JBG SMITH JBGS, a leading owner and developer of high-quality, mixed-use properties in the Washington, DC market, today filed its Form 10-K for the year ended December 31, 2018 and reported its financial results.
Additional information regarding our results of operations, properties and tenants can be found in our Fourth Quarter 2018 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com.
Fourth Quarter 2018 Financial Results
- Net income attributable to common shareholders was $0.7 million, or $(0.01) per diluted share.
- Funds From Operations ("FFO") attributable to common shareholders was $39.1 million, or $0.32 per diluted share.
- Core Funds From Operations ("Core FFO") attributable to common shareholders was $49.7 million, or $0.41 per diluted share.
Year Ended December 31, 2018 Financial Results
- Net income attributable to common shareholders was $39.9 million, or $0.31 per diluted share.
- FFO attributable to common shareholders was $158.6 million, or $1.33 per diluted share.
- Core FFO attributable to common shareholders was $206.2 million, or $1.73 per diluted share.
Operating Portfolio Highlights
- Annualized Net Operating Income ("NOI") for the three months ended December 31, 2018 was $341.8 million, compared to $364.9 million for the three months ended September 30, 2018, at our share. The decrease in NOI is primarily attributable to lost income from disposed assets and increased ground rent expense at Courthouse Plaza 1 and 2.
- The operating commercial portfolio was 89.6% leased and 85.5% occupied as of December 31, 2018, compared to 87.1% and 85.4% as of September 30, 2018, at our share.
- The operating multifamily portfolio was 95.7% leased and 93.9% occupied as of December 31, 2018, compared to 96.1% and 94.3% as of September 30, 2018, at our share.
- Executed approximately 741,000 square feet of office leases at our share in the fourth quarter, comprising approximately 380,000 square feet of new leases, and approximately 361,000 square feet of second generation leases, which generated a 3.2% rental rate increase on a GAAP basis and a 7.3% rental rate decrease on a cash basis.
- Executed approximately 1.8 million square feet of commercial leases at our share during the year ended December 31, 2018, comprising approximately 656,000 square feet of new leases, and approximately 1.1 million square feet of second generation leases, which generated a 1.2% rental rate increase on a GAAP basis and a 6.6% rental rate decrease on a cash basis.
- Same Store Net Operating Income ("SSNOI") decreased 7.4% to $76.8 million for the three months ended December 31, 2018, compared to $82.9 million for the three months ended December 31, 2017. SSNOI decreased 1.1% to $250.3 million for the year ended December 31, 2018, compared to $253.0 million for the year ended December 31, 2017. The decrease in SSNOI for the three months and year ended December 31, 2018 is largely attributable to rental abatements, increased ground rent expense at Courthouse Plaza 1 and 2, and anticipated tenant move-outs. The reported same store pool as of December 31, 2018 includes only the assets that were in service for the entirety of both periods being compared and does not include the JBG Assets acquired in the Formation Transaction. Including the JBG Assets, SSNOI would have slightly increased for the year ended December 31, 2018.
Development Portfolio Highlights
Under Construction
- During the quarter ended December 31, 2018, there were nine assets under construction (five commercial assets and four multifamily assets), consisting of 926,530 square feet and 1,298 units, both at our share.
- Commenced construction on 1770 Crystal Drive and Central District Retail as a result of the Amazon selection of JBG SMITH to house and develop a new headquarters location at National Landing ("Amazon HQ2").
Near-Term Development
- As of December 31, 2018, there were no assets in near-term development.
Future Development Pipeline
- As of December 31, 2018, there were 41 future development assets consisting of 19.6 million square feet of estimated potential density at our share.
Third-Party Asset Management and Real Estate Services Business
- For the three months ended December 31, 2018, revenue from third-party real estate services, including reimbursements, was $26.4 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 $14.3 million, of which $5.6 million came from property management fees, $3.5 million came from asset management fees, $2.2 million came from leasing fees, $1.3 million came from development fees, $1.2 million came from construction management fees and $0.5 million came from other service revenue.
- The general and administrative expenses allocated to the third-party asset management and real estate services business were $13.1 million for the three months ended December 31, 2018.
Balance Sheet
- We had $2.1 billion of debt ($2.4 billion including our share of debt of unconsolidated real estate ventures) as of December 31, 2018. Of the $2.4 billion of debt at our share, approximately 73% was fixed-rate, and rate caps were in place for approximately 2%.
- The weighted average interest rate of our debt at share was 4.23% as of December 31, 2018.
- At December 31, 2018, our total enterprise value was approximately $7.0 billion, comprising 137.8 million common shares and units valued at $4.8 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.4 billion, less cash and cash equivalents of $273.6 million.
- As of December 31, 2018, we had $260.6 million of cash and cash equivalents on a GAAP basis and $273.6 million of cash and cash equivalents at our share, and $1.1 billion of capacity under our credit facility.
- Net Debt / Adjusted EBITDA at our share for the three months and year ended December 31, 2018 was 6.5x and 6.3x and our Net Debt / Total Enterprise Value was 31.0% as of December 31, 2018.
Financing and Investing Activities
- Entered into a new mortgage loan collateralized by 1730 M Street with a principal balance of $47.5 million, and refinanced the mortgage loan collateralized by CEB Tower at Central Place, increasing the principal balance to $234.0 million with an additional $11.0 million capacity.
- Acquired a 4.25-acre land parcel, Potomac Yard Land Bay H located in Alexandria, Virginia, for $23.0 million, which was under an option agreement in Q3 2018.
- Acquired the remaining 3.1% interest in West Half, an under construction multifamily asset, for $5.0 million, which increased our interest to 100.0%.
- Sold a 99-year term leasehold interest in 1700 M Street, 34,000 square foot development site located in the CBD submarket of Washington, DC. JBG SMITH will retain the fee ownership of the land.
- Sold 1233 20th Street, an operating commercial asset located in Washington, DC, for $65.0 million. In connection with the sale, we repaid the related $41.9 million mortgage loan.
- Sold the out-of-service portion of Falkland Chase - North, a multifamily asset located in Silver Spring, Maryland, for $3.8 million.
- Sold The Warner, an operating commercial asset located in Washington, D.C., for $376.5 million. We had a 55% ownership interest in the asset. In connection with the sale, our unconsolidated real estate venture repaid the related mortgage payable of $270.5 million.
Subsequent to December 31, 2018:
- Sold Commerce Executive, an operating commercial asset located in Reston, Virginia, for $115.0 million. The sale also included approximately 894,000 square feet of estimated potential development density. Including this sale, our aggregate disposition and recapitalization activity is over $999 million.
- Issued an additional 442,395 LTIP Units and 477,640 Performance-Based LTIP Units to management and employees with an estimated aggregate fair value of $24.5 million.
- Redeemed 1.7 million OP units, which we elected to redeem for an equivalent number of our common shares.
Dividends
In December 2018, our Board of Trustees declared a regular quarterly dividend of $0.225 per common share, an indicated annual dividend of $0.90 per common share. In addition, the Board of Trustees declared a special cash dividend of $0.10 per share. The special dividend allowed JBG SMITH to distribute 100% of its estimated REIT taxable income for the year ending December 31, 2018, including the higher than anticipated gains from our successful capital recycling efforts in 2018. After accounting for the special dividend, we retained substantially all the net proceeds from our capital recycling efforts, which were used to deleverage our balance sheet and create capacity for future investment opportunities. Both dividends were paid in January 2019.
About JBG SMITH
JBG SMITH is an S&P 400 company that owns, operates, invests in and develops assets concentrated in leading urban infill submarkets in and around Washington, DC. Our mixed-use operating portfolio comprises approximately 19 million square feet of high-quality office, multifamily and retail assets, 98% at our share of which are Metro-served. With a focus on placemaking, we drive synergies across the portfolio and create amenity-rich, walkable neighborhoods. JBG SMITH's future development pipeline includes 19.6 million square feet of potential development density at our share. For additional 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" or the "Company") 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", "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, 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, planned infrastructure improvements related to Amazon HQ2; the economic impacts of Amazon HQ2 on the DC region and National Landing; our development plans related to Amazon HQ2; the expected accretion to our 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, targeted 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.
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 consolidated 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 net investment in consolidated 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 gains (or losses) from sales of, or impairment charges related to, real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures."
"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 net investment in consolidated 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 interest rate swaps.
"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 December 31, 2018 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing twelve-month NOI as of December 31, 2018. Management believes Annualized NOI provides useful information in understanding JBG SMITH's 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 JBG SMITH's 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 this 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. No JBG Assets are included in the same store pool the year ended December 31, 2018.
"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.
JBG Assets
"JBG Assets" refers to the management business and certain assets and liabilities of The JBG Companies acquired on July 18, 2017 by JBG SMITH.
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudited) | ||||||||
| in thousands | December 31, 2018 | December 31, 2017 | ||||||
| ASSETS | ||||||||
| Real estate, at cost: | ||||||||
| Land and improvements | $ | 1,371,874 | $ | 1,368,294 | ||||
| Buildings and improvements | 3,722,930 | 3,670,268 | ||||||
| Construction in progress, including land | 697,930 | 978,942 | ||||||
| 5,792,734 | 6,017,504 | |||||||
| Less accumulated depreciation | (1,051,875 | ) | (1,011,330 | ) | ||||
| Real estate, net | 4,740,859 | 5,006,174 | ||||||
| Cash and cash equivalents | 260,553 | 316,676 | ||||||
| Restricted cash | 138,979 | 21,881 | ||||||
| Tenant and other receivables, net | 46,568 | 46,734 | ||||||
| Deferred rent receivable, net | 143,473 | 146,315 | ||||||
| Investments in and advances to unconsolidated real estate ventures | 322,878 | 261,811 | ||||||
| Other assets, net | 264,994 | 263,923 | ||||||
| Assets held for sale | 78,981 | 8,293 | ||||||
| TOTAL ASSETS | $ | 5,997,285 | $ | 6,071,807 | ||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Mortgages payable, net | $ | 1,838,381 | $ | 2,025,692 | ||||
| Revolving credit facility | — | 115,751 | ||||||
| Unsecured term loans, net | 297,129 | 46,537 | ||||||
| Accounts payable and accrued expenses | 130,960 | 138,607 | ||||||
| Other liabilities, net | 181,606 | 161,277 | ||||||
| Liabilities related to assets held for sale | 3,717 | — | ||||||
| Total liabilities | 2,451,793 | 2,487,864 | ||||||
| Commitments and contingencies | ||||||||
| Redeemable noncontrolling interests | 558,140 | 609,129 | ||||||
| Total equity | 2,987,352 | 2,974,814 | ||||||
| TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | $ | 5,997,285 | $ | 6,071,807 | ||||
| _______________ |
| Note: For complete financial statements, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2018. |
| CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| in thousands, except per share data | Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| REVENUE | ||||||||||||||||
| Property rentals | $ | 124,741 | $ | 119,726 | $ | 499,835 | $ | 436,625 | ||||||||
| Tenant reimbursements | 10,639 | 10,824 | 39,290 | 37,985 | ||||||||||||
| Third-party real estate services, including reimbursements | 26,421 | 24,355 | 98,699 | 63,236 | ||||||||||||
| Other income | 1,454 | 1,466 | 6,358 | 5,167 | ||||||||||||
| Total revenue | 163,255 | 156,371 | 644,182 | 543,013 | ||||||||||||
| EXPENSES | ||||||||||||||||
| Depreciation and amortization | 67,556 | 51,933 | 211,436 | 161,659 | ||||||||||||
| Property operating | 40,076 | 37,872 | 148,081 | 118,836 | ||||||||||||
| Real estate taxes | 17,030 | 18,456 | 71,054 | 66,434 | ||||||||||||
| General and administrative: | ||||||||||||||||
| Corporate and other | 8,512 | 7,437 | 33,728 | 39,350 | ||||||||||||
| Third-party real estate services | 25,274 | 21,557 | 89,826 | 51,919 | ||||||||||||
|
Share-based compensation related to Formation Transaction and special equity awards |
9,118 | 14,806 | 36,030 | 29,251 | ||||||||||||
| Transaction and other costs | 15,572 | 12,566 | 27,706 | 127,739 | ||||||||||||
| Total expenses | 183,138 | 164,627 | 617,861 | 595,188 | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Income (loss) from unconsolidated real estate ventures, net | 23,991 | (2,778 | ) | 39,409 | (4,143 | ) | ||||||||||
| Interest and other income, net | 9,991 | 422 | 15,168 | 1,788 | ||||||||||||
| Interest expense | (18,184 | ) | (14,328 | ) | (74,447 | ) | (58,141 | ) | ||||||||
| Gain on sale of real estate | 6,394 | — | 52,183 | — | ||||||||||||
| Loss on extinguishment of debt | (617 | ) | (12 | ) | (5,153 | ) | (701 | ) | ||||||||
| Gain (reduction of gain) on bargain purchase | — | (3,395 | ) | (7,606 | ) | 24,376 | ||||||||||
| Total other income (expense) | 21,575 | (20,091 | ) | 19,554 | (36,821 | ) | ||||||||||
| INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE) | 1,692 | (28,347 | ) | 45,875 | (88,996 | ) | ||||||||||
| Income tax benefit (expense) | (698 | ) | 9,595 | 738 | 9,912 | |||||||||||
| NET INCOME (LOSS) | 994 | (18,752 | ) | 46,613 | (79,084 | ) | ||||||||||
|
Net (income) loss attributable to redeemable noncontrolling interests |
(178 | ) | 2,331 | (6,710 | ) | 7,328 | ||||||||||
| Net (income) loss attributable to noncontrolling interests | (106 | ) | 3 | 21 | 3 | |||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 710 | $ | (16,418 | ) | $ | 39,924 | $ | (71,753 | ) | ||||||
| EARNINGS (LOSS) PER COMMON SHARE: | ||||||||||||||||
| Basic | $ | (0.01 | ) | $ | (0.15 | ) | $ | 0.31 | $ | (0.70 | ) | |||||
| Diluted | $ | (0.01 | ) | $ | (0.15 | ) | $ | 0.31 | $ | (0.70 | ) | |||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING : | ||||||||||||||||
| Basic | 120,917 | 117,955 | 119,176 | 105,359 | ||||||||||||
| Diluted | 120,917 | 117,955 | 119,176 | 105,359 | ||||||||||||
| ___________________ |
| Note: For complete financial statements, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2018. |
| EBITDA, EBITDAre AND ADJUSTED EBITDA (NON-GAAP) | ||||||||
| (Unaudited) | ||||||||
|
Three Months Ended |
Year Ended |
|||||||
| EBITDA, EBITDAre and Adjusted EBITDA | ||||||||
| Net income | $ | 994 | $ | 46,613 | ||||
| Depreciation and amortization expense | 67,556 | 211,436 | ||||||
| Interest expense (1) | 18,184 | 74,447 | ||||||
| Income tax benefit (expense) | 698 | (738 | ) | |||||
| Unconsolidated real estate ventures allocated share of above adjustments | 10,253 | 42,016 | ||||||
| Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures | (182 | ) | (53 | ) | ||||
| EBITDA | $ | 97,503 | $ | 373,721 | ||||
| Gain on sale of real estate | (6,394 | ) | (52,183 | ) | ||||
| Gain on sale of unconsolidated real estate assets | (20,554 | ) | (36,042 | ) | ||||
| EBITDAre | $ | 70,555 | $ | 285,496 | ||||
| Transaction and other costs (2) | 15,572 | 27,706 | ||||||
| Loss on extinguishment of debt | 617 | 5,153 | ||||||
| Reduction of gain on bargain purchase | — | 7,606 | ||||||
| Share-based compensation related to Formation Transaction and special equity awards | 9,118 | 36,030 | ||||||
| Distributions in excess of our net investment in unconsolidated real estate venture (3) | (7,374 | ) | (13,676 | ) | ||||
| Unconsolidated real estate ventures allocated share of above adjustments | 1,542 | 1,572 | ||||||
| Lease liability adjustments | (7,422 | ) | (9,965 | ) | ||||
| Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures | — | (124 | ) | |||||
| Adjusted EBITDA | $ | 82,608 | $ | 339,798 | ||||
| Net Debt to Adjusted EBITDA (4) | 6.5x | 6.3x | ||||||
| December 31, 2018 | ||||||||
| Net Debt (at JBG SMITH Share) | ||||||||
| Consolidated indebtedness (5) | $ | 2,130,704 | ||||||
| Unconsolidated indebtedness (5) | 298,588 | |||||||
| Total consolidated and unconsolidated indebtedness | 2,429,292 | |||||||
| Less: cash and cash equivalents | 273,611 | |||||||
| Net Debt (at JBG SMITH Share) | $ | 2,155,681 | ||||||
|
|
|
|
||||||
| ____________________ | ||
| (1) | Interest expense includes the amortization of deferred financing costs and the marking-to-market of interest rate swaps and caps, net of capitalized interest. | |
| (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), costs related to the pursuit of Amazon HQ2, and costs related to other completed, potential and pursued transactions. | |
| (3) | Related to our investment in the real estate venture that owns 1101 17th Street. In June 2018, the mortgage loan payable that was collateralized by 1101 17th Street was refinanced eliminating the principal guaranty provisions that had been included in the prior loan. At the time of refinancing, distributions and our share of the cumulative earnings of the venture exceeded our investment in the venture by $5.4 million, which resulted in a negative investment balance. After the elimination of the principal guaranty provisions in the prior mortgage loan, we recognized the $5.4 million negative investment balance as income within "Income from unconsolidated real estate ventures, net" in our statements of operations for the year ended December 31, 2018, which results in a zero investment balance in the real estate venture that owns 1101 17th Street in our balance sheet as of December 31, 2018. We have also suspended the equity method of accounting for this venture and recognized as income in the three months and year ended December 31, 2018, $7.4 million and $8.3 million related to cash distributions. | |
| (4) | Adjusted EBITDA for the three months ended December 31, 2018 is annualized by multiplying by four. | |
| (5) | 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 |
Year Ended |
||||||
| FFO and Core FFO | ||||||||
| Net income attributable to common shareholders | $ | 710 | $ | 39,924 | ||||
| Net income attributable to redeemable noncontrolling interests | 178 | 6,710 | ||||||
| Net income (loss) attributable to noncontrolling interests | 106 | (21 | ) | |||||
| Net income | 994 | 46,613 | ||||||
| Gain on sale of real estate | (6,394 | ) | (52,183 | ) | ||||
| Gain on sale of unconsolidated real estate assets | (20,554 | ) | (36,042 | ) | ||||
| Real estate depreciation and amortization | 64,891 | 201,062 | ||||||
| Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures | 6,079 | 25,039 | ||||||
| Net income attributable to noncontrolling interests in consolidated real estate ventures | (182 | ) | (51 | ) | ||||
| FFO Attributable to Operating Partnership Common Units | $ | 44,834 | $ | 184,438 | ||||
| FFO attributable to redeemable noncontrolling interests | (5,741 | ) | (25,798 | ) | ||||
| FFO attributable to common shareholders | $ | 39,093 | $ | 158,640 | ||||
| FFO attributable to the operating partnership common units | $ | 44,834 | $ | 184,438 | ||||
| Transaction and other costs, net of tax (1) | 14,509 | 25,625 | ||||||
| Mark-to-market on derivative instruments | (542 | ) | (1,941 | ) | ||||
| Share of gain from mark-to-market on derivative instruments held by unconsolidated real estate ventures | 379 | (102 | ) | |||||
| Loss on extinguishment of debt, net of noncontrolling interests | 2,159 | 6,571 | ||||||
| Distributions in excess of our net investment in unconsolidated real estate venture (2) | (7,374 | ) | (13,676 | ) | ||||
| Reduction of gain on bargain purchase | — | 7,606 | ||||||
| Share-based compensation related to Formation Transaction and special equity awards | 9,118 | 36,030 | ||||||
| Lease liability adjustments | (7,422 | ) | (9,965 | ) | ||||
| Amortization of management contracts intangible, net of tax | 1,287 | 5,148 | ||||||
| Core FFO Attributable to Operating Partnership Common Units | $ | 56,948 | $ | 239,734 | ||||
| Core FFO attributable to redeemable noncontrolling interests | (7,292 | ) | (33,536 | ) | ||||
| Core FFO attributable to common shareholders | $ | 49,656 | $ | 206,198 | ||||
| FFO per diluted common share | $ | 0.32 | $ | 1.33 | ||||
| Core FFO per diluted common share | $ | 0.41 | $ | 1.73 | ||||
| Weighted average diluted shares | 120,917 | 119,176 | ||||||
|
See footnotes under the following table. |
| FFO, CORE FFO AND FAD (NON-GAAP) | ||||||||
| (Unaudited) | ||||||||
| in thousands, except per share data |
Three Months Ended |
Year Ended |
||||||
| FAD | ||||||||
| Core FFO attributable to the operating partnership common units | $ | 56,948 | $ | 239,734 | ||||
| Recurring capital expenditures and second generation tenant improvements and leasing commissions | (35,836 | ) | (72,113 | ) | ||||
| Straight-line and other rent adjustments (3) | (6,692 | ) | (10,351 | ) | ||||
| Share of straight-line rent from unconsolidated real estate ventures | 680 | 1,208 | ||||||
| Third-party lease liability assumption payments | (1,130 | ) | (3,133 | ) | ||||
| Share of third party lease liability assumption payments for unconsolidated real estate ventures | — | (50 | ) | |||||
| Share-based compensation expense | 4,666 | 19,762 | ||||||
| Amortization of debt issuance costs | 1,140 | 4,660 | ||||||
| Share of amortization of debt issuance costs from unconsolidated real estate ventures | 67 | 268 | ||||||
| Non-real estate depreciation and amortization | 893 | 3,286 | ||||||
| FAD available to the Operating Partnership Common Units (A) (4) | $ | 20,736 | $ | 183,271 | ||||
| Distributions to common shareholders and unitholders (5) (B) | $ | 31,284 | $ | 125,100 | ||||
| FAD Payout Ratio (B÷A) (6) | 150.9 | % | 68.3 | % | ||||
| Capital Expenditures | ||||||||
| Maintenance and recurring capital expenditures | $ | 14,445 | $ | 28,230 | ||||
| Share of maintenance and recurring capital expenditures from unconsolidated real estate ventures | 978 | 2,821 | ||||||
| Second generation tenant improvements and leasing commissions | 19,211 | 37,980 | ||||||
| Share of second generation tenant improvements and leasing commissions from unconsolidated real estate ventures | 1,202 | 3,082 | ||||||
| Recurring capital expenditures and second generation tenant improvements and leasing commissions | 35,836 | 72,113 | ||||||
| First generation tenant improvements and leasing commissions | 8,215 | 23,519 | ||||||
| Share of first generation tenant improvements and leasing commissions from unconsolidated real estate ventures | 17 | 2,572 | ||||||
| Non-recurring capital expenditures | 15,375 | 25,401 | ||||||
| Share of non-recurring capital expenditures from unconsolidated joint ventures | 112 | 1,174 | ||||||
| Non-recurring capital expenditures | 23,719 | 52,666 | ||||||
| Total JBG SMITH Share of Capital Expenditures | $ | 59,555 | $ | 124,779 | ||||
| _______________ | ||
| Note: FFO attributable to operating partnership common units and common shareholders for prior periods has been restated in compliance with the definition established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement issued in 2018. | ||
| (1) | Includes fees and expenses incurred in connection with the Formation Transaction (including transition services provided by our former parent, integration costs, and severance costs), costs related to the pursuit of Amazon HQ2, and costs related to other completed, potential and pursued transactions. | |
| (2) | Related to our investment in the real estate venture that owns 1101 17th Street. In June 2018, the mortgage loan payable that was collateralized by 1101 17th Street was refinanced eliminating the principal guaranty provisions that had been included in the prior loan. At the time of refinancing, distributions and our share of the cumulative earnings of the venture exceeded our investment in the venture by $5.4 million, which resulted in a negative investment balance. After the elimination of the principal guaranty provisions in the prior mortgage loan, we recognized the $5.4 million negative investment balance as income within "Income from unconsolidated real estate ventures, net" in our statements of operations for the year ended December 31, 2018, which results in a zero investment balance in the real estate venture that owns 1101 17th Street in our balance sheet as of December 31, 2018. We have also suspended the equity method of accounting for this venture and recognized as income in the three months and year ended December 31, 2018, $7.4 million and $8.3 million related to cash distributions. | |
| (3) | Includes straight-line rent, above/below market lease amortization and lease incentive amortization. | |
| (4) | The fourth quarter decline in FAD available to the Operating Partnership Units was attributable to a significant increase in second generation tenant improvements and leasing commissions from the early renewal of several leases during the quarter and an increase in recurring capital expenditures, which is consistent with historical seasonality trends. | |
| (5) | In December 2018, our Board of Trustees declared regular quarterly dividends of $0.225 per common share and a special dividend of $0.10 per common share, both of which were paid in January 2019. | |
| (6) | 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 December 31, | Year Ended December 31, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income (loss) attributable to common shareholders | $ | 710 | $ | (16,418 | ) | $ | 39,924 | $ | (71,753 | ) | ||||||
| Add: | ||||||||||||||||
| Depreciation and amortization expense | 67,556 | 51,933 | 211,436 | 161,659 | ||||||||||||
| General and administrative expense: | ||||||||||||||||
| Corporate and other | 8,512 | 7,437 | 33,728 | 39,350 | ||||||||||||
| Third-party real estate services | 25,274 | 21,557 | 89,826 | 51,919 | ||||||||||||
|
Share-based compensation related to Formation Transaction and special equity awards |
9,118 | 14,806 | 36,030 | 29,251 | ||||||||||||
| Transaction and other costs | 15,572 | 12,566 | 27,706 | 127,739 | ||||||||||||
| Interest expense | 18,184 | 14,328 | 74,447 | 58,141 | ||||||||||||
| Loss on extinguishment of debt | 617 | 12 | 5,153 | 701 | ||||||||||||
| Reduction of gain (gain) on bargain purchase | — | 3,395 | 7,606 | (24,376 | ) | |||||||||||
| Income tax expense (benefit) | 698 | (9,595 | ) | (738 | ) | (9,912 | ) | |||||||||
| Net (income) loss attributable to redeemable noncontrolling interests | 178 | (2,331 | ) | 6,710 | (7,328 | ) | ||||||||||
| Less: | ||||||||||||||||
| Third-party real estate services, including reimbursements | 26,421 | 24,355 | 98,699 | 63,236 | ||||||||||||
| Other income | 1,454 | 1,466 | 6,358 | 5,167 | ||||||||||||
| Income (loss) from unconsolidated real estate ventures, net | 23,991 | (2,778 | ) | 39,409 | (4,143 | ) | ||||||||||
| Interest and other income, net | 9,991 | 422 | 15,168 | 1,788 | ||||||||||||
| Gain on sale of real estate | 6,394 | — | 52,183 | — | ||||||||||||
| Net (income) loss attributable to noncontrolling interests | (106 | ) | 3 | 21 | 3 | |||||||||||
| Consolidated NOI | 78,274 | 74,222 | 319,990 | 289,340 | ||||||||||||
| NOI attributable to consolidated JBG Assets (1) | — | — | — | 24,936 | ||||||||||||
| Proportionate NOI attributable to unconsolidated JBG Assets (1) | — | — | — | 8,688 | ||||||||||||
| Proportionate NOI attributable to unconsolidated real estate ventures | 8,847 | 8,646 | 36,824 | 21,530 | ||||||||||||
| Non-cash rent adjustments (2) | (6,691 | ) | 887 | (10,349 | ) | (6,715 | ) | |||||||||
| Other adjustments (3) | 5,110 | 5,842 | 19,638 | 11,587 | ||||||||||||
| Total adjustments | 7,266 | 15,375 | 46,113 | 60,026 | ||||||||||||
| NOI | $ | 85,540 | $ | 89,597 | $ | 366,103 | $ | 349,366 | ||||||||
| Non-same store NOI (4) | 8,742 | 6,656 | 115,801 | 96,342 | ||||||||||||
| Same store NOI (5) | $ | 76,798 | $ | 82,941 | $ | 250,302 | $ | 253,024 | ||||||||
| Growth in same store NOI | (7.4 | )% | (1.1 | )% | ||||||||||||
| Number of properties in same store pool | 57 | 32 | ||||||||||||||
| ___________________ | ||
| (1) | Includes financial information for the JBG Assets as if the July 18, 2017 acquisition of the JBG Assets had been completed as of the beginning of the period presented. | |
| (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 exclude incidental income generated by development assets and commercial lease termination revenue. Includes property management fees of $4.1 million and $4.2 million for the three months ended December 31, 2018 and 2017 and $16.6 million and $7.8 million for the years ended December 31, 2018 and 2017. | |
| (4) | 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. | |
| (5) | 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/20190226006133/en/
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