Business context and reporting period
JBG SMITH Properties (NYSE: JBGS), a Maryland REIT focused on commercial, multifamily and related services in the Washington, D.C. region, filed this Form 10-K for the fiscal year ended December 31, 2020. The portfolio is heavily concentrated in National Landing, where the company is Amazon’s exclusive developer for its new headquarters. The filing also reports fourth-quarter 2020 impacts where noted below.
At year-end, the operating portfolio included 62 assets: 41 commercial properties totaling 13.0 million square feet and 21 multifamily properties totaling 7,800 units (11.1 million square feet and 5,999 units, respectively, at JBG SMITH’s share). The company also had 5.6 million square feet of near-term development capacity and 14.8 million square feet in its future development pipeline, at 100% portfolio basis.
Financial and operating performance
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total revenue | $602.7 million | $647.8 million | Down 7.0% |
| Property rental revenue | $459.0 million | $493.3 million | Down 7.0% |
| Net income (loss) attributable to common shareholders | $(62.3) million; $(0.49) per diluted share | $65.6 million; $0.48 per diluted share | Shifted to a loss |
| FFO attributable to common shareholders | $115.9 million | $150.6 million | Down 23.0%; non-GAAP measure |
| Same-store NOI | $287.9 million | $300.9 million | Down 4.3% |
| Net cash from operating activities | $169.0 million | $174.0 million | Down $5.0 million |
| Cash and restricted cash at year-end | $263.3 million | $142.5 million | Includes $225.6 million cash and equivalents |
Commercial NOI declined 16.0% to $206.2 million; multifamily NOI declined 17.0% to $55.1 million. The company does not provide a conventional operating-margin figure in the cited filing text; NOI is a non-GAAP property-level measure.
At year-end, consolidated debt principal was approximately $2.0 billion; including the company’s share of unconsolidated venture debt, debt was approximately $2.4 billion. The company had $998.5 million of remaining credit-facility availability, net of letters of credit. Approximately $678.3 million of consolidated debt was variable-rate exposure; management estimated a 100-basis-point rate increase would add about $6.9 million to annual interest expense, after hedges.
At-share in-service commercial assets were 88.2% leased; in-service multifamily assets were 91.3% leased. Fourth-quarter rent collections were 98.6% for office, 98.7% for multifamily and 72.6% for retail, at the company’s share. The 2020 common dividend was $0.90 per share.
Material changes versus the prior comparable period
- Revenue and earnings weakened amid asset sales and pandemic-related effects. Rental revenue fell $34.3 million, reflecting disposed properties, rent deferrals and credit losses, vacancy at 2100 Crystal Drive, and weaker same-store multifamily performance.
- Same-store NOI fell 4.3%. Management attributed the decline primarily to COVID-19-related lower multifamily occupancy and rents, concessions, higher costs, commercial rent deferrals and lower parking revenue. Commercial same-store NOI was described as flat, as rent-abatement burn-off offset pandemic pressures.
- Interest expense increased 18.3% to $62.3 million, primarily due to higher average borrowing balances, new mortgage debt and lower capitalized interest.
- Net loss included a $10.2 million impairment charge on One Democracy Plaza, including $7.8 million attributable to real estate, and a $6.5 million impairment of the former Marriott Wardman Park venture investment. The company also recorded $11.2 million of credit losses against billed rent and $19.6 million against deferred straight-line rent.
- In 2020, JBG SMITH sold Metropolitan Park to Amazon for $155.0 million, recording a $59.5 million gain, and acquired the Americana parcels for $65.0 million. It repurchased 3.8 million shares for $104.8 million.
Outlook, management commentary and risks
Management expected COVID-19 to continue to negatively affect operations in 2021 and stated that uncertainty prevented reliable operating-result forecasts. It cited depressed near-term leasing, retail tenant stress, multifamily concessions and defaults, reduced parking revenue, higher cleaning costs and potential pressure on tenant collections. Fourth-quarter COVID-19 impact on NOI was estimated at $15.1 million.
Management said it was cautious on the short- and medium-term outlook but saw longer-term demand potential in the Washington region, supported by federal-government activity, Amazon’s planned hiring and Virginia Tech’s Innovation Campus. Management expected regular quarterly dividends in 2021 to be comparable to 2020, subject to Board discretion. The Pen Place sale to Amazon, for approximately $149.9 million, was expected to close in 2021, subject to customary conditions.
Key risks include concentration in the Washington, D.C. market and National Landing; dependence on federal-government tenants and Amazon-related growth; office demand changes from teleworking; retail distress and tenant credit risk; development, entitlement, construction and financing risks; refinancing and interest-rate exposure; REIT qualification and distribution requirements; and environmental, climate, cybersecurity and joint-venture risks. GSA represented 20.4% of total annualized rent at the company’s share, and the federal government accounted for 23.4% of commercial-segment rental revenue.
The company reported no mortgage-loan or credit-facility defaults at year-end. Construction commitments were estimated at $18.9 million; committed tenant-related obligations were $56.1 million, with timing and payment conditions uncertain. Environmental liabilities were $18.2 million. Management and the auditor reported effective internal control over financial reporting; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether office, multifamily and especially retail rent collection and leasing recover, and how deferred-rent receivables and credit losses develop.
- Whether Amazon’s hiring and occupancy plans, Virginia Tech’s campus, and planned regional infrastructure investment proceed on expected timelines.
- Execution and funding of the development pipeline, including the Pen Place sale, and the company’s planned shift toward a majority-multifamily portfolio.
- Debt maturities, refinancing terms, covenant headroom and the transition from LIBOR to an alternative reference rate; the filing reports $103.4 million of 2021 mortgage maturities at the company’s share.
- Whether operating cash flow supports dividends, development spending and share repurchases; the stated 2021 dividend outlook is an expectation, not a commitment.