JBG SMITH Properties — Q1 2020 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2020, compared with Q1 2019. JBG SMITH is a REIT focused on commercial and multifamily properties in the Washington, D.C. region. Its operating portfolio included 44 commercial assets and 20 multifamily assets; four properties were under construction. Results reflect the initial effects of COVID-19, which the company said were expected to weigh on operations during 2020 and possibly into 2021.
Financial performance and liquidity
Amounts below are in millions, except per-share data.
| Metric | Q1 2020 | Q1 2019 | Change or context |
|---|---|---|---|
| Total revenue | $158.1 | $155.2 | Up 1.9% |
| Net income attributable to common shareholders | $42.9 | $24.9 | Includes real estate sale gains of $59.5 and $39.0, respectively |
| Diluted EPS | $0.32 | $0.20 | Higher in part due to sale gain |
| FFO attributable to common shareholders | $36.7 | $35.1 | $0.27 vs. $0.28 per diluted share |
| Consolidated NOI | $74.1 | $76.5 | Down 3.1% |
| Same-store NOI | $78.5 | $74.6 | Up 5.2% |
| Cash from operating activities | $41.9 | $17.9 | Improved year over year |
| Cash from investing activities | $43.9 | $44.2 | Included $154.5 of property-sale proceeds and $107.0 of development and real estate additions |
| Cash from financing activities | $85.7 | $(48.2) | Included debt activity, share repurchases and dividends |
Property rental revenue rose 0.8% to $120.4 million; third-party real estate services revenue, including reimbursements, rose 7.3% to $29.7 million. Interest expense fell 30.1% to $12.0 million. Commercial NOI declined 4.2%, primarily reflecting asset sales, while multifamily NOI rose 6.4%, supported by F1RST Residences and increased occupancy. FFO and NOI are non-GAAP measures and should be considered alongside GAAP results.
At March 31, cash and cash equivalents were $295.4 million, plus $18.6 million of restricted cash. Total debt was approximately $1.8 billion: $1.3 billion of mortgages, $200 million drawn on the revolving facility and $300 million of unsecured term loans. The company reported $3.5 billion of shareholders’ equity. It entered a $175 million mortgage during the quarter. After quarter-end, it drew another $300 million on the revolver and $100 million under a term loan; following the revolver draw, reported remaining facility availability was $498.5 million, net of letters of credit.
Material changes and operating developments
- Metropolitan Park was sold to Amazon in January for approximately $155.0 million, generating a $59.5 million gain. The sale was part of a like-kind exchange. The sale of Pen Place to Amazon, under a $149.9 million agreement, was expected to close in 2021.
- Development, construction in progress and real estate additions used $107.0 million, versus $68.7 million in Q1 2019. Construction in progress required a further estimated $114.6 million to complete, primarily over the following one to two years.
- The company repurchased 1.4 million shares for $41.2 million, averaging $29.01 per share, under a newly authorized $500 million repurchase program. It said repurchases were kept modest to preserve liquidity during the early crisis period.
- Common dividends paid were $30.2 million. A $0.225-per-share quarterly dividend was declared April 30, payable May 27, 2020.
- Same-store NOI growth was attributed mainly to improved occupancy and the burn-off of rent abatements. The operating commercial portfolio was 91.0% leased and 88.7% occupied at the company’s share; the operating multifamily portfolio was 87.0% leased and 84.5% occupied, with recently delivered properties affecting the latter figures.
Outlook, risks and contingencies
- COVID-19 and collections: The company expected reduced retail income, apartment rental defaults, lower parking revenue, depressed near-term leasing, coworking tenant distress, added cleaning costs, hotel-related weakness and possible development delays. Preliminary April collections were 96.7% for commercial office, 96.1% for multifamily and 50.9% for commercial retail on a consolidated basis. Parking revenue fell approximately 54% from the Q1 monthly average. The company cautioned that these early figures do not predict longer-term collections; most relief granted had been structured as rent deferrals, and further concessions were expected.
- Uncertain outlook: Management said the scale and duration of the pandemic’s effects were uncertain and that it could not reliably predict the remainder of 2020. It warned that revenue, net income, NOI and FFO could decline materially. No specific full-year earnings guidance is provided in the filing text.
- Liquidity measures and projects: Planned discretionary operating-asset capital expenditures of approximately $69 million consolidated ($73 million at the company’s share) were deferred. Plans to start 1900 Crystal Drive were paused. As of April 30, most construction projects were reported active and on schedule, except 7900 Wisconsin Avenue, delayed two quarters. The company said it expected to fund operations and obligations over the next 12 months through operating cash flows, cash, financings, asset sales and recapitalizations, while warning of possible reduced cash flow and tighter capital markets.
- Debt and other exposures: Lower operating performance could impair covenant compliance or access to further borrowing. The company had $57.5 million of capital commitments and certain recorded guarantees to unconsolidated ventures, $8.3 million of principal payment guarantees for consolidated entities, and $17.9 million of environmental liabilities. Ordinary-course legal matters were not expected by management to have a material adverse effect. The company also identified interest-rate and LIBOR-transition risks.
- Unusual items: Q1 transaction and other costs included a $4.0 million charitable commitment to the Washington Housing Conservancy. Derivative-related accumulated other comprehensive loss increased; the company expected $16.0 million to be reclassified as higher interest expense within 12 months. Disclosure controls were reported effective, with no material quarter-over-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent rent collections, tenant deferrals and concessions, receivable reserves and write-offs, especially for retail and multifamily tenants.
- Whether post-quarter borrowing, cash balances and facility availability remain adequate as operating cash flow and capital-market access evolve.
- Debt maturities, refinancing progress, covenant headroom and the cost of debt following additional borrowing.
- Actual construction costs, delivery schedules and the funding required for the $114.6 million remaining construction commitment.
- Whether Pen Place closes on expected terms and whether planned asset sales or recapitalizations proceed at acceptable values.
- How reported GAAP earnings compare with recurring performance, given the material property-sale gains; also confirm definitions and comparability of FFO, NOI and same-store NOI.