JBG SMITH Properties — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited and prepared under U.S. GAAP. JBG SMITH is a Washington, D.C.-area REIT focused on commercial and multifamily properties, with substantial exposure to National Landing and Amazon’s planned headquarters. Its operating portfolio comprised 63 assets: 42 commercial properties and 21 multifamily properties.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $165.3 million | $158.1 million; up 4.5% |
| Property rental revenue | $122.2 million | $120.4 million; up 1.5% |
| Third-party real estate services revenue, including reimbursements | $38.1 million | $29.7 million; up 28.2%, largely from higher development fees |
| Net income (loss) attributable to common shareholders | $(20.7) million; $(0.16) per diluted share | $42.9 million; $0.32 per diluted share |
| Consolidated NOI (non-GAAP) | $72.0 million | $74.1 million |
| Same-store NOI (non-GAAP) | $75.9 million | $83.6 million; down 9.2% |
| Net cash provided by operating activities | $66.5 million | $41.9 million |
| Cash and restricted cash at period end | $248.5 million | $314.0 million at March 31, 2020 |
The 2020 earnings comparison included a $59.5 million gain on the sale of Metropolitan Park; there was no comparable sale gain in Q1 2021. Q1 2021 expenses included $64.7 million of depreciation and amortization, up 33.5%, and $16.3 million of interest expense, up 35.7%. Higher depreciation included write-offs and newly placed-in-service properties; higher interest expense was principally associated with lower capitalized interest and higher average debt balances.
Operating cash flow increased year over year. Investing activities used $29.5 million, mainly for $28.5 million of development and real estate additions; financing activities used $51.8 million, including $29.7 million of common dividends and $19.2 million of share repurchases. Balance-sheet assets were $6.02 billion and total equity was $3.18 billion at March 31, 2021.
Debt and liquidity
- Consolidated debt was approximately $2.0 billion: $1.60 billion of mortgage principal and $400 million of unsecured term loans. The $1.0 billion revolving facility had no borrowings; reported availability was $998.5 million, net of letters of credit.
- Cash and cash equivalents were $208.7 million, with another $39.8 million restricted. Management said cash flows from operations, financing, recapitalizations and asset sales, together with cash balances, were expected to fund operations and planned needs over the next 12 months.
- No consolidated debt was scheduled to mature in 2021. A $102.1 million mortgage at the company’s share in an unconsolidated venture was due in 2021; the venture extended its maturity to May 2023 in April 2021.
- Variable-rate consolidated mortgages totaled $677.2 million. Management estimated that a 1 percentage-point rate increase would add approximately $6.9 million to annual interest expense on this debt, before considering other exposures and hedges. The company also disclosed LIBOR transition uncertainty.
Material changes and operating trends
- Commercial NOI was $57.5 million, up 0.7%; lower parking revenue, down $3.7 million or 46.5% company-wide, was offset by contributions from properties newly placed in service and higher occupancy at certain assets.
- Multifamily NOI fell 15.0% to $15.2 million, reflecting lower occupancy, concessions, lower rents, higher operating costs and increased uncollectible receivables; newly delivered units partly offset the decline.
- At the company’s share, commercial properties were 87.3% leased and 86.9% occupied, versus 91.0% and 88.7% a year earlier. Multifamily properties were 91.0% leased and 85.9% occupied, versus 87.0% and 84.5% a year earlier. The in-service multifamily portfolio was 92.3% leased and 88.4% occupied.
- Services revenue growth was driven by development fees, which increased $11.4 million year over year. Management reported $55.9 million of estimated development fee revenue expected to be recognized over the next six years as performance obligations are completed.
Outlook, risks and contingencies
Management provided no specific numerical earnings or operating guidance. It expected COVID-19 to continue to weigh on operations in 2021 and cautioned that uncertainty could result in material declines in revenue, net income, NOI or FFO. The filing identifies pressure from retail rent deferrals and credit losses, reduced office and parking demand, delayed leasing, multifamily concessions, and lower hotel occupancy. Management also noted that longer-term remote-work trends may constrain office rent growth, while describing the Washington, D.C. market, federal activity and Amazon-related demand as potential sources of resilience.
- Q1 rent collections were 99.5% for commercial office tenants, 98.9% for multifamily tenants and 76.4% for retail tenants on a consolidated basis. Retail remained notably below its 98.4% 2019 average. The filing cautions that collections to date may not indicate future performance.
- Construction in progress was expected to require another $351.3 million to complete, primarily over four years. Committed tenant-related obligations totaled $58.2 million; capital commitments and certain recorded guarantees to unconsolidated ventures totaled $53.8 million.
- Environmental liabilities were $18.2 million. The company reported $8.3 million of principal payment guarantees for consolidated entities and no principal payment guarantees for unconsolidated ventures, while other completion, carve-out and contingent guarantees may apply.
- For the 1900 Crystal Drive project, the company consolidated a VIE and provided a completion guarantee and certain carve-outs. The planned project is an 808-unit multifamily development; the related mortgage could have a maximum principal balance of $227 million, but no loan proceeds had been received by quarter-end.
- Pen Place, carried as held for sale at $73.9 million, was expected to be sold to Amazon in 2021. In April, the company also entered two 50%-owned Potomac Yard ventures for approximately 2.0 million square feet of mixed-use development; an approximately $17.5 million promote payment was expected, including $4.3 million to certain trustees and executives.
- Management stated that ordinary-course legal proceedings were not expected to have a material adverse effect. Insurance availability and cost, environmental matters, debt refinancing, and the transition away from LIBOR remain risks.
The Board declared a quarterly dividend of $0.225 per common share on April 29, 2021, payable May 27, 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether retail rent collections, tenant credit losses and occupancy recover as pandemic-related conditions change, and whether disclosed collection rates include deferrals and abatements consistently.
- How much of the year-over-year earnings decline reflects the absence of the prior-year property-sale gain versus underlying operating performance; review GAAP results alongside NOI and FFO, which are non-GAAP measures.
- Execution, financing and remaining commitments for the development pipeline, including the $351.3 million estimated completion cost, 1900 Crystal Drive guarantees and the planned Pen Place sale.
- Debt exposure, covenant headroom, refinancing requirements and the financial and contractual consequences of LIBOR replacement.
- Timing and collectability of development fees, tenant obligations and venture commitments, as well as the terms and governance of the Potomac Yard promote arrangement.