JBG SMITH Announces Third Quarter 2019 Results

Published

CHEVY CHASE, Md.--(BUSINESS WIRE)-- JBG SMITH (NYSE: JBGS), a leading owner and developer of high-quality, mixed-use properties in the Washington, DC market, today filed its Form 10-Q for the quarter ended September 30, 2019 and reported its financial results.

Additional information regarding our results of operations, properties and tenants can be found in our Third Quarter 2019 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com.

Third Quarter 2019 Financial Results

  • Net income attributable to common shareholders was $9.4 million, or $0.06 per diluted share.
  • Funds From Operations (“FFO”) attributable to common shareholders was $45.6 million, or $0.34 per diluted share.
  • Core Funds From Operations (“Core FFO”) attributable to common shareholders was $58.7 million, or $0.44 per diluted share.

Nine Months Ended September 30, 2019 Financial Results

  • Net income attributable to common shareholders was $31.2 million, or $0.23 per diluted share.
  • FFO attributable to common shareholders was $120.2 million, or $0.93 per diluted share.
  • Core FFO attributable to common shareholders was $157.4 million, or $1.22 per diluted share.

Operating Portfolio Highlights

  • Annualized Net Operating Income (“NOI”) for the three months ended September 30, 2019 was $313.2 million, compared to $322.0 million for the three months ended June 30, 2019, at our share.
  • The operating commercial portfolio was 90.2% leased and 86.8% occupied as of September 30, 2019, compared to 90.3% and 86.0% as of June 30, 2019, at our share.
  • The operating multifamily portfolio was 96.5% leased and 94.9% occupied as of September 30, 2019, compared to 98.0% and 95.0% as of June 30, 2019, at our share.
  • Executed approximately 243,000 square feet of office leases at our share in the third quarter, comprising approximately 90,000 square feet of new leases and approximately 153,000 square feet of second generation leases, which generated a 4.7% rental rate increase on a GAAP basis and a 2.2% rental rate increase on a cash basis.
  • Executed approximately 1.4 million square feet of commercial leases at our share during the nine months ended September 30, 2019, comprising approximately 765,000 square feet of new leases and approximately 658,000 square feet of second generation leases, which generated a 5.0% rental rate increase on a GAAP basis and a 0.3% rental rate increase on a cash basis. The new leases include leases totaling approximately 585,000 square feet to date at four office buildings in our National Landing portfolio executed by Amazon.com, Inc. ("Amazon") in conjunction with the establishment of their additional headquarters. In March 2019, we executed three initial leases with Amazon totaling approximately 537,000 square feet at three of our existing office buildings in National Landing. These three initial leases encompass approximately 88,000 square feet at 241 18th Street South, approximately 191,000 square feet at 1800 South Bell Street and approximately 258,000 square feet at 1770 Crystal Drive. We expect Amazon to begin moving into 241 18th Street South and 1800 South Bell in 2019 and 1770 Crystal Drive by the end of 2020. In April 2019, we executed a lease with Amazon for an additional approximately 48,000 square feet of short-term office space at 2345 Crystal Drive in National Landing. Amazon took occupancy of the space at 2345 Crystal Drive during the second quarter of 2019 and moved its first employees into National Landing.
  • Same Store Net Operating Income (“SSNOI”) at our share decreased 8.4% to $72.0 million for the three months ended September 30, 2019, compared to $78.6 million for the three months ended September 30, 2018. SSNOI decreased 9.5% to $217.7 million for the nine months ended September 30, 2019, compared to $240.5 million for the nine months ended September 30, 2018. The decrease in SSNOI for the three months ended September 30, 2019 is largely attributable to increased rental abatements, rent reductions and an increase in assumed lease liability payments. The lease renewals we executed in 2017 and 2018 have reduced our NOI in 2019, primarily due to free rent associated with these early renewals. Excluding the impact of any future capital recycling activity, as the free rent in these leases burns off and our under construction assets deliver, we expect our NOI to grow and surpass 2018 levels by the second half of 2020. The reported same store pools as of September 30, 2019 include only the assets that were in service for the entirety of both periods being compared.

Development Portfolio Highlights

Under Construction

  • During the quarter ended September 30, 2019, there were eight assets under construction (four commercial assets and four multifamily assets), consisting of 821,099 square feet and 1,298 units, both at our share.
  • During the quarter ended September 30, 2019, we completed construction of West Half, a 465-unit multifamily asset located in the Ballpark submarket of Washington, DC.

Near-Term Development

  • As of September 30, 2019, there were no assets in near-term development.

Future Development Pipeline

  • As of September 30, 2019, there were 40 future development assets consisting of 18.7 million square feet of estimated potential density at our share, including the 4.1 million square feet held for sale to Amazon.

Third-Party Asset Management and Real Estate Services Business

For the three months ended September 30, 2019, revenue from third-party real estate services, including reimbursements, was $34.6 million. Excluding reimbursements and service revenue from our interests in consolidated and unconsolidated real estate ventures, revenue from our third-party asset management and real estate services business was $18.9 million, of which $6.8 million came from development fees, $5.4 million came from property management fees, $3.5 million came from asset management fees, $2.0 million came from leasing fees, $0.4 million came from construction management fees and $0.9 million came from other service revenue.

Balance Sheet

  • We had $1.7 billion of debt ($2.0 billion including our share of debt of unconsolidated real estate ventures) as of September 30, 2019. Of the $2.0 billion of debt at our share, approximately 88% was fixed-rate and rate caps were in place for approximately 67% of our floating rate debt.
  • The weighted average interest rate of our debt at share was 4.19% as of September 30, 2019.
  • At September 30, 2019, our total enterprise value was approximately $7.6 billion, comprising 149.3 million common shares and units valued at $5.9 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.0 billion, less cash and cash equivalents at our share of $237.3 million.
  • As of September 30, 2019, we had $230.1 million of cash and cash equivalents on a GAAP basis ($237.3 million of cash and cash equivalents at our share), $1.1 billion of capacity under our credit facility, and an unencumbered multifamily borrowing base of approximately $756.0 million, including our Under Construction multifamily assets.
  • Net Debt to Annualized Adjusted EBITDA at our share for the three and nine months ended September 30, 2019 was 5.3x and 5.6x and our Net Debt / Total Enterprise Value was 22.9% as of September 30, 2019.

Financing and Investing Activities

  • Amended our credit facility to extend the delayed draw period of our Tranche A-1 Term Loan to July 2020 and reduce the interest rate of the Tranche A-2 Term Loan 40 basis points to LIBOR plus 1.15% effective as of July 17, 2019.
  • Closed on the sale of 1600 K Street, an 83,000 square foot commercial asset located in Washington DC, for $43.0 million.
  • Agreed, subject to customary closing conditions, to acquire F1RST Residences, a 325-unit multifamily asset in the Ballpark submarket of Washington, DC with approximately 21,000 square feet of street level retail, for a purchase price of approximately $160.5 million. The multifamily portion of the building is 95.4% occupied as of September 30, 2019. We expect the transaction to close by the end of 2019. We intend to use F1RST Residences as a replacement property in a like-kind exchange for the expected proceeds from the sale of Metropolitan Park to Amazon.

Dividends

In October 2019, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on November 29, 2019 to shareholders of record as of November 14, 2019.

About JBG SMITH

JBG SMITH is an S&P 400 company that owns, operates, invests in and develops a dynamic portfolio of high-quality mixed-use properties in and around Washington, DC. Through an intense focus on placemaking, JBG SMITH cultivates vibrant, amenity-rich, walkable neighborhoods throughout the Capital region, including National Landing where it now serves as the exclusive developer for Amazon’s new headquarters. JBG SMITH’s portfolio currently comprises 20.6 million square feet of high-quality office, multifamily and retail assets, 98% at our share of which are Metro-served. It also maintains a robust future pipeline encompassing 18.7 million square feet of mixed-use development opportunities. For more information on JBG SMITH please visit www.jbgsmith.com.

Forward Looking Statements

Certain statements contained herein may constitute “forward-looking statements” as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Consequently, the future results of JBG SMITH Properties (“JBG SMITH”, the “Company”, "we", "us", "our" or similar terms) may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximate”, "hypothetical", "potential", “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “would”, “may” or similar expressions in this earnings release. We also note the following forward-looking statements: our anticipated dispositions and like-kind exchanges, our indicated annual dividend per share and dividend yield, annualized net operating income; in the case of our construction and near-term development assets, estimated square feet, estimated number of units and in the case of our future development assets, estimated potential development density. Expected key Amazon transaction terms and timeframes for closing, planned infrastructure improvements related to Amazon's additional headquarters; the economic impacts of Amazon's additional headquarters on the DC region and National Landing; our development plans related to Amazon's additional headquarters; the expected accretion to our net asset value ("NAV") as a result of the Amazon transaction and our future NAV growth rate; in the case of our Amazon lease transaction and our new development opportunities in National Landing, the total square feet to be leased to Amazon and the expected net effective rent, estimated square feet, estimated number of units, the estimated construction start and occupancy dates, estimated incremental investment, projected NOI yield; and in the case of our future development opportunities, estimated potential development density. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. These factors include, among others: adverse economic conditions in the Washington, DC metropolitan area, the timing of and costs associated with development and property improvements, financing commitments, and general competitive factors. For further discussion of factors that could materially affect the outcome of our forward-looking statements and other risks and uncertainties, see “Risk Factors” and the Cautionary Statement Concerning Forward-Looking Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and other periodic reports the Company files with the Securities and Exchange Commission. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements after the date hereof.

We are reiterating the assumptions in our estimated NOI bridge and the potential estimated NAV impact from Amazon in National Landing, which can be found in our Spring 2019 Investor Day presentation on our website at http://investors.jbgsmith.com/presentations.

Pro Rata Information

We present certain financial information and metrics in this release “at JBG SMITH Share,” which refers to our ownership percentage of consolidated and unconsolidated assets in real estate ventures (collectively, “real estate ventures”) as applied to these financial measures and metrics. Financial information “at JBG SMITH Share” is calculated on an asset-by-asset basis by applying our percentage economic interest to each applicable line item of that asset’s financial information. “At JBG SMITH Share” information, which we also refer to as being “at share,” “our pro rata share” or “our share,” is not, and is not intended to be, a presentation in accordance with GAAP. Given that a substantial portion of our assets are held through real estate ventures, we believe this form of presentation, which presents our economic interests in the partially owned entities, provides investors valuable information regarding a significant component of our portfolio, its composition, performance and capitalization.

We do not control the unconsolidated real estate ventures and do not have a legal claim to our co-venturers’ share of assets, liabilities, revenue and expenses. The operating agreements of the unconsolidated real estate ventures generally allow each co-venturer to receive cash distributions to the extent there is available cash from operations. The amount of cash each investor receives is based upon specific provisions of each operating agreement and varies depending on certain factors including the amount of capital contributed by each investor and whether any investors are entitled to preferential distributions.

With respect to any such third-party arrangement, we would not be in a position to exercise sole decision-making authority regarding the property, real estate venture or other entity, and may, under certain circumstances, be exposed to economic risks not present were a third-party not involved. We and our respective co-venturers may each have the right to trigger a buy-sell or forced sale arrangement, which could cause us to sell our interest, or acquire our co-venturers’ interests, or to sell the underlying asset, either on unfavorable terms or at a time when we otherwise would not have initiated such a transaction. Our real estate ventures may be subject to debt, and the repayment or refinancing of such debt may require equity capital calls. To the extent our co-venturers do not meet their obligations to us or our real estate ventures or they act inconsistent with the interests of the real estate venture, we may be adversely affected. Because of these limitations, the non-GAAP “at JBG SMITH Share” financial information should not be considered in isolation or as a substitute for our financial statements as reported under GAAP.

Non-GAAP Financial Measures

This release includes non-GAAP financial measures. For these measures, we have provided an explanation of how these non-GAAP measures are calculated and why JBG SMITH’s management believes that the presentation of these measures provides useful information to investors regarding JBG SMITH’s financial condition and results of operations. Reconciliations of certain non-GAAP measures to the most directly comparable GAAP financial measure are included in this earnings release. Our presentation of non-GAAP financial measures may not be comparable to similar non-GAAP measures used by other companies. In addition to "at share" financial information, the following non-GAAP measures are included in this release:

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), EBITDA for Real Estate ("EBITDAre") and Adjusted EBITDA

Management uses EBITDA and EBITDAre, non-GAAP financial measures, as supplemental operating performance measures and believes they help investors and lenders meaningfully evaluate and compare our operating performance from period-to-period by removing from our operating results the impact of our capital structure (primarily interest charges from our outstanding debt and the impact of our interest rate swaps) and certain non-cash expenses (primarily depreciation and amortization on our assets). EBITDAre is computed in accordance with the definition established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines EBITDAre as GAAP net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization expenses, gains on sales of real estate and impairment losses of real estate, including our share of such adjustments of unconsolidated real estate ventures. These supplemental measures may help investors and lenders understand our ability to incur and service debt and to make capital expenditures. EBITDA and EBITDAre are not substitutes for net income (loss) (computed in accordance with GAAP) and may not be comparable to similarly titled measures used by other companies.

“Adjusted EBITDA,” a non-GAAP financial measure, represents EBITDAre adjusted for items we believe are not representative of ongoing operating results, such as transaction and other costs, gain (loss) on the extinguishment of debt, distributions in excess of our investment in unconsolidated real estate ventures, gain on the bargain purchase of a business, lease liability adjustments and share-based compensation expense related to the Formation Transaction and special equity awards. We believe that adjusting such items not considered part of our comparable operations, provides a meaningful measure to evaluate and compare our performance from period-to-period.

Because EBITDA, EBITDAre and Adjusted EBITDA have limitations as analytical tools, we use EBITDA, EBITDAre and Adjusted EBITDA to supplement GAAP financial measures. Additionally, we believe that users of these measures should consider EBITDA, EBITDAre and Adjusted EBITDA in conjunction with net income (loss) and other GAAP measures in understanding our operating results.

Funds from Operations ("FFO"), Core FFO and Funds Available for Distribution (“FAD")

FFO is a non-GAAP financial measure computed in accordance with the definition established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement issued in 2018. NAREIT defines FFO as “net income (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity."

"Core FFO" represents FFO adjusted to exclude items (net of tax) which we believe are not representative of ongoing operating results, such as transaction and other costs, gains (or losses) on extinguishment of debt, gain on the bargain purchase of a business, distributions in excess of our investment in unconsolidated real estate ventures, share-based compensation expense related to the Formation Transaction and special equity awards, lease liability adjustments, amortization of the management contracts intangible and the mark-to-market of derivative instruments.

"FAD" is a non-GAAP financial measure and represents FFO less recurring tenant improvements, leasing commissions and other capital expenditures, net deferred rent activity, third-party lease liability assumption payments, recurring share-based compensation expense, accretion of acquired below-market leases, net of amortization of acquired above-market leases, amortization of debt issuance costs and other non-cash income and charges. FAD is presented solely as a supplemental disclosure that management believes provides useful information as it relates to our ability to fund dividends.

We believe FFO, Core FFO and FAD are meaningful non‑GAAP financial measures useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because these non‑GAAP measures exclude real estate depreciation and amortization expense and other non-comparable income and expenses, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. FFO, Core FFO and FAD do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as a performance measure or cash flow as a liquidity measure. FFO, Core FFO and FAD may not be comparable to similarly titled measures used by other companies.

Net Operating Income ("NOI") and Annualized NOI

“NOI” is a non-GAAP financial measure management uses to measure the operating performance of our assets and consists of property-related revenue (which includes base rent, tenant reimbursements and other operating revenue, net of free rent and payments associated with assumed lease liabilities) less operating expenses and ground rent, if applicable. NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and amortization of acquired above-market leases and below-market ground lease intangibles. Annualized NOI, for all assets except Crystal City Marriott, represents NOI for the three months ended September 30, 2019 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing 12-month NOI as of September 30, 2019. Management believes Annualized NOI provides useful information in understanding our financial performance over a 12-month period, however, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized NOI. Actual NOI for any 12-month period will depend on a number of factors beyond our ability to control or predict, including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay rent by one or more of our tenants and the destruction of one or more of our assets due to terrorist attack, natural disaster or other casualty, among others. We do not undertake any obligation to update our calculation to reflect events or circumstances occurring after the date of this earnings release. There can be no assurance that the annualized NOI shown will reflect our actual results of operations over any 12-month period.

Management uses each of these measures as supplemental performance measures for its assets and believes they provide useful information to investors because they reflect only those revenue and expense items that are incurred at the asset level, excluding non-cash items. In addition, NOI is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets.

However, because NOI excludes depreciation and amortization and captures neither the changes in the value of our assets that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our assets, all of which have real economic effect and could materially impact the financial performance of our assets, the utility of NOI as a measure of the operating performance of our assets is limited. Moreover, our method of calculating NOI may differ from other real estate companies and, accordingly, may not be comparable. NOI should be considered only as a supplement to net operating income (loss) (computed in accordance with GAAP) as a measure of the operating performance of our assets.

Same Store and Non-Same Store

“Same store” refers to the pool of assets that were in service for the entirety of both periods being compared, except for assets for which significant redevelopment, renovation, or repositioning occurred during either of the periods being compared.

“Non-same store” refers to all operating assets excluded from the same store pool.

Definitions

GAAP

"GAAP" refers to accounting principles generally accepted in the United States of America.

Formation Transaction

"Formation Transaction" refers collectively to the spin-off on July 17, 2017 of substantially all of the assets and liabilities of Vornado’s Washington, DC segment, which operated as Vornado / Charles E. Smith, and the acquisition of the management business and certain assets and liabilities of The JBG Companies.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

in thousands

September 30, 2019

 

December 31, 2018

 

 

 

 

ASSETS

 

Real estate, at cost:

 

 

 

Land and improvements

$

1,283,043

 

 

$

1,371,874

 

Buildings and improvements

3,824,467

 

 

3,722,930

 

Construction in progress, including land

763,080

 

 

697,930

 

 

5,870,590

 

 

5,792,734

 

Less accumulated depreciation

(1,109,897

)

 

(1,051,875

)

Real estate, net

4,760,693

 

 

4,740,859

 

Cash and cash equivalents

230,147

 

 

260,553

 

Restricted cash

13,573

 

 

138,979

 

Tenant and other receivables, net

53,965

 

 

46,568

 

Deferred rent receivable, net

172,386

 

 

143,473

 

Investments in unconsolidated real estate ventures

320,920

 

 

322,878

 

Other assets, net

301,760

 

 

264,994

 

Assets held for sale

168,820

 

 

78,981

 

TOTAL ASSETS

$

6,022,264

 

 

$

5,997,285

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

Liabilities:

 

 

 

Mortgages payable, net

$

1,358,571

 

 

$

1,838,381

 

Unsecured term loans, net

297,124

 

 

297,129

 

Accounts payable and accrued expenses

160,031

 

 

130,960

 

Other liabilities, net

205,705

 

 

181,606

 

Liabilities related to assets held for sale

66

 

 

3,717

 

Total liabilities

2,021,497

 

 

2,451,793

 

Commitments and contingencies

 

 

 

Redeemable noncontrolling interests

586,532

 

 

558,140

 

Total equity

3,414,235

 

 

2,987,352

 

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

6,022,264

 

 

$

5,997,285

 

____________________

Note: For complete financial statements, please refer to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

in thousands, except per share data

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

REVENUE

 

 

 

 

 

 

 

Property rentals

$

123,963

 

 

$

126,580

 

 

$

365,702

 

 

$

384,399

 

Third-party real estate services, including reimbursements

34,587

 

 

23,788

 

 

91,765

 

 

72,278

 

Other income

8,527

 

 

8,075

 

 

25,426

 

 

24,250

 

Total revenue

167,077

 

 

158,443

 

 

482,893

 

 

480,927

 

EXPENSES

 

 

 

 

 

 

 

Depreciation and amortization

46,862

 

 

46,603

 

 

141,576

 

 

143,880

 

Property operating

35,800

 

 

38,381

 

 

100,087

 

 

108,003

 

Real estate taxes

16,740

 

 

16,905

 

 

52,241

 

 

54,024

 

General and administrative:

 

 

 

 

 

 

 

Corporate and other

11,015

 

 

8,201

 

 

34,888

 

 

25,218

 

Third-party real estate services

29,809

 

 

20,754

 

 

86,585

 

 

64,552

 

Share-based compensation related to Formation Transaction and special equity awards

9,549

 

 

8,387

 

 

30,203

 

 

26,912

 

Transaction and other costs

2,059

 

 

4,126

 

 

9,928

 

 

12,134

 

Total expenses

151,834

 

 

143,357

 

 

455,508

 

 

434,723

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Income (loss) from unconsolidated real estate ventures, net

(1,144

)

 

13,484

 

 

647

 

 

15,418

 

Interest and other income (loss), net

(640

)

 

4,091

 

 

2,363

 

 

5,177

 

Interest expense

(10,583

)

 

(18,979

)

 

(40,864

)

 

(56,263

)

Gain on sale of real estate

8,088

 

 

11,938

 

 

47,121

 

 

45,789

 

Loss on extinguishment of debt

 

 

(79

)

 

(1,889

)

 

(4,536

)

Reduction of gain on bargain purchase

 

 

 

 

 

 

(7,606

)

Total other income (expense)

(4,279

)

 

10,455

 

 

7,378

 

 

(2,021

)

INCOME BEFORE INCOME TAX (EXPENSE) BENEFIT

10,964

 

 

25,541

 

 

34,763

 

 

44,183

 

Income tax (expense) benefit

(432

)

 

841

 

 

689

 

 

1,436

 

NET INCOME

10,532

 

 

26,382

 

 

35,452

 

 

45,619

 

Net income attributable to redeemable noncontrolling interests

(1,172

)

 

(3,552

)

 

(4,271

)

 

(6,532

)

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

127

 

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

9,360

 

 

$

22,830

 

 

$

31,181

 

 

$

39,214

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

Basic

$

0.06

 

 

$

0.19

 

 

$

0.23

 

 

$

0.33

 

Diluted

$

0.06

 

 

$

0.19

 

 

$

0.23

 

 

$

0.33

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING :

 

 

 

 

 

 

 

Basic

134,127

 

 

119,835

 

 

129,527

 

 

118,588

 

Diluted

134,127

 

 

119,835

 

 

129,527

 

 

118,588

 

____________________

Note: For complete financial statements, please refer to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

EBITDA, EBITDAre AND ADJUSTED EBITDA (NON-GAAP) (Unaudited)

dollars in thousands

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

2018

 

 

 

 

 

 

 

 

EBITDA, EBITDAre and Adjusted EBITDA

 

 

 

 

 

 

 

Net income

$

10,532

 

 

$

26,382

 

 

$

35,452

 

 

$

45,619

 

Depreciation and amortization expense

46,862

 

 

46,603

 

 

141,576

 

 

143,880

 

Interest expense (1)

10,583

 

 

18,979

 

 

40,864

 

 

56,263

 

Income tax expense (benefit)

432

 

 

(841

)

 

(689

)

 

(1,436

)

Unconsolidated real estate ventures allocated share of above adjustments

8,664

 

 

10,986

 

 

26,827

 

 

31,763

 

Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures

 

 

 

 

(5

)

 

129

 

EBITDA (2)

$

77,073

 

 

$

102,109

 

 

$

244,025

 

 

$

276,218

 

Gain on sale of real estate

(8,088

)

 

(11,938

)

 

(47,121

)

 

(45,789

)

Gain on sale of unconsolidated real estate ventures

 

 

(15,488

)

 

(335

)

 

(15,488

)

EBITDAre (2)

$

68,985

 

 

$

74,683

 

 

$

196,569

 

 

$

214,941

 

Transaction and other costs (3)

2,059

 

 

4,126

 

 

9,928

 

 

12,134

 

Loss on extinguishment of debt

 

 

79

 

 

1,889

 

 

4,536

 

Reduction of gain on bargain purchase

 

 

 

 

 

 

7,606

 

Share-based compensation related to Formation Transaction and special equity awards

9,549

 

 

8,387

 

 

30,203

 

 

26,912

 

Losses and distributions in excess of our investment in unconsolidated real estate venture (4)

(165

)

 

(890

)

 

(6,838

)

 

(6,302

)

Unconsolidated real estate ventures allocated share of above adjustments

 

 

 

 

 

 

30

 

Lease liability adjustments

1,991

 

 

(2,543

)

 

1,991

 

 

(2,543

)

Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures

 

 

 

 

 

 

(124

)

Adjusted EBITDA (2)

$

82,419

 

 

$

83,842

 

 

$

233,742

 

 

$

257,190

 

 

 

 

 

 

 

 

 

Net Debt to Annualized Adjusted EBITDA (5)

5.3x

 

6.7x

 

5.6x

 

6.6x

 

 

 

 

 

 

 

 

 

September 30, 2019

 

September 30, 2018

 

 

 

 

Net Debt (at JBG SMITH Share)

 

 

 

 

 

 

 

Consolidated indebtedness (6)

$

1,652,303

 

 

$

2,103,589

 

 

 

 

 

Unconsolidated indebtedness (6)

322,692

 

 

442,669

 

 

 

 

 

Total consolidated and unconsolidated indebtedness

1,974,995

 

 

2,546,258

 

 

 

 

 

Less: cash and cash equivalents

237,288

 

 

284,012

 

 

 

 

 

Net Debt (at JBG SMITH Share)

$

1,737,707

 

 

$

2,262,246

 

 

 

 

 

____________________

Note: All EBITDA measures as shown above are attributable to operating partnership common units. EBITDAre for the nine months ended September 30, 2018 was restated to conform with the definition of FFO established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement issued in 2018.
(1)

Interest expense includes the amortization of deferred financing costs and the ineffective portion of any interest rate swaps or caps, net of capitalized interest.

(2)

Due to our adoption of the new accounting standard for leases, beginning in 2019, we no longer capitalize internal leasing costs and expense these costs as incurred (such costs were $1.5 million and $4.3 million for the three and nine months ended September 30, 2018).

(3)

Includes fees and expenses incurred in connection with the Formation Transaction (including transition services provided by our former parent, integration costs and severance costs), demolition costs and costs related to other completed, potential and pursued transactions.

(4)

As of June 30, 2018, we suspended the equity method of accounting for our investment in the real estate venture that owns 1101 17th Street as our investment had been reduced to zero and we did not have an obligation to provide further financial support to the venture. All subsequent distributions from the venture have been recognized as income, which will continue until our share of unrecorded earnings and contributions exceed the cumulative excess distributions previously recognized.

(5)

Adjusted EBITDA for the three months ended September 30, 2019 and 2018 is annualized by multiplying by four. Adjusted EBITDA for the nine months ended September 30, 2019 and 2018 is annualized by multiplying by 1.33.

(6)

Net of premium/discount and deferred financing costs.

 

FFO, CORE FFO AND FAD (NON-GAAP) (Unaudited)

in thousands, except per share data

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

FFO and Core FFO

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

9,360

 

 

$

22,830

 

 

$

31,181

 

 

$

39,214

 

Net income attributable to redeemable noncontrolling interests

1,172

 

 

3,552

 

 

4,271

 

 

6,532

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

(127

)

Net income

10,532

 

 

26,382

 

 

35,452

 

 

45,619

 

Gain on sale of real estate

(8,088

)

 

(11,938

)

 

(47,121

)

 

(45,789

)

Gain on sale of unconsolidated real estate ventures

 

 

(15,488

)

 

(335

)

 

(15,488

)

Real estate depreciation and amortization

44,164

 

 

43,945

 

 

133,507

 

 

136,171

 

Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures

4,713

 

 

6,345

 

 

14,170

 

 

18,960

 

Net (income) loss attributable to noncontrolling interests in consolidated real estate ventures

 

 

 

 

(5

)

 

129

 

FFO Attributable to Operating Partnership Common Units (1)

$

51,321

 

 

$

49,246

 

 

$

135,668

 

 

$

139,602

 

FFO attributable to redeemable noncontrolling interests

(5,705

)

 

(6,631

)

 

(15,502

)

 

(20,057

)

FFO attributable to common shareholders (1)

$

45,616

 

 

$

42,615

 

 

$

120,166

 

 

$

119,545

 

FFO attributable to the operating partnership common units

$

51,321

 

 

$

49,246

 

 

$

135,668

 

 

$

139,602

 

Transaction and other costs, net of tax (2)

1,941

 

 

3,586

 

 

9,414

 

 

11,116

 

(Gain) loss from mark-to-market on derivative instruments

2

 

 

152

 

 

50

 

 

(1,399

)

Share of (gain) loss from mark-to-market on derivative instruments held by unconsolidated real estate ventures

127

 

 

(49

)

 

1,507

 

 

(481

)

Loss on extinguishment of debt, net of noncontrolling interests

 

 

79

 

 

1,889

 

 

4,412

 

Losses and distributions in excess of our investment in unconsolidated real estate venture (3)

(165

)

 

(890

)

 

(6,838

)

 

(6,302

)

Reduction of gain on bargain purchase

 

 

 

 

 

 

7,606

 

Share-based compensation related to Formation Transaction and special equity awards

9,549

 

 

8,387

 

 

30,203

 

 

26,912

 

Lease liability adjustments

1,991

 

 

(2,543

)

 

1,991

 

 

(2,543

)

Amortization of management contracts intangible, net of tax

1,287

 

 

1,288

 

 

3,862

 

 

3,861

 

Core FFO Attributable to Operating Partnership Common Units (1)

$

66,053

 

 

$

59,256

 

 

$

177,746

 

 

$

182,784

 

Core FFO attributable to redeemable noncontrolling interests

(7,342

)

 

(7,978

)

 

(20,297

)

 

(26,244

)

Core FFO attributable to common shareholders (1)

$

58,711

 

 

$

51,278

 

 

$

157,449

 

 

$

156,540

 

FFO per diluted common share

$

0.34

 

 

$

0.36

 

 

$

0.93

 

 

$

1.01

 

Core FFO per diluted common share

$

0.44

 

 

$

0.43

 

 

$

1.22

 

 

$

1.32

 

Weighted average diluted shares

134,127

 

 

119,835

 

 

129,527

 

 

118,588

 

See footnotes in table below.

FFO, CORE FFO AND FAD (NON-GAAP) (Unaudited)

in thousands, except per share data

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

2018

 

2019

 

2018

 

 

 

 

 

 

 

FAD

 

 

 

 

 

 

Core FFO attributable to the operating partnership common units

$

66,053

 

$

59,256

 

 

$

177,746

 

 

$

182,784

 

Recurring capital expenditures and second generation tenant improvements and leasing commissions

(14,872

)

(19,123

)

 

(57,245

)

 

(36,277

)

Straight-line and other rent adjustments (4)

(10,348

)

(1,368

)

 

(25,895

)

 

(3,659

)

Share of straight-line rent from unconsolidated real estate ventures

(1,023

)

180

 

 

(2,631

)

 

528

 

Third-party lease liability assumption payments

(1,413

)

(912

)

 

(3,732

)

 

(2,003

)

Share of third-party lease liability assumption payments for unconsolidated real estate ventures

 

 

 

 

 

(50

)

Share-based compensation expense

6,129

 

4,879

 

 

17,153

 

 

15,096

 

Amortization of debt issuance costs

701

 

1,155

 

 

2,546

 

 

3,520

 

Share of amortization of debt issuance costs from unconsolidated real estate ventures

80

 

66

 

 

197

 

 

201

 

Non-real estate depreciation and amortization

925

 

886

 

 

2,753

 

 

2,393

 

FAD available to the Operating Partnership Common Units (A) (1) (5)

$

46,232

 

$

45,019

 

 

$

110,892

 

 

$

162,533

 

Distributions to common shareholders and unitholders (6) (B)

$

34,006

 

$

31,196

 

 

$

99,296

 

 

$

93,816

 

FAD Payout Ratio (B÷A) (7)

73.6

%

69.3

%

 

89.5

%

 

57.7

%

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

Maintenance and recurring capital expenditures

$

7,000

 

$

7,113

 

 

$

19,747

 

 

$

13,785

 

Share of maintenance and recurring capital expenditures from unconsolidated real estate ventures

439

 

444

 

 

779

 

 

1,843

 

Second generation tenant improvements and leasing commissions

6,713

 

10,603

 

 

35,225

 

 

18,769

 

Share of second generation tenant improvements and leasing commissions from unconsolidated real estate ventures

720

 

963

 

 

1,494

 

 

1,880

 

Recurring capital expenditures and second generation tenant improvements and leasing commissions

14,872

 

19,123

 

 

57,245

 

 

36,277

 

First generation tenant improvements and leasing commissions

6,501

 

4,443

 

 

31,694

 

 

15,304

 

Share of first generation tenant improvements and leasing commissions from unconsolidated real estate ventures

507

 

169

 

 

1,159

 

 

2,555

 

Non-recurring capital expenditures

8,365

 

2,895

 

 

20,557

 

 

10,026

 

Share of non-recurring capital expenditures from unconsolidated joint ventures

84

 

300

 

 

114

 

 

1,062

 

Non-recurring capital expenditures

15,457

 

7,807

 

 

53,524

 

 

28,947

 

Total JBG SMITH Share of Capital Expenditures

$

30,329

 

$

26,930

 

 

$

110,769

 

 

$

65,224

 

_______________

Note: FFO attributable to operating partnership common units and FFO attributable to common shareholders for the nine months ended September 30, 2018 were restated in compliance with the definition established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement issued in 2018.
(1)

Due to our adoption of the new accounting standard for leases, beginning in 2019, we no longer capitalize internal leasing costs and expense these costs as incurred (such costs were $1.5 million and $4.3 million for the three and nine months ended September 30, 2018).

(2)

Includes fees and expenses incurred in connection with the Formation Transaction (including transition services provided by our former parent, integration costs, and severance costs), demolition costs and costs related to other completed, potential and pursued transactions.

(3)

As of June 30, 2018, we suspended the equity method of accounting for our investment in the real estate venture that owns 1101 17th Street as our investment had been reduced to zero and we did not have an obligation to provide further financial support to the venture. All subsequent distributions from the venture have been recognized as income, which will continue until our share of unrecorded earnings and contributions exceed the cumulative excess distributions previously recognized.

(4)

Includes straight-line rent, above/below market lease amortization and lease incentive amortization.

(5)

The decline in FAD available to the Operating Partnership Common Units for the nine months ended September 30, 2019 was attributable to a significant increase in second generation tenant improvements and leasing commissions from the early renewal of several leases.

(6)

The distribution for the nine months ended September 30, 2019 excludes a special dividend of $0.10 per common share that was paid in January 2019.

(7)

The FAD payout ratio on a quarterly basis is not necessarily indicative of an amount for the full year due to fluctuation in timing of capital expenditures, the commencement of new leases and the seasonality of our operations.

NOI RECONCILIATIONS (NON-GAAP) (Unaudited)

 

dollars in thousands

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

 

 

Net income attributable to common shareholders

$

9,360

 

 

$

22,830

 

 

$

31,181

 

 

$

39,214

 

Add:

 

 

 

 

 

 

 

Depreciation and amortization expense

46,862

 

 

46,603

 

 

141,576

 

 

143,880

 

General and administrative expense:

 

 

 

 

 

 

 

Corporate and other

11,015

 

 

8,201

 

 

34,888

 

 

25,218

 

Third-party real estate services

29,809

 

 

20,754

 

 

86,585

 

 

64,552

 

Share-based compensation related to Formation Transaction and special equity awards

9,549

 

 

8,387

 

 

30,203

 

 

26,912

 

Transaction and other costs

2,059

 

 

4,126

 

 

9,928

 

 

12,134

 

Interest expense

10,583

 

 

18,979

 

 

40,864

 

 

56,263

 

Loss on extinguishment of debt

 

 

79

 

 

1,889

 

 

4,536

 

Reduction of gain on bargain purchase

 

 

 

 

 

 

7,606

 

Income tax expense (benefit)

432

 

 

(841

)

 

(689

)

 

(1,436

)

Net income attributable to redeemable noncontrolling interests

1,172

 

 

3,552

 

 

4,271

 

 

6,532

 

Less:

 

 

 

 

 

 

 

Third-party real estate services, including reimbursements

34,587

 

 

23,788

 

 

91,765

 

 

72,278

 

Other income (1)

2,196

 

 

1,708

 

 

5,951

 

 

4,904

 

Income (loss) from unconsolidated real estate ventures, net

(1,144

)

 

13,484

 

 

647

 

 

15,418

 

Interest and other income (loss), net

(640

)

 

4,091

 

 

2,363

 

 

5,177

 

Gain on sale of real estate

8,088

 

 

11,938

 

 

47,121

 

 

45,789

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

127

 

Consolidated NOI

77,754

 

 

77,661

 

 

232,849

 

 

241,718

 

NOI attributable to unconsolidated real estate ventures at our share

5,500

 

 

9,642

 

 

15,745

 

 

27,893

 

Non-cash rent adjustments (2)

(10,348

)

 

(1,369

)

 

(25,894

)

 

(3,659

)

Other adjustments (3)

3,181

 

 

3,179

 

 

10,120

 

 

11,060

 

Total adjustments

(1,667

)

 

11,452

 

 

(29

)

 

35,294

 

NOI

$

76,087

 

 

$

89,113

 

 

$

232,820

 

 

$

277,012

 

Less: out-of-service NOI loss (4)

(2,189

)

 

(1,357

)

 

(5,193

)

 

(3,526

)

Operating portfolio NOI

$

78,276

 

 

$

90,470

 

 

$

238,013

 

 

$

280,538

 

Non-same store NOI (5)

6,286

 

 

11,855

 

 

20,322

 

 

40,036

 

Same store NOI (6)

$

71,990

 

 

$

78,615

 

 

$

217,691

 

 

$

240,502

 

 

 

 

 

 

 

 

 

Change in same store NOI

(8.4

)%

 

 

 

(9.5

)%

 

 

Number of properties in same store pool

55

 

 

 

 

54

 

 

 

___________________

(1)

Excludes parking income of $6.3 million and $6.4 million for the three months ended September 30, 2019 and 2018, and $19.5 million and $19.3 million for the nine months ended September 30, 2019 and 2018.

(2)

Adjustment to exclude straight-line rent, above/below market lease amortization and lease incentive amortization.

(3)

Adjustment to include other income and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue.

(4)

Includes the results for our Under Construction assets and Future Development Pipeline.

(5)

Includes the results for properties that were not owned, operated and in service for the entirety of both periods being compared and properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared. The decrease in non-same store NOI is primarily attributable to lost income from disposed assets.

(6)

Includes the results of the properties that are owned, operated and in service for the entirety of both periods being compared except for properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20191105006189/en/

Jaime Marcus SVP, Investor Relations and Corporate Communications (240) 333-3643 jmarcus@jbgsmith.com

Source: JBG SMITH

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