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 March 31, 2019 and reported its financial
results.

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

First Quarter 2019 Financial Results

  • Net income attributable to common shareholders was $24.9 million, or
    $0.20 per diluted share.
  • Funds From Operations (“FFO”) attributable to common shareholders was
    $35.1 million, or $0.28 per diluted share.
  • Core Funds From Operations (“Core FFO”) attributable to common
    shareholders was $44.2 million, or $0.36 per diluted share.

Operating Portfolio Highlights

  • Annualized Net Operating Income (“NOI”) for the three months ended
    March 31, 2019 was $321.6 million, compared to $341.8 million for the
    three months ended December 31, 2018, at our share. The decrease in
    NOI is primarily attributable to lost income from disposed assets and
    increased rental abatements.
  • The operating commercial portfolio was 90.2% leased and 85.6% occupied
    as of March 31, 2019, compared to 89.6% and 85.5% as of December 31,
    2018, at our share.
  • The operating multifamily portfolio was 97.0% leased and 94.8%
    occupied as of March 31, 2019, compared to 95.7% and 93.9% as of
    December 31, 2018, at our share.
  • Executed approximately 785,000 square feet of office leases at our
    share in the first quarter, comprising approximately 555,000 square
    feet of new leases, and approximately 230,000 square feet of second
    generation leases, which generated a 3.9% rental rate decrease on a
    GAAP basis and a 6.8% rental rate decrease on a cash basis. The new
    leases primarily resulted from Amazon.com, Inc. (“Amazon”) executing
    three initial leases during the quarter totaling 537,000 square feet
    at three of our existing office buildings in National Landing. The
    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. Also, in April
    2019, we executed an agreement with Amazon to lease an additional
    approximately 48,000 square feet of office space at 2345 Crystal Drive
    in National Landing in conjunction with the creation of Amazon’s
    additional headquarters.
  • Same Store Net Operating Income (“SSNOI”) decreased 10.1% to $73.6
    million for the three months ended March 31, 2019, compared to $81.9
    million for the three months ended March 31, 2018. The decrease in
    SSNOI for the three months ended March 31, 2019 is largely
    attributable to rental abatements and lower base rent. The reported
    same store pool as of March 31, 2019 includes only the assets that
    were in service for the entirety of both periods being compared.

Development Portfolio Highlights

Under Construction

  • During the quarter ended March 31, 2019, 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.

Near-Term Development

  • As of March 31, 2019, there were no assets in near-term development.

Future Development Pipeline

  • As of March 31, 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 March 31, 2019, revenue from third-party
    real estate services, including reimbursements, was $27.7 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
    $13.8 million, of which $5.1 million came from property management
    fees, $3.4 million came from asset management fees, $2.2 million came
    from leasing fees, $1.6 million came from development fees, $0.6
    million came from construction management fees and $0.8 million came
    from other service revenue.
  • The general and administrative expenses allocated to the third-party
    asset management and real estate services business were $12.5 million
    for the three months ended March 31, 2019.

Balance Sheet

  • We had $2.1 billion of debt ($2.4 billion including our share of debt
    of unconsolidated real estate ventures) as of March 31, 2019. Of the
    $2.4 billion of debt at our share, approximately 68% was fixed-rate,
    and rate caps were in place for approximately 2%.
  • The weighted average interest rate of our debt at share was 4.28% as
    of March 31, 2019.
  • At March 31, 2019, our total enterprise value was approximately $7.7
    billion, comprising 137.8 million common shares and units valued at
    $5.7 billion and debt (net of premium / (discount) and deferred
    financing costs) at our share of $2.4 billion, less cash and
    cash equivalents at our share of $405.6 million.
  • As of March 31, 2019, we had $395.6 million of cash and cash
    equivalents on a GAAP basis and $405.6 million of cash and cash
    equivalents at our share, and $1.1 billion of capacity under our
    credit facility.
  • Net Debt to Annualized Adjusted EBITDA at our share for the three
    months ended March 31, 2019 was 7.1x and our Net Debt / Total
    Enterprise Value was 26.3% as of March 31, 2019. Pro forma Net Debt to
    Annualized Adjusted EBITDA at our share would have been 5.4x for the
    three months ended March 31, 2019, including the $472.3 million of net
    proceeds from the underwritten public offering completed in April 2019.

Financing and Investing Activities

  • Sold Commerce Executive/Commerce Metro Land, an operating
    commercial/future development asset located in Reston, Virginia, for
    $115.0 million. The sale also included approximately 894,000 square
    feet of estimated potential development density.
  • Executed purchase and sale agreements with Amazon for two of our
    National Landing Future Development assets, Pen Place and Mets 6, 7
    and 8, which will serve as the initial phase of new construction
    associated with Amazon’s additional headquarters. Subject to customary
    closing conditions, Amazon is expected to pay $293.9 million for the
    sites, or $72.00 per square foot based on their combined estimated
    potential development density of up to approximately 4.1 million
    square feet. We expect to close on the Mets land sale as early as 2019
    and on Pen Place as early as 2020.
  • Executed a contract to purchase a stabilized multifamily asset located
    in Washington, DC, which we intend to use as a replacement property in
    a 1031 like-kind exchange for the expected proceeds from the sale of
    the Mets 6, 7 and 8 land parcels to Amazon.
  • Redeemed 1.7 million common limited partnership units (“OP Units”) for
    an equivalent number of our common shares.

Subsequent to March 31, 2019:

  • Closed an underwritten public offering of 11.5 million common shares
    (including 1.5 million common shares related to the exercise of the
    underwriters’ option to cover overallotments) at $42.00 per share,
    which generated net proceeds, after deducting the underwriting
    discounts and commissions and other estimated offering expenses, of
    approximately $472.3 million. We intend to use the net proceeds to
    fund development opportunities and for general corporate purposes.
  • Repaid mortgage debt totaling approximately $293.6 million at The
    Bartlett and Fort Totten Square.

Dividends

In May 2019, our Board of Trustees declared a quarterly dividend of
$0.225 per common share, payable on May 24, 2019 to shareholders of
record on May 13, 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 operating portfolio currently comprises approximately 18 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 approximately 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” 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”,
“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, 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, 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 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 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 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 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 March 31, 2019
multiplied by four. Due to seasonality in the hospitality business,
annualized NOI for Crystal City Marriott represents the trailing
twelve-month NOI as of March 31, 2019. 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.

Contacts

Jaime Marcus
SVP, Investor Relations
(240) 333-3643
[email protected]

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