JBG SMITH Announces First Quarter 2020 Results

JBG SMITH JBGS, a leading owner and developer of high-growth, mixed-use properties in the Washington, DC market, today filed its Form 10-Q for the quarter ended March 31, 2020 and reported its financial results.

Additional information regarding our results of operations, properties and tenants can be found in our First Quarter 2020 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com. Additional information about the current and potential future impact of COVID-19 and the ensuing economic turmoil on us, as well as our response to it, can be found in our Management Letter in our First Quarter 2020 Investor Package. We encourage investors to consider the information presented here with the information in that document.

First Quarter 2020 Financial Results

• Net income attributable to common shareholders was $42.9 million, or $0.32 per diluted share.
• Funds From Operations ("FFO") attributable to common shareholders was $36.7 million, or $0.27 per diluted share.
• Core Funds From Operations ("Core FFO") attributable to common shareholders was $52.1 million, or $0.39 per diluted share.

Operating Portfolio Highlights

• Annualized Net Operating Income ("NOI") for the three months ended March 31, 2020 was $334.6 million, compared to $328.2 million for the three months ended December 31, 2019, at our share.
• The operating commercial portfolio was 91.0% leased and 88.7% occupied as of March 31, 2020, compared to 91.4% and 88.2% as of December 31, 2019, at our share.
• The operating multifamily portfolio was 87.0% leased and 84.5% occupied as of March 31, 2020, compared to 89.5% and 87.2% as of December 31, 2019, at our share. The decreases are due in part to the movement of 901 W Street and 900 W Street (formerly collectively referred to as Atlantic Plumbing C and renamed during the quarter) into our recently delivered operating assets during the quarter. The in-service operating multifamily portfolio was 95.2% leased and 93.4% occupied as of March 31, 2020, and 95.1% leased and 93.3% occupied as of December 31, 2019.
• Executed approximately 299,000 square feet of office leases at our share in the first quarter, comprising approximately 48,000 square feet of new leases and approximately 251,000 square feet of second generation leases, which generated a 4.1% rental rate increase on a GAAP basis and a 0.7% rental rate decrease on a cash basis.
• Same Store Net Operating Income ("SSNOI") at our share increased 5.2% to $78.5 million for the three months ended March 31, 2020, compared to $74.6 million for the three months ended March 31, 2019. The increase in SSNOI for the three months ended March 31, 2020 is largely attributable to the burn off of rent abatements from early blend-and-extend leases and increased occupancy. The reported same store pools as of March 31, 2020 include only the assets that were in-service for the entirety of both periods being compared.

Development Portfolio Highlights

Under Construction

• As of March 31, 2020, there were four assets under construction (two commercial assets and two multifamily assets), consisting of approximately 380,000 square feet and 577 units, both at our share.
• During the quarter ended March 31, 2020, we completed Central District Retail ahead of schedule and below budget.

Near-Term Development

• As of March 31, 2020, there were no assets in near-term development.

Future Development Pipeline

• As of March 31, 2020, there were 37 future development assets consisting of 16.7 million square feet of estimated potential density at our share, including the 2.1 million square feet held for sale to Amazon.com ("Amazon").

Third-Party Asset Management and Real Estate Services Business

For the three months ended March 31, 2020, revenue from third-party real estate services, including reimbursements, was $29.7 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 $15.2 million, primarily driven by $5.5 million of property management fees, $2.8 million of development fees, $2.6 million of asset management fees, $1.7 million of leasing fees and $1.5 million of other service revenue.

Balance Sheet

• We had $1.8 billion of debt ($2.1 billion including our share of debt of unconsolidated real estate ventures) as of March 31, 2020. Of the $2.1 billion of debt at our share, approximately 72% was fixed-rate and rate caps were in place for approximately 56% of our floating rate debt.
• The weighted average interest rate of our debt at share was 3.66% as of March 31, 2020.
• As of March 31, 2020, our total enterprise value was approximately $6.5 billion, comprising 147.9 million common shares and units valued at $4.7 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.1 billion, less cash and cash equivalents at our share of $307.0 million.
• As of March 31, 2020, we had $295.4 million of cash and cash equivalents ($307.0 million of cash and cash equivalents at our share), and $898.5 million of capacity under our credit facility. We have approximately $715.0 million of estimated multifamily borrowing capacity from our Operating and Under Construction multifamily assets, of which approximately $440.0 million relates to our stabilized Operating multifamily assets.
• Net Debt to Annualized Adjusted EBITDA at our share for the three months ended March 31, 2020 was 6.2x and our Net Debt / Total Enterprise Value was 27.8% as of March 31, 2020.

Investing and Financing Activities

• Sold Metropolitan Park to Amazon for $155.0 million, which represented an $11.0 million increase over the previously estimated contract value resulting from an increase in the approved development density on the sites.
• Amended our credit facility to extend the maturity date of the revolving credit facility to January 2025.
• Entered into a mortgage loan with a principal balance of $175.0 million collateralized by 4747 Bethesda Avenue.
• Repurchased and retired 1.4 million of our common shares for $41.2 million, an average purchase price of $29.01 per share.

Subsequent to March 31, 2020:

• Drew an additional $300.0 million under our revolving credit facility.
• Drew the remaining $100.0 million under our Tranche A-1 Term Loan.
• Our real estate venture, which owns 1900 N Street, entered into a mortgage loan with a maximum principal balance of $160.0 million collateralized by the asset. The venture initially received proceeds from the mortgage loan of $134.5 million ($74.0 million at our share), with the additional $25.5 million available in the future.
• Refinanced the mortgage loan collateralized by RTC-West, increasing the principal balance to $117.3 million from $97.1 million.

Dividends

On April 30, 2020, our Board of Trustees declared a quarterly dividend of $0.225 per common share, which will be paid on May 27, 2020 to shareholders of record as of May 13, 2020.

Withdrawal of Estimated Guidance

In light of the uncertainty surrounding the COVID-19 pandemic and its long-term impact on our business, we are withdrawing the guidance contained in the estimated NOI bridge, which can be found most recently in our Investor Presentation from November 2019, and the potential estimated NAV impact from Amazon in National Landing, which can be found most recently in our Spring 2019 Investor Day presentation.

About JBG SMITH

JBG SMITH is an S&P 400 company that owns, operates, invests in and develops a dynamic portfolio of high-growth 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 20.8 million square feet of high-growth office, multifamily and retail assets, 98% at our share of which are Metro-served. It also maintains a robust future development pipeline encompassing 16.7 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. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows, performance, tenants, the real estate market and the global economy and financial markets. The extent to which the COVID-19 pandemic impacts us and our tenants depends on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. We also note the following forward-looking statements: the impact of COVID-19 and the ensuing economic turmoil on our Company, net operating income, same store net operating income, net asset value and stock price; the impact of disruptions to the credit and capital markets on our ability to access capital, including refinancing maturing debt; changes to the amount and manner in which tenants use space; whether we incur additional costs or make additional concessions or offer other incentives to existing or prospective tenants to reconfigure space; our 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 any Amazon transactions not yet closed; planned infrastructure and education improvements related to Amazon's additional headquarters; the economic impact of Amazon's additional headquarters on the DC region and National Landing; the impact of our role as developer, property manager and retail leasing agent in connection with Amazon's new headquarters; our development plans related to Amazon's additional headquarters; whether any of our tenants succeed in obtaining government assistance under the CARES Act and other programs and use any resulting proceeds to make lease payments owed to us; whether we can access agency debt secured by our currently-unencumbered multifamily assets timely, on reasonable terms or at all; whether the delay in our planned 2020 discretionary operating asset capital expenditures will have any negative impact on our properties or our ability to generate revenue; and the allocation of capital to our share repurchase plan and any impact on our stock price.

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, including in relation to COVID-19, 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," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Cautionary Statement Concerning Forward-Looking Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 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 to reflect events or circumstances occurring 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 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, including our share of such adjustments for unconsolidated real estate 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 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 assess a segment's performance. The most directly comparable GAAP measure is net income attributable to common shareholders. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only 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. Management uses NOI as a supplemental performance measure for our assets and believes it provides useful information to investors because it reflects 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. NOI presented by us may not be comparable to NOI reported by other REITs that define these measures differently. We believe that to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income attributable to common shareholders as presented in our financial statements. NOI should not be considered as an alternative to net income attributable to common shareholders as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions. Annualized NOI, for all assets except Crystal City Marriott, represents NOI for the three months ended March 31, 2020 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing 12-month NOI as of March 31, 2020. 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.

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.

In-Service

‘‘In-service'' refers to commercial or multifamily assets that are at or above 90% leased or have been operating and collecting rent for more than 12 months as of March 31, 2020.

Formation Transaction

"Formation Transaction" refers collectively to the spin-off on July 17, 2017 of substantially all of the assets and liabilities of Vornado Realty Trust'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.

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