JBG SMITH Properties — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. JBG SMITH is a REIT focused on mixed-use properties in the Washington, D.C. area; approximately 75% of its holdings are in National Landing, Northern Virginia.
Business context and portfolio
- At year-end, the operating portfolio comprised 16 multifamily assets with 6,318 units and 26 commercial assets totaling 8.3 million square feet, plus two land assets. The company also had 1,583 multifamily units under construction and a 17-asset development pipeline with 10.8 million square feet of estimated potential density (8.8 million at its share).
- At JBG SMITH’s share, multifamily assets were 96.0% leased and 94.7% occupied; commercial assets were 86.3% leased and 84.9% occupied.
- Amazon took occupancy of its 2.1-million-square-foot National Landing headquarters in June 2023. Amazon leases across five buildings totaled approximately 927,000 square feet and $41.6 million of annualized rent at year-end.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $604.2 million | $605.8 million |
| Property rental revenue | $483.2 million | $491.7 million |
| Net income (loss) attributable to common shareholders | $(80.0) million; $(0.78) per diluted share | $85.4 million; $0.70 per diluted share |
| Funds from operations (FFO), attributable to common shareholders | $140.4 million | $156.0 million |
| Same-store NOI | $299.9 million | $295.0 million |
| Net cash provided by operating activities | $183.4 million | $178.0 million |
| Net cash used in investing activities | $98.2 million | Net cash provided: $524.0 million |
| Net cash used in financing activities | $158.8 million | $730.1 million |
- Same-store NOI rose 1.6%. Multifamily segment NOI increased 15.5% to $113.5 million, while commercial NOI declined 12.1% to $170.9 million.
- Interest expense increased 43.1% to $108.7 million. The company reported a $90.2 million impairment loss on three commercial assets and a development parcel; gains on real estate sales were $79.3 million, down from $161.9 million.
- Year-end consolidated debt was approximately $2.6 billion, including $1.8 billion of mortgage loans and $782 million outstanding under the revolver and term loans. The weighted-average effective rate was 6.25% on variable-rate mortgages and 4.78% on fixed-rate mortgages. Cash and cash equivalents were $164.8 million; restricted cash was an additional $35.7 million. The company reported $687.5 million of revolver availability at year-end and repaid its $62 million revolver balance in February 2024.
- Debt principal maturities included $123.6 million in 2024 and $595.6 million in 2025. Separately, scheduled debt principal and interest cash requirements were $254.8 million in 2024 and $712.1 million in 2025.
- 2023 dividends totaled $0.675 per common share, compared with $0.90 in 2022. In February 2024, the board declared a quarterly dividend of $0.175 per share. The company repurchased 22.6 million shares for $335.3 million during 2023.
Material changes versus 2022
- Net results shifted from $85.4 million of income attributable to common shareholders to an $80.0 million loss. The filing attributes pressure in part to higher interest expense, impairment charges, lower commercial revenue and greater losses from unconsolidated ventures.
- Commercial property revenue fell 12.2%, primarily due to asset dispositions and lower portfolio occupancy and rents. Multifamily revenue rose 14.8%, reflecting higher occupancy and rents and the consolidation of Atlantic Plumbing and 8001 Woodmont.
- Commercial leased and occupied rates at the company’s share were 86.3% and 84.9%, versus 88.5% and 85.1% at year-end 2022. Multifamily occupancy improved to 94.7% from 93.6%.
- Asset sales generated $281.5 million of cash proceeds in 2023, compared with $928.9 million in 2022. Share repurchases continued, while the annual dividend was reduced.
Outlook, commentary and risks
- Management provided no formal earnings or revenue guidance. It expects asset sales activity to remain reduced in 2024 due to market conditions and anticipates continued weakness in commercial office markets.
- Management expects approximately 750,000 square feet of office space, representing about $36.9 million of annualized rent, to be vacated in 2024. It expects only about 20% of 1.5 million square feet of National Landing office leases expiring in 2024 or month-to-month to be renewed. The company plans to take some older buildings out of service for possible redevelopment or conversion.
- The two multifamily projects under construction require an estimated additional $177.1 million to complete. Their expected deliveries are 1900 Crystal Drive in Q2 2024 and 2000/2001 South Bell Street in Q3 2025. At full loan draw, management expects interest capitalization to end at delivery, increasing annual interest expense by approximately $17.3 million and $14.1 million, respectively.
- Key concentration risks include the Washington, D.C. region, National Landing, office assets, federal government tenants and Amazon. The filing notes Amazon paused construction of its headquarters’ second phase. Federal government tenants generated 12.9% of total rental revenue in 2023; GSA represented 22.7% of annualized rent at the company’s share.
- Other risks include refinancing and interest-rate exposure, lease expirations and re-leasing costs, development costs and delays, climate and environmental liabilities, and reliance on joint-venture partners. The filing identifies a Washington, D.C. Attorney General antitrust lawsuit involving RealPage and multifamily landlords as a litigation risk; management says ordinary-course legal matters are not expected to materially affect results. A $6.0 million litigation settlement gain was recorded in 2023.
- In December 2023, the company announced a proposed sports and entertainment development in National Landing with Monumental Sports & Entertainment and public-sector partners. It remains subject to definitive documentation and government approvals.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter was real estate impairment assessment. No material cybersecurity incident was reported.
Important facts for investors to verify
- Lease outcomes for 2024 expirations and month-to-month space, including Amazon and GSA space, and the timing and financial impact of planned building removals from service.
- Progress on stabilizing the under-construction multifamily assets, remaining completion costs, loan drawdowns and refinancing terms.
- Debt maturities, covenant headroom, interest-rate hedging and the effect of higher interest expense as capitalized interest declines.
- Whether asset sales or recapitalizations can fund development and the planned shift toward a majority-multifamily portfolio in a slow transaction market.
- Assumptions underlying the $90.2 million impairment and the performance of assets and ventures with recorded or potential further impairment exposure.
- Dividend sustainability and capital allocation, including future share repurchases and the level of cash retained for debt, construction and leasing needs.
- Developments in the RealPage litigation, the proposed National Landing sports and entertainment project, and Amazon’s hiring, leasing and headquarters plans.