CHEVY CHASE, Md.–(BUSINESS WIRE)–#construction–JBG SMITH (NYSE: JBGS), a leading owner and developer of high-quality, mixed-use properties in the Washington, DC market, today filed its Form 10-Q for the quarter ended September 30, 2019 and reported its financial results.
Additional information regarding our results of operations, properties and tenants can be found in our Third Quarter 2019 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com.
Third Quarter 2019 Financial Results
- Net income attributable to common shareholders was $9.4 million, or $0.06 per diluted share.
- Funds From Operations (“FFO”) attributable to common shareholders was $45.6 million, or $0.34 per diluted share.
- Core Funds From Operations (“Core FFO”) attributable to common shareholders was $58.7 million, or $0.44 per diluted share.
Nine Months Ended September 30, 2019 Financial Results
- Net income attributable to common shareholders was $31.2 million, or $0.23 per diluted share.
- FFO attributable to common shareholders was $120.2 million, or $0.93 per diluted share.
- Core FFO attributable to common shareholders was $157.4 million, or $1.22 per diluted share.
Operating Portfolio Highlights
- Annualized Net Operating Income (“NOI”) for the three months ended September 30, 2019 was $313.2 million, compared to $322.0 million for the three months ended June 30, 2019, at our share.
- The operating commercial portfolio was 90.2% leased and 86.8% occupied as of September 30, 2019, compared to 90.3% and 86.0% as of June 30, 2019, at our share.
- The operating multifamily portfolio was 96.5% leased and 94.9% occupied as of September 30, 2019, compared to 98.0% and 95.0% as of June 30, 2019, at our share.
- Executed approximately 243,000 square feet of office leases at our share in the third quarter, comprising approximately 90,000 square feet of new leases and approximately 153,000 square feet of second generation leases, which generated a 4.7% rental rate increase on a GAAP basis and a 2.2% rental rate increase on a cash basis.
- Executed approximately 1.4 million square feet of commercial leases at our share during the nine months ended September 30, 2019, comprising approximately 765,000 square feet of new leases and approximately 658,000 square feet of second generation leases, which generated a 5.0% rental rate increase on a GAAP basis and a 0.3% rental rate increase on a cash basis. The new leases include leases totaling approximately 585,000 square feet to date at four office buildings in our National Landing portfolio executed by Amazon.com, Inc. (“Amazon”) in conjunction with the establishment of their additional headquarters. In March 2019, we executed three initial leases with Amazon totaling approximately 537,000 square feet at three of our existing office buildings in National Landing. These three initial leases encompass approximately 88,000 square feet at 241 18th Street South, approximately 191,000 square feet at 1800 South Bell Street and approximately 258,000 square feet at 1770 Crystal Drive. We expect Amazon to begin moving into 241 18th Street South and 1800 South Bell in 2019 and 1770 Crystal Drive by the end of 2020. In April 2019, we executed a lease with Amazon for an additional approximately 48,000 square feet of short-term office space at 2345 Crystal Drive in National Landing. Amazon took occupancy of the space at 2345 Crystal Drive during the second quarter of 2019 and moved its first employees into National Landing.
- Same Store Net Operating Income (“SSNOI”) at our share decreased 8.4% to $72.0 million for the three months ended September 30, 2019, compared to $78.6 million for the three months ended September 30, 2018. SSNOI decreased 9.5% to $217.7 million for the nine months ended September 30, 2019, compared to $240.5 million for the nine months ended September 30, 2018. The decrease in SSNOI for the three months ended September 30, 2019 is largely attributable to increased rental abatements, rent reductions and an increase in assumed lease liability payments. The lease renewals we executed in 2017 and 2018 have reduced our NOI in 2019, primarily due to free rent associated with these early renewals. Excluding the impact of any future capital recycling activity, as the free rent in these leases burns off and our under construction assets deliver, we expect our NOI to grow and surpass 2018 levels by the second half of 2020. The reported same store pools as of September 30, 2019 include only the assets that were in service for the entirety of both periods being compared.
Development Portfolio Highlights
Under Construction
- During the quarter ended September 30, 2019, there were eight assets under construction (four commercial assets and four multifamily assets), consisting of 821,099 square feet and 1,298 units, both at our share.
- During the quarter ended September 30, 2019, we completed construction of West Half, a 465-unit multifamily asset located in the Ballpark submarket of Washington, DC.
Near-Term Development
- As of September 30, 2019, there were no assets in near-term development.
Future Development Pipeline
- As of September 30, 2019, there were 40 future development assets consisting of 18.7 million square feet of estimated potential density at our share, including the 4.1 million square feet held for sale to Amazon.
Third-Party Asset Management and Real Estate Services Business
For the three months ended September 30, 2019, revenue from third-party real estate services, including reimbursements, was $34.6 million. Excluding reimbursements and service revenue from our interests in consolidated and unconsolidated real estate ventures, revenue from our third-party asset management and real estate services business was $18.9 million, of which $6.8 million came from development fees, $5.4 million came from property management fees, $3.5 million came from asset management fees, $2.0 million came from leasing fees, $0.4 million came from construction management fees and $0.9 million came from other service revenue.
Balance Sheet
- We had $1.7 billion of debt ($2.0 billion including our share of debt of unconsolidated real estate ventures) as of September 30, 2019. Of the $2.0 billion of debt at our share, approximately 88% was fixed-rate and rate caps were in place for approximately 67% of our floating rate debt.
- The weighted average interest rate of our debt at share was 4.19% as of September 30, 2019.
- At September 30, 2019, our total enterprise value was approximately $7.6 billion, comprising 149.3 million common shares and units valued at $5.9 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.0 billion, less cash and cash equivalents at our share of $237.3 million.
- As of September 30, 2019, we had $230.1 million of cash and cash equivalents on a GAAP basis ($237.3 million of cash and cash equivalents at our share), $1.1 billion of capacity under our credit facility, and an unencumbered multifamily borrowing base of approximately $756.0 million, including our Under Construction multifamily assets.
- Net Debt to Annualized Adjusted EBITDA at our share for the three and nine months ended September 30, 2019 was 5.3x and 5.6x and our Net Debt / Total Enterprise Value was 22.9% as of September 30, 2019.
Financing and Investing Activities
- Amended our credit facility to extend the delayed draw period of our Tranche A-1 Term Loan to July 2020 and reduce the interest rate of the Tranche A-2 Term Loan 40 basis points to LIBOR plus 1.15% effective as of July 17, 2019.
- Closed on the sale of 1600 K Street, an 83,000 square foot commercial asset located in Washington DC, for $43.0 million.
- Agreed, subject to customary closing conditions, to acquire F1RST Residences, a 325-unit multifamily asset in the Ballpark submarket of Washington, DC with approximately 21,000 square feet of street level retail, for a purchase price of approximately $160.5 million. The multifamily portion of the building is 95.4% occupied as of September 30, 2019. We expect the transaction to close by the end of 2019. We intend to use F1RST Residences as a replacement property in a like-kind exchange for the expected proceeds from the sale of Metropolitan Park to Amazon.
Dividends
In October 2019, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on November 29, 2019 to shareholders of record as of November 14, 2019.
About JBG SMITH
JBG SMITH is an S&P 400 company that owns, operates, invests in and develops a dynamic portfolio of high-quality mixed-use properties in and around Washington, DC. Through an intense focus on placemaking, JBG SMITH cultivates vibrant, amenity-rich, walkable neighborhoods throughout the Capital region, including National Landing where it now serves as the exclusive developer for Amazon’s new headquarters. JBG SMITH’s portfolio currently comprises 20.6 million square feet of high-quality office, multifamily and retail assets, 98% at our share of which are Metro-served. It also maintains a robust future pipeline encompassing 18.7 million square feet of mixed-use development opportunities. For more information on JBG SMITH please visit www.jbgsmith.com.
Forward Looking Statements
Certain statements contained herein may constitute “forward-looking statements” as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Consequently, the future results of JBG SMITH Properties (“JBG SMITH”, the “Company”, “we”, “us”, “our” or similar terms) may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximate”, “hypothetical”, “potential”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “would”, “may” or similar expressions in this earnings release. We also note the following forward-looking statements: our anticipated dispositions and like-kind exchanges, our indicated annual dividend per share and dividend yield, annualized net operating income; in the case of our construction and near-term development assets, estimated square feet, estimated number of units and in the case of our future development assets, estimated potential development density. Expected key Amazon transaction terms and timeframes for closing, planned infrastructure improvements related to Amazon’s additional headquarters; the economic impacts of Amazon’s additional headquarters on the DC region and National Landing; our development plans related to Amazon’s additional headquarters; the expected accretion to our net asset value (“NAV”) as a result of the Amazon transaction and our future NAV growth rate; in the case of our Amazon lease transaction and our new development opportunities in National Landing, the total square feet to be leased to Amazon and the expected net effective rent, estimated square feet, estimated number of units, the estimated construction start and occupancy dates, estimated incremental investment, projected NOI yield; and in the case of our future development opportunities, estimated potential development density. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. These factors include, among others: adverse economic conditions in the Washington, DC metropolitan area, the timing of and costs associated with development and property improvements, financing commitments, and general competitive factors. For further discussion of factors that could materially affect the outcome of our forward-looking statements and other risks and uncertainties, see “Risk Factors” and the Cautionary Statement Concerning Forward-Looking Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and other periodic reports the Company files with the Securities and Exchange Commission. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements after the date hereof.
We are reiterating the assumptions in our estimated NOI bridge and the potential estimated NAV impact from Amazon in National Landing, which can be found in our Spring 2019 Investor Day presentation on our website at http://investors.jbgsmith.com/presentations.
Pro Rata Information
We present certain financial information and metrics in this release “at JBG SMITH Share,” which refers to our ownership percentage of consolidated and unconsolidated assets in real estate ventures (collectively, “real estate ventures”) as applied to these financial measures and metrics. Financial information “at JBG SMITH Share” is calculated on an asset-by-asset basis by applying our percentage economic interest to each applicable line item of that asset’s financial information. “At JBG SMITH Share” information, which we also refer to as being “at share,” “our pro rata share” or “our share,” is not, and is not intended to be, a presentation in accordance with GAAP. Given that a substantial portion of our assets are held through real estate ventures, we believe this form of presentation, which presents our economic interests in the partially owned entities, provides investors valuable information regarding a significant component of our portfolio, its composition, performance and capitalization.
We do not control the unconsolidated real estate ventures and do not have a legal claim to our co-venturers’ share of assets, liabilities, revenue and expenses. The operating agreements of the unconsolidated real estate ventures generally allow each co-venturer to receive cash distributions to the extent there is available cash from operations. The amount of cash each investor receives is based upon specific provisions of each operating agreement and varies depending on certain factors including the amount of capital contributed by each investor and whether any investors are entitled to preferential distributions.
With respect to any such third-party arrangement, we would not be in a position to exercise sole decision-making authority regarding the property, real estate venture or other entity, and may, under certain circumstances, be exposed to economic risks not present were a third-party not involved. We and our respective co-venturers may each have the right to trigger a buy-sell or forced sale arrangement, which could cause us to sell our interest, or acquire our co-venturers’ interests, or to sell the underlying asset, either on unfavorable terms or at a time when we otherwise would not have initiated such a transaction. Our real estate ventures may be subject to debt, and the repayment or refinancing of such debt may require equity capital calls. To the extent our co-venturers do not meet their obligations to us or our real estate ventures or they act inconsistent with the interests of the real estate venture, we may be adversely affected. Because of these limitations, the non-GAAP “at JBG SMITH Share” financial information should not be considered in isolation or as a substitute for our financial statements as reported under GAAP.
Non-GAAP Financial Measures
This release includes non-GAAP financial measures. For these measures, we have provided an explanation of how these non-GAAP measures are calculated and why JBG SMITH’s management believes that the presentation of these measures provides useful information to investors regarding JBG SMITH’s financial condition and results of operations. Reconciliations of certain non-GAAP measures to the most directly comparable GAAP financial measure are included in this earnings release. Our presentation of non-GAAP financial measures may not be comparable to similar non-GAAP measures used by other companies. In addition to “at share” financial information, the following non-GAAP measures are included in this release:
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), EBITDA for Real Estate (“EBITDAre”) and Adjusted EBITDA
Management uses EBITDA and EBITDAre, non-GAAP financial measures, as supplemental operating performance measures and believes they help investors and lenders meaningfully evaluate and compare our operating performance from period-to-period by removing from our operating results the impact of our capital structure (primarily interest charges from our outstanding debt and the impact of our interest rate swaps) and certain non-cash expenses (primarily depreciation and amortization on our assets). EBITDAre is computed in accordance with the definition established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines EBITDAre as GAAP net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization expenses, gains on sales of real estate and impairment losses of real estate, including our share of such adjustments of unconsolidated real estate ventures. These supplemental measures may help investors and lenders understand our ability to incur and service debt and to make capital expenditures. EBITDA and EBITDAre are not substitutes for net income (loss) (computed in accordance with GAAP) and may not be comparable to similarly titled measures used by other companies.
“Adjusted EBITDA,” a non-GAAP financial measure, represents EBITDAre adjusted for items we believe are not representative of ongoing operating results, such as transaction and other costs, gain (loss) on the extinguishment of debt, distributions in excess of our investment in unconsolidated real estate ventures, gain on the bargain purchase of a business, lease liability adjustments and share-based compensation expense related to the Formation Transaction and special equity awards. We believe that adjusting such items not considered part of our comparable operations, provides a meaningful measure to evaluate and compare our performance from period-to-period.
Because EBITDA, EBITDAre and Adjusted EBITDA have limitations as analytical tools, we use EBITDA, EBITDAre and Adjusted EBITDA to supplement GAAP financial measures. Additionally, we believe that users of these measures should consider EBITDA, EBITDAre and Adjusted EBITDA in conjunction with net income (loss) and other GAAP measures in understanding our operating results.
Funds from Operations (“FFO”), Core FFO and Funds Available for Distribution (“FAD”)
FFO is a non-GAAP financial measure computed in accordance with the definition established by NAREIT in the NAREIT FFO White Paper – 2018 Restatement issued in 2018. NAREIT defines FFO as “net income (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.”
“Core FFO” represents FFO adjusted to exclude items (net of tax) which we believe are not representative of ongoing operating results, such as transaction and other costs, gains (or losses) on extinguishment of debt, gain on the bargain purchase of a business, distributions in excess of our investment in unconsolidated real estate ventures, share-based compensation expense related to the Formation Transaction and special equity awards, lease liability adjustments, amortization of the management contracts intangible and the mark-to-market of derivative instruments.
“FAD” is a non-GAAP financial measure and represents FFO less recurring tenant improvements, leasing commissions and other capital expenditures, net deferred rent activity, third-party lease liability assumption payments, recurring share-based compensation expense, accretion of acquired below-market leases, net of amortization of acquired above-market leases, amortization of debt issuance costs and other non-cash income and charges. FAD is presented solely as a supplemental disclosure that management believes provides useful information as it relates to our ability to fund dividends.
We believe FFO, Core FFO and FAD are meaningful non‑GAAP financial measures useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because these non‑GAAP measures exclude real estate depreciation and amortization expense and other non-comparable income and expenses, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. FFO, Core FFO and FAD do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as a performance measure or cash flow as a liquidity measure. FFO, Core FFO and FAD may not be comparable to similarly titled measures used by other companies.
Net Operating Income (“NOI”) and Annualized NOI
“NOI” is a non-GAAP financial measure management uses to measure the operating performance of our assets and consists of property-related revenue (which includes base rent, tenant reimbursements and other operating revenue, net of free rent and payments associated with assumed lease liabilities) less operating expenses and ground rent, if applicable. NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and amortization of acquired above-market leases and below-market ground lease intangibles. Annualized NOI, for all assets except Crystal City Marriott, represents NOI for the three months ended September 30, 2019 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing 12-month NOI as of September 30, 2019. Management believes Annualized NOI provides useful information in understanding our financial performance over a 12-month period, however, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized NOI. Actual NOI for any 12-month period will depend on a number of factors beyond our ability to control or predict, including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay rent by one or more of our tenants and the destruction of one or more of our assets due to terrorist attack, natural disaster or other casualty, among others.
Contacts
Jaime Marcus
SVP, Investor Relations and Corporate Communications
(240) 333-3643
[email protected]
