JBG SMITH Properties — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. JBG SMITH is a REIT focused on mixed-use properties in the Washington, D.C. area, with approximately 75% of holdings in National Landing. Its portfolio includes multifamily and commercial properties, development projects, and a fee-based real estate services business.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $145.2 million | $153.0 million; down 5.1% |
| Net income (loss) attributable to common shareholders | $(32.3) million; $(0.36) per diluted share | $21.2 million; $0.19 per diluted share |
| Operating cash flow | $37.0 million | $42.6 million |
| Investing cash flow | $123.6 million provided | $26.7 million used |
| Financing cash flow | $100.8 million used | $31.9 million provided |
| Cash and cash equivalents | $220.5 million | $164.8 million at Dec. 31, 2023 |
| Consolidated NOI | $67.0 million | $77.6 million; down 13.7% |
| Same-store NOI | $75.7 million | $71.1 million; up 6.5% |
| Debt | $2.6 billion outstanding, as reported by the company | $2.6 billion at Dec. 31, 2023 |
Property rental revenue was $122.6 million, down 1.1%. Third-party real estate services revenue, including reimbursements, declined 21.6% to $17.9 million; related expenses were $22.3 million, resulting in revenue less expenses of $(4.5) million. Interest expense rose 12.4% to $30.2 million. The company recorded a $17.2 million impairment on a development parcel. Q1 2023 included $40.7 million of gains on property sales, a major factor in the year-over-year shift to a net loss.
Multifamily NOI increased 4.4% to $28.3 million, while commercial NOI declined 23.0% to $36.7 million. Multifamily portfolio occupancy was 94.3% and leased occupancy was 95.9% at March 31; office occupancy was 83.1% and leased occupancy was 84.6%. Multifamily renewals achieved a 9.4% effective rent increase with a 52.4% renewal rate.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $220.5 million; restricted cash was an additional $39.8 million. The company reported $749.5 million of availability on its $750 million revolving facility, with $467,000 of letters of credit outstanding and no revolver borrowings at quarter-end.
- Mortgage loans totaled $1.831 billion before unamortized costs, and term loans totaled $720 million. A $120.9 million mortgage loan was scheduled to mature in 2024; a $200 million term loan matures in January 2025, with extension options. The company expects liquidity from operations, cash, asset sales, recapitalizations and financing to cover needs over the next 12 months.
- Variable-rate mortgage debt had a 6.31% weighted average effective rate; the company uses interest-rate caps and swaps. It estimated that a 1% increase in base rates would increase annual interest expense by $1.4 million on variable-rate mortgage loans.
- The company repurchased 3.0 million shares for $49.4 million at an average $16.50 per share and paid $16.1 million in common dividends. The board declared a further $0.175 quarterly dividend, payable May 24, 2024.
- Development assets under construction require an estimated additional $134.4 million to complete, primarily over the next two years. Committed tenant-related obligations were $33.4 million.
Material changes, outlook and risks
- Commercial revenue and NOI were pressured by asset dispositions, lower occupancy and rents, and the removal of 1800 South Bell Street from service. Management cited ongoing office-market weakness, hybrid work and tenants seeking more flexible space. It plans to take 2100 Crystal Drive out of service after Amazon vacates in Q2 2024 and is phasing 2200 Crystal Drive out of service as leases expire; these buildings may be redeveloped or converted to other uses.
- Multifamily occupancy declined 40 basis points from year-end 2023. 1900 Crystal Drive began leasing in January 2024, with remaining units expected to deliver in Q2 2024; 2000/2001 South Bell Street is expected to deliver in Q3 2025.
- Management expects interest expense to increase as under-construction assets are delivered and interest capitalization ends. It expects asset-sale activity to remain slower in 2024 because of market conditions, while continuing to pursue sales, recapitalizations and joint ventures as capital-allocation options. The filing provides no specific full-year earnings or FFO guidance.
- Q1 investing cash flow benefited from $160.3 million of capital distributions from unconsolidated ventures and other investments, primarily related to the sale of Central Place Tower by a venture. JBG SMITH’s North End Retail sale generated $12.4 million in cash proceeds. Its investment in unconsolidated ventures fell to $104.8 million from $264.3 million, principally following the Central Place Tower transaction.
- In April 2024, the lender foreclosed on The Foundry; JBG SMITH had a zero investment balance and had discontinued equity-method accounting. The filing says the company does not expect routine legal proceedings to have a material adverse effect. Environmental liabilities were $17.6 million; future remediation costs could differ from estimates.
- Additional risks include refinancing and interest-rate exposure, continued office-market weakness, execution and funding of development, potential insurance-cost or coverage changes, and guarantees or commitments to ventures. Guarantees and commitments to unconsolidated ventures and other investments totaled $58.7 million; consolidated-entity debt principal payment guarantees totaled $8.3 million.
Important facts for investors to verify
- Whether multifamily leasing and rent growth can offset continuing commercial occupancy and rent pressure, including the impact of taking office buildings out of service.
- How the 2024 mortgage maturity and January 2025 term-loan maturity will be refinanced or repaid, and the effect of higher rates on interest expense.
- Whether asset sales, venture distributions and other planned capital sources can fund the $134.4 million remaining construction requirement and other obligations if transaction markets remain slow.
- The sustainability of operating cash flow and the $0.175 quarterly dividend in light of the net loss, share repurchases and development spending.
- Subsequent updates on The Foundry foreclosure, venture exposures and guarantees, and any material environmental or insurance developments.