and a $17.5 million accelerated venture-partner promote payment; $4.2 million of that promote was paid to certain trustees and executives. Q3 also included a $1.4 million impairment of an unconsolidated venture investment. Environmental liabilities were $18.2 million; management said ordinary-course legal matters were not expected to have a material adverse effect.
- The board declared a $0.225 per-share quarterly dividend payable November 24, 2021. Disclosure controls were assessed as effective, and management reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether office occupancy, return-to-office activity and parking revenue stabilize, and whether multifamily occupancy and rents continue to recover.
- How much of the reported profit and FFO improvement reflects recurring property operations versus venture-sale gains and other nonrecurring items.
- Progress and realized pricing on planned asset sales, the Pen Place transaction timing, and the Batley acquisition and like-kind exchange plan.
- Funding sources and returns for the $320.3 million construction requirement, share repurchases, dividends and venture commitments, alongside debt maturities and refinancing terms.
- COVID-19-related rent deferrals, tenant collectability, LIBOR transition exposure, guarantees, and potential changes in environmental or other contingent obligations.