What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-05 · 295 added, 218 removed, 323 unchanged (61% of the section changed)

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in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019.

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 our 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.

One of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on our 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 continues to impact us and our tenants depends on future developments, many of 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.

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The Separation and the Combination are collectively referred to as the "Formation Transaction."

References to our financial statements refer to our unaudited condensed consolidated financial statements as of March 31, 2020 and December 31, 2019, and for the three months ended March 31, 2020 and 2019.

References to our balance sheets refer to our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.

References to our statements of operations refer to our condensed consolidated statements of operations for the three months ended

March 31, 2020 and 2019.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019.

References to our financial statements refer to our unaudited condensed consolidated financial statements as of June 30, 2020 and December 31, 2019, and for the three and six months ended June 30, 2020 and 2019.

References to our balance sheets refer to our condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019.

References to our statements of operations refer to our condensed consolidated statements of operations for the three and six months

ended June 30, 2020 and 2019.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019.

The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

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Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

As of March 31, 2020, our Operating Portfolio consisted of 64 operating assets comprising 44 commercial assets totaling 13.3 million square feet (11.1 million square feet at our share) and 20 multifamily assets totaling 7,367 units (5,583 units at our share).

Additionally, we have (i) four assets under construction comprising two wholly owned commercial assets totaling 380,000 square feet and two multifamily assets totaling 755 units (577 units at our share);

As of June 30, 2020, our Operating Portfolio consisted of 63 operating assets comprising 43 commercial assets totaling 13.3 million square feet (11.2 million square feet at our share) and 20 multifamily assets totaling 7,367 units (5,583 units at our share).

Additionally, we have (i) three assets under construction comprising one wholly owned commercial asset totaling 274,000 square feet and two multifamily assets totaling 755 units (577 units at our share);

and (ii) 35 future development assets totaling approximately 19.4 million square feet (16.6 million square feet at our share) of estimated potential development density.

Since mid-2017, we have been focused on a comprehensive plan to reposition our holdings in National Landing through a broad array of Placemaking strategies.

Since mid-2017, we have been focused on a comprehensive plan to reposition our holdings in National Landing in Northern Virginia through a broad array of Placemaking strategies.

Our Placemaking strategies include the delivery of new multifamily and office developments, locally sourced amenity retail, and thoughtful improvements to the streetscape, sidewalks, parks and other outdoor gathering spaces.

In keeping with our dedication to Placemaking, each new project is intended to contribute to authentic and distinct neighborhoods by creating a vibrant street environment with a robust offering of amenity retail and improved public spaces.

In November 2018, Amazon.com ("Amazon") announced it had selected sites that we own in National Landing in Northern Virginia as the location of an additional headquarters.

In November 2018, Amazon.com ("Amazon") announced it had selected sites that we own in National Landing as the location of an additional headquarters.

In February 2019, the Commonwealth of Virginia enacted an incentives bill, which provides tax incentives to Amazon if it creates up to 37,850 full-time jobs with average salaries of $150,000 or higher in National Landing.

As part of the incentive package, we expect $1.8 billion in infrastructure and education investments led by state and local governments.

To date, Amazon has executed leases totaling approximately 857,000 square feet at five office buildings in our National Landing portfolio.

In March 2019, we executed purchase and sale agreements with Amazon for two of our National Landing development sites, Metropolitan Park and Pen Place, which will serve as the initial phase of new construction associated

with Amazon's new headquarters at National Landing.

To date, we have executed leases with Amazon totaling approximately 857,000 square feet at five office buildings in our National Landing portfolio.

associated with Amazon's new headquarters at National Landing.

Subject to customary closing conditions, Amazon contracted to acquire these two development sites for an estimated aggregate $293.9 million, or $72.00 per square foot based on their combined estimated potential development density of up to approximately 4.1 million square feet.

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On March 13, 2020, a National Emergency was declared in the United States in response to COVID-19.

The efforts made by federal, state and local governments to mitigate the spread of COVID-19 have included orders requiring the temporary closure of or imposed limitations on the operations of certain non-essential businesses, which have affected certain of our tenants, in particular tenants in the retail industry.

While it is too early to determine the long-term impact of COVID-19 on our business, we expect the effects of COVID-19 will negatively impact our operations during 2020 and possibly into 2021.

The key areas that we believe will be negatively impacted include:

● decreased retail revenue as some retailers will be unable to pay rent while stores are closed;

● an increase in apartment rental defaults as certain of our tenants become unemployed;

● a decline in parking revenue as office tenants work from home and transient parking declines;

● depressed near-term leasing activity;

● likely distress among coworking tenants, which comprise approximately 2.7% of our total square feet on a consolidated basis and 3.0% at our share;

● increased cleaning costs to address specific COVID-19 exposure at some of our buildings, balanced with an overall decrease in operating expenses in our commercial buildings as many of our tenants work from home;

● decreased income from the Crystal City Marriott hotel in National Landing due to its short-term closure during this crisis.

The efforts made by federal, state and local governments to mitigate the spread of COVID-19 included orders requiring the temporary closure of or imposed limitations on the operations of certain non-essential businesses, which have affected certain of our tenants, in particular tenants in the retail industry.

While the unfolding economic downturn threatens to be significant, we expect the D.C.

metropolitan area will prove to be more recession-resilient than other markets, as it has been in past recessions.

While it is difficult to determine the long-term impact of COVID-19 on our business, it has adversely impacted our operations to date in 2020, and we expect it to negatively impact our operations during 2020 and into 2021.

The key areas that have been and we expect will continue to be negatively impacted include:

● significantly decreased retail revenue from rent deferral accommodations offered to certain of our tenants that are unable to pay rent while stores are closed or not operating at full capacity, resulting in increased credit losses and write-offs against both billed and deferred (straight-line) rent receivables;

● an increase in apartment rental defaults as certain of our tenants become unable to pay their rent;

● a decline in parking revenue as office tenants work from home and transient parking declines (for the three months ended June 30, 2020, parking revenue declined by $3.3 million or 41.2% compared to the second quarter of 2019);

● depressed near-term leasing activity in both our commercial and multifamily portfolios, including the delay in the lease-up of our recently delivered multifamily assets;

● likely distress among coworking tenants, which comprised approximately 2.9% of our total square feet on a consolidated basis and 3.3% at our share as of June 30, 2020;

● increased cleaning costs to address specific COVID-19 exposure at some of our commercial and multifamily assets, partially offset by an overall decrease in operating expenses in our commercial buildings as many of our tenants' employees work from home;

● decreased income from the Crystal City Marriott hotel in National Landing due to its temporary closure during this crisis.

The hotel reopened in mid-June.

Net operating income (“NOI”) from this asset was $1.8 million for the year ended December 31, 2019;

● increased interest expense from borrowings to provide additional liquidity and financial flexibility comprising (i) $200.0 million draw under the revolving credit facility in March 2020, (ii) the $300.0 million draw under the revolving credit facility in April 2020, (iii) the remaining $100.0 million borrowed under our Tranche A-1 Term Loan in April 2020 and (iv) borrowings under mortgage loans in April 2020 of $20.2 million on a consolidated basis and $94.2 million at our share;

● the possibility of delays in the delivery of our development projects due to supply chain and labor disruptions on our projects currently under construction.

The following data provides early returns on our business through April 30, 2020.

We are providing this data on a one-time basis and undertake no obligation to provide updated data in the future.

These statistics are unaudited and preliminary, and we make no assurances that our experience in April 2020 will be indicative of future performance:

● rent collections for our commercial office assets were 96.7% on a consolidated basis and 97.0% at our share (2019 historical average rate is 99.7%);

● rent collections for our multifamily assets were 96.1% both on a consolidated basis and at our share (2019 historical average rate is 99.9%);

● rent collections for our commercial retail assets were 50.9% on a consolidated basis and 47.0% at our share (2019 historical average rate is 98.4%);

● commercial parking revenue decreased by approximately 54% on both a consolidated basis and at our share for the month of April relative to the average monthly first quarter parking revenue of $2.3 million on a consolidated basis and $2.6 million at our share.

While substantially all accommodations have been structured as rent deferrals, we expect our rent collection rate will deteriorate the longer this crisis persists.

As our confidence in rent collections changes, we expect increased reserves and write-offs against both billed and deferred (straight-line) rent receivables.

Given how early we are in this crisis, early rent collection data is not a meaningful indicator of long-term impact, other than as a measure of how many businesses in our region have been affected.

We believe it will be significantly more meaningful to see how many impacted businesses survive this crisis, as that will dictate our ultimate ability to collect some or all of the rents deferred during this period, as well as the amount of capital that will be needed to re-tenant any prematurely vacated commercial space.

Although we anticipate supply chain and labor delays as a result of new job site procedures, as of April 30, 2020, all of our construction projects are active and on schedule with the exception of 7900 Wisconsin Avenue, which is delayed by two quarters.

● increased interest expense from borrowings to provide additional liquidity and financial flexibility.

While we are always focused on the long term, we are providing the following data to provide additional information regarding the impact of the pandemic on rent collections for the three months ended June 30, 2020.

This data is unaudited and we make no assurances that our experience to date will be indicative of future performance.

In the future, we plan to return to providing only our customary metrics, and we undertake no obligation to continue to provide such information on a going forward basis.

● rent collections for our commercial office tenants were 98.5% (1) on a consolidated basis and 98.6% at our share (2019 historical average rate is 99.7%);

● rent collections for our multifamily tenants were 98.5% both on a consolidated basis and at our share (2019 historical average rate is 99.9%);

● rent collections for our commercial retail tenants were 61.8% (1) on a consolidated basis and 58.0% at our share (2019 historical average rate is 98.4%).

(1) Excludes $1.2 million of deferred rents, consisting of $0.2 million and $1.0 million for commercial office tenants and retail tenants.

Including these deferred rents, our rent collections for the second quarter of 2020 would have been 98.2% and 54.4% for commercial office tenants and retail tenants on a consolidated basis.

During the three and six months ended June 30, 2020, we recorded $3.6 million and $4.7 million of credit losses against billed rent receivables and $2.0 million and $3.6 million against deferred (straight-line) rent receivables due to the effects of COVID-19 related to certain of our tenants, primarily our retail tenants, that are unable to pay rent while businesses are closed or not operating at full capacity.

During the three months ended June 30, 2020, we also recorded $2.4 million of reserves against receivables from one of our parking operators that filed for bankruptcy protection.

Additionally, in connection with the preparation and review of our second quarter 2020 financial statements, we determined that our investment in the venture that owns The Marriott Wardman Park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment charge of $6.5 million, reducing the net book value of our investment to zero.

Although we are experiencing supply chain and labor delays as a result of new job site procedures, as of June 30, 2020, all of our construction projects are active and on schedule with the exception of 7900 Wisconsin Avenue, for which we revised the delivery date earlier this year to the first quarter of 2021, a delay of two quarters from the originally estimated completion date.

We are not aware of any material impact on the construction timeline for Amazon’s new headquarters.

For predevelopment projects that are in various stages of entitlement, many of these processes have slowed due to reduced or eliminated public meetings.

We obtained entitlements associated with approximately 820,000 square feet in National Landing immediately prior to Virginia’s stay-at -home order.

We obtained entitlements associated with approximately 820,000 square feet in National Landing immediately prior to Virginia’s stay-at-home order in March 2020.

These entitlements added approximately 65,000 square feet of potential development density to our future development pipeline.

● deferral of planned discretionary capital expenditures for our operating assets of approximately $69 million on a consolidated basis and $73 million at our share;

● pausing our plans to commence construction on 1900 Crystal Drive.

While we remain committed to building this asset as part of our National Landing Placemaking efforts, we intend to optimize pricing by waiting for an expected correction in construction costs;

● we have approximately $715 million of estimated multifamily borrowing capacity from our operating and under construction multifamily assets, of which approximately $440 million relates to our stabilized operating multifamily assets;

● we adopted a share repurchase plan, and through quarter end, we limited activity to modest levels to maximize liquidity in the early stages of the crisis;

● we declared our first quarter dividend as anticipated, which was unchanged from the prior quarters.

At this time, we do not view the funds to pay our dividends as a necessary source of additional internal liquidity.

During 2019, we sold or recapitalized approximately $426 million of assets, which included approximately $270 million of operating assets, that we believed were valued in excess of net asset value.

We anticipate the COVID-19 pandemic to significantly impact the real estate industry for years to come.

Over the short term, uncertainty surrounding the pandemic will likely suppress net new demand for office space and bias multifamily leasing to renewals.

Retail failures are likely to accelerate, and an already competitive marketplace will favor tenants with experience and capital.

Over the longer term, however, the story is likely to be more nuanced.

We believe the maturation of teleworking and the continuing trend to workplace flexibility are here to stay and will likely be felt through an increase in office workers served per square foot of space.

We believe this will be a headwind for office rent growth, much as densification served as a headwind over the past decade.

While the unfolding economic downturn continues to be significant, we take solace in the fact that in past recessions, the D.C.

metropolitan area has historically proven to be more resilient than other gateway markets.

Our concentration in this market, where a high percentage of demand for our businesses is driven by the federal government, government contractors and Amazon-related activity, should soften the anticipated impact of a recession on our business, and has the potential to translate into countercyclical growth.

We expect our heavy concentration in Amazon’s path of growth at a time like this to bear fruit on multiple fronts.

First and foremost, Amazon has historically increased its hiring pace during economic downturns.

Recent announcements from Amazon indicate that it intends to accelerate hiring for its additional headquarters in National Landing in the years ahead, and that the organization remains fully committed to its planned occupancies in National Landing.

In addition, the potential for construction cost reductions, an expected decline in the supply pipeline and limited disruptions to permitting and construction, should facilitate pursuit of our multifamily growth plans, especially those related to new development in National Landing.

Finally, we expect increased government spending in response to the pandemic to drive more agency and contractor spending locally, which should limit the effects of the downturn on our market, and may also provide stimulus for future growth.

Though we remain cautious on the short-term outlook for our business, as the impact of COVID-19 is difficult to predict, we see the potential for strong demand and growth in our market over the medium and long term.

During 2019, we sold or recapitalized approximately $426 million of assets, which included approximately $270 million of operating assets, that we believed were valued in excess of their net asset value.

The assets sold or recapitalized generated approximately $10 million of NOI during the year ended December 31, 2019.

We expected to continue this opportunistic strategy in 2020 by marketing over $500 million of assets for sale with an expectation to transact on at least $200 million.

While we cannot predict the depth and duration of the current economic downturn, it will likely reduce asset values and make it less likely that we will transact on these sales.

We plan to continue with our marketing efforts of certain assets and if we can transact at or above net asset value or at pricing that is accretive relative to other uses of capital, we intend to do so.

Given the impact of COVID-19 on the investment sales market, we believe it will be difficult to achieve the $200 million target.

Although the investment sales market was frozen for most of the second quarter, we have recently resumed our marketing efforts of certain assets and if we can transact at or above net asset value or at pricing that is accretive relative to other uses of capital, we intend to do so.

The significance, extent and duration of the impact of COVID-19 on our business remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time.

These developments include:

the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States;

the continued severity, duration, transmission rate and geographic spread, and possible resurgence, of COVID-19 in the United States;

the extent and effectiveness of the containment measures taken;

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Operating Results

Key highlights of operating results for the three months ended March 31, 2020 included:

● net income attributable to common shareholders of $42.9 million, or $0.32 per diluted common share, for the three months ended March 31, 2020 compared to $24.9 million, or $0.20 per diluted common share, for the three months ended March 31, 2019.

Net income attributable to common shareholders for the three months ended March 31, 2020 and 2019 included gains on the sale of real estate of $59.5 million and $39.0 million;

● third-party real estate services revenue, including reimbursements, of $29.7 million for the three months ended March 31, 2020 compared to $27.7 million for the three months ended March 31, 2019;

● operating commercial portfolio leased and occupied percentages at our share of 91.0% and 88.7% as of March 31, 2020 compared to 91.4% and 88.2% as of December 31, 2019 and 90.2% and 85.6% as of March 31, 2019;

● operating multifamily portfolio leased and occupied percentages at our share of 87.0% and 84.5% as of March 31, 2020 compared to 89.5% and 87.2% as of December 31, 2019 and 97.0% and 94.8% as of March 31, 2019.

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) into our recently delivered operating assets during the first quarter of 2020.

The in-service operating multifamily portfolio was 95.2% leased and 93.4% occupied as of March 31, 2020, compared to 95.1% leased and 93.3% occupied as of December 31, 2019;

● the leasing of 327,000 square feet, or 299,000 square feet at our share, at an initial rent (1) of $45.09 per square foot and a GAAP-basis weighted average rent per square foot (2) of $45.55 for the three months ended March 31, 2020;

● an increase in same store (3) NOI of 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.

Key highlights of operating results for the three and six months ended June 30, 2020 included:

● net loss attributable to common shareholders of $36.8 million, or $0.28 per diluted common share, for the three months ended June 30, 2020 compared to $3.0 million, or $0.03 per diluted common share, for the three months ended June 30, 2019.

Net income attributable to common shareholders of $6.1 million, or $0.04 per diluted common share, for the six months ended June 30, 2020 compared to $21.8 million, or $0.16 per diluted common share, for the six months ended June 30, 2019.

Net income attributable to common shareholders for the six months ended June 30, 2020 and 2019 included gains on the sale of real estate of $59.5 million and $39.0 million;

● third-party real estate services revenue, including reimbursements, of $27.2 million and $56.9 million for the three and six months ended June 30, 2020 compared to $29.5 million and $57.2 million for the three and six months ended June 30, 2019;

● operating commercial portfolio leased and occupied percentages at our share of 90.4% and 88.1% as of June 30, 2020 compared to 91.0% and 88.7% as of March 31, 2020 and 90.3% and 86.0% as of June 30, 2019;

● operating multifamily portfolio leased and occupied percentages at our share of 85.8% and 82.3% as of June 30, 2020 compared to 87.0% and 84.5% as of March 31, 2020 and 98.0% and 95.0% as of June 30, 2019;

● the leasing of 223,000 square feet, or 206,000 square feet at our share, at an initial rent (1) of $47.34 per square foot and a GAAP-basis weighted average rent per square foot (2) of $47.06 for the three months ended June 30, 2020, and the leasing of 549,000 square feet, or 505,000 square feet at our share, at an initial rent (1) of $46.01 per square foot and a GAAP-basis weighted average rent per square foot (2) of $46.17 for the six months ended June 30, 2020;

● a decrease in same store (3) NOI of 3.0% to $74.5 million for the three months ended June 30, 2020 compared to $76.8 million for the three months ended June 30, 2019, and an increase in same store (3) NOI of 0.4% to $150.4 million for the six months ended June 30, 2020 compared to $149.8 million for the six months ended June 30, 2019.

(1) Represents the cash basis weighted average starting rent per square foot, which excludes free rent and fixed escalations.

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(3) 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.

Additionally, investing and financing activity during the three months ended March 31, 2020 included:

Additionally, investing and financing activity during the six months ended June 30, 2020 included:

● the sale of Metropolitan Park to Amazon for the gross sales price of $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 site;

● the repayment in February 2020 of $200.0 million drawn under the revolving credit facility.

In March 2020, we drew $200.0 million under the revolving credit facility;

● the amendment of the credit facility to extend the maturity date of the revolving credit facility to January 2025;

● the sale of 11333 Woodglen Drive/NoBe II Land/Woodglen ("Woodglen"), commercial and future development assets located in Rockville, Maryland, by our unconsolidated real estate venture with Landmark for $17.8 million.

In connection with the sale, we recognized our proportionate share of the loss from the sale of $3.0 million;

● borrowings of $500.0 million under our revolving credit facility;

● the amendment of the credit facility to extend the maturity date of our revolving credit facility to January 2025;

● a $100.0 million draw under our unsecured term loan;

● the closing of a mortgage loan with a principal balance of $175.0 million collateralized by 4747 Bethesda Avenue;

● the repayment of mortgages payable totaling $2.2 million;

● the refinancing of the mortgage loan collateralized by RTC-West, increasing the principal balance by $20.2 million;

● a mortgage loan entered into by our real estate venture with CPPIB with a maximum principal balance of $160.0 million collateralized by 1900 N Street.

The venture initially received proceeds from the mortgage loan of $134.5 million ($74.0 million at our share), with an additional $25.5 million available in the future;

● the payment of dividends totaling $60.3 million and distributions to our noncontrolling interests of $7.6 million;

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● the investment of $181.2 million in development, construction in progress and real estate additions.

Activity subsequent to March 31, 2020 included:

● an additional $300.0 million draw under the revolving credit facility;

● a $100.0 million draw under our unsecured term loan;

● a mortgage loan entered into by our real estate venture with CPPIB with a maximum principal balance of $160.0 million collateralized by 1900 N Street.

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;

● the refinancing of the mortgage loan collateralized by RTC-West, increasing the principal balance to $117.3 million from $97.1 million;

● the declaration of a quarterly dividend of $0.225 per common share, payable on May 27, 2020 to shareholders of record as of May 13, 2020.

Activity subsequent to June 30, 2020 included:

● the closing of three separate mortgage loans with an aggregate principal balance of $385.0 million, collateralized by The Bartlett, 1221 Van Street and 220 20 th Street;

● the repayment of the $500.0 million outstanding balance on our revolving credit facility;

● the declaration of a quarterly dividend of $0.225 per common share, payable on August 27, 2020 to shareholders of record as of August 13, 2020.

Critical Accounting Policies and Estimates

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In December 2019, we acquired F1RST Residences.

Comparison of the Three Months Ended March 31, 2020 to 2019

The following summarizes certain line items from our statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the three months ended March 31, 2020 compared to the same period in 2019:

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2020 to 2019

Three Months Ended June 30,

(In thousands)

Property rentals revenue

Property rental revenue

Third-party real estate services revenue, including reimbursements

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Transaction and other costs

Loss from unconsolidated real estate ventures, net

Interest expense

Property rental revenue decreased by approximately $6.9 million, or 5.6%, to $115.5 million in 2020 from $122.3 million in 2019.

The decrease was primarily due to a $9.2 million decrease related to the Disposed Properties and a $7.5 million decrease in property rental revenue due to the deferral of rent for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to the COVID-19 pandemic.

The decrease in property rental revenue was partially offset by a $3.6 million increase related to 4747 Bethesda Avenue and West Half, both of which were placed into service during the second half of 2019, a $2.8 million increase related to properties with spaces leased to Amazon beginning in 2019 (1800 South Bell and 241 18 th Street South) and a $2.3 million increase related to F1RST Residences.

Third-party real estate services revenue, including reimbursements, decreased by approximately $2.3 million, or 7.9%, to $27.2 million in 2020 from $29.5 million in 2019.

The decrease was primarily due to a $1.2 million decrease in asset management fees and a $1.0 million decrease in property management fees primarily due to the sale of assets within the legacy funds formerly organized by The JBG Companies (the "JBG Legacy Funds"), and a $489,000 decrease in reimbursements revenue.

The decrease in third-party real estate services revenue was partially offset by a $515,000 increase in development fee income, primarily from Amazon.

Depreciation and amortization expense increased by approximately $6.6 million, or 14.4%, to $52.6 million in 2020 from $46.0 million in 2019.

The increase was primarily due to a $3.8 million increase related to 4747 Bethesda Avenue and West Half, a $1.6 million increase related to two under construction buildings (965 Florida Avenue and 901 W Street) that were placed into service in the first half of 2020, a $1.3 million increase related to F1RST Residences and a $1.2 million increase related to properties with spaces leased to Amazon beginning in 2019.

The increase in depreciation and amortization expense was partially offset by a $3.6 million decrease related to the Disposed Properties.

Property operating expense increased by approximately $1.7 million, or 5.2%, to $33.8 million in 2020 from $32.1 million in 2019.

The increase was primarily due to a $1.1 million increase related to 4747 Bethesda Avenue and West Half, a $862,000 increase related to F1RST Residences and an increase in property operating expenses across various properties throughout the portfolio.

The increase in property operating expense was partially offset by a $2.8 million decrease related to the Disposed Properties.

Real estate tax expense decreased by approximately $397,000, or 2.2%, to $17.9 million in 2020 from $18.3 million in 2019.

The decrease was primarily due to a $1.2 million decline related to the Disposed Properties and a decrease in real estate tax expense for various properties throughout the portfolio.

The decrease in real estate tax expense was partially

offset by a $750,000 increase at 4747 Bethesda Avenue and West Half due to a reduction in capitalized real estate taxes as those assets were placed in service and a $337,000 increase related to FIRST Residences.

General and administrative expense:

corporate and other increased by approximately $1.7 million, or 14.3%, to $13.2 million in 2020 from $11.6 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, which were partially offset by a decrease in consulting costs, professional fees and rent expense.

General and administrative expense:

third-party real estate services increased by approximately $529,000, or 1.8%, to $29.2 million in 2020 from $28.7 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in consulting costs and rent expense.

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $665,000, or 7.0%, to $8.9 million in 2020 from $9.5 million in 2019.

The decrease was primarily due to the application of the graded vesting approach to certain awards issued in prior years, which results in higher expense recognition in periods nearest to the date of grant.

Transaction and other costs of $1.4 million in 2020 consist primarily of costs incurred in connection with the Formation Transaction (including integration and severance costs).

Transaction and other costs of $3.0 million in 2019 consist primarily of $1.8 million of demolition costs related to 1900 Crystal Drive and $1.2 million of costs incurred in connection with the Formation Transaction (including integration and severance costs).

Loss from unconsolidated real estate ventures increased by approximately $11.7 million, or 645.0%, to $13.5 million for 2020 from $1.8 million in 2019.

The increase was primarily due to a $6.5 million impairment charge related to an investment in an unconsolidated real estate venture due to a decline in the fair value of the underlying asset, The Marriott Wardman Park hotel, and losses incurred during the quarter resulting from its closure in March 2020 due to the effects of COVID-19, and a $3.0 million loss from the sale of Woodglen by an unconsolidated real estate venture.

Interest expense increased by approximately $2.7 million, or 20.3%, to $15.8 million in 2020 from $13.1 million in 2019.

The increase was primarily due to higher average outstanding balances under our revolving credit facility and our unsecured term loans, and a new mortgage loan collateralized by 4747 Bethesda Avenue.

The increase was also due to a $4.7 million decrease in capitalized interest primarily due to a reduction in the capitalization of interest for 4747 Bethesda Avenue, West Half and 1900 N Street as those assets were placed in service.

The increase in interest expense was partially offset by a $2.9 million decrease related to the Disposed Properties and the repayment of several mortgages payable during 2019.

Comparison of the Six Months Ended June 30, 2020 to 2019

The following summarizes certain line items from our statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the six months ended June 30, 2020 compared to the same period in 2019:

Six Months Ended June 30,

(In thousands)

Property rental revenue

Third-party real estate services revenue, including reimbursements

Depreciation and amortization expense

Property operating expense

Real estate taxes expense

General and administrative expense:

Corporate and other

Third-party real estate services

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

Transaction and other costs

Income (loss) from unconsolidated real estate ventures, net

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Gain on sale of real estate

Property rentals revenue increased by approximately $967,000, or 0.8%, to $120.4 million in 2020 from $119.4 million in 2019.

The increase was primarily due to a $3.5 million increase related to 4747 Bethesda Avenue and West Half, both of which were placed into service during the second half of 2019, a $2.6 million increase related to properties with spaces leased to Amazon beginning in 2019 (1800 South Bell, 241 18 th Street South and 2345 Crystal Drive), a $2.5 million increase related to F1RST Residences and a $2.1 million increase primarily due to tenant reimbursements for construction services at 1901 South Bell Street.

The increase in property rentals revenue was partially offset by a $9.5 million decrease related to the Disposed Properties.

Third-party real estate services revenue, including reimbursements, increased by approximately $2.0 million, or 7.3%, to $29.7 million in 2020 from $27.7 million in 2019.

The increase was primarily due to a $1.2 million increase in development fee income, primarily from Amazon, and a $752,000 increase in other service revenue.

Depreciation and amortization expense decreased by approximately $230,000, or 0.5%, to $48.5 million in 2020 from $48.7 million in 2019.

The decrease was primarily due to a $3.7 million decrease related to the Disposed Properties and a $2.2 million decrease related to several properties in National Landing as certain tenant improvements fully amortized.

The decrease in depreciation and amortization expense was partially offset by a $3.1 million increase related to 4747 Bethesda Avenue and West Half, a $1.5 million increase related to properties with spaces leased to Amazon beginning in 2019 and a $1.3 million increase related to F1RST Residences.

* Not meaningful.

Property rental revenue decreased by approximately $5.9 million, or 2.4%, to $235.8 million in 2020 from $241.7 million in 2019.

The decrease was primarily due to an $18.7 million decrease related to the Disposed Properties and an $8.6 million decrease in property rental revenue due to the deferral of rent for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to the COVID-19 pandemic.

The decrease in property rental revenue was partially offset by a $7.1 million increase related to 4747 Bethesda Avenue and West Half, both of which were placed into service during the second half of 2019, a $5.0 million increase related to properties with spaces leased to Amazon beginning in 2019 (1800 South Bell and 241 18 th Street South), a $4.8 million increase related to F1RST Residences, a $1.8 million increase primarily due to tenant reimbursements for construction services at 1901 South Bell Street and a $1.8 million increase related to an increase in occupancy at 2200 Crystal Drive.

Third-party real estate services revenue, including reimbursements, decreased by approximately $295,000, or 0.5%, to $56.9 million in 2020 from $57.2 million in 2019.

The decrease was primarily due to a $1.9 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds and a $757,000 decrease in leasing fees.

The decrease in third-party real estate services revenue was partially offset by a $1.7 million increase in development fee income, primarily from Amazon and an $831,000 increase in other service revenue.

Depreciation and amortization expense increased by approximately $6.4 million, or 6.7%, to $101.1 million in 2020 from $94.7 million in 2019.

The increase was primarily due to a $7.0 million increase related to 4747 Bethesda Avenue and West Half, a $2.8 million increase related to properties with spaces leased to Amazon beginning in 2019, a $2.7 million increase related to F1RST Residences and a $1.9 million increase related to two under construction buildings (965 Florida Avenue and 901 W Street) that were placed into service in the first half of 2020.

The increase in depreciation and amortization expense was partially offset by a $7.3 million decrease related to the Disposed Properties and a $2.6 million decrease related to several properties in National Landing as certain tenant improvements fully amortized.

Property operating expense increased by approximately $4.0 million, or 6.2%, to $68.3 million in 2020 from $64.3 million in 2019.

The increase was primarily due to a $2.3 million increase related to 1901 South Bell Street and 2121 Crystal Drive resulting from higher reimbursable expenses, a $1.3 million increase related to 4747 Bethesda Avenue and West Half and a $709,000 increase related to F1RST Residences.

The increase was primarily due to a $2.4 million increase related to 4747 Bethesda Avenue and West Half, a $1.5 million increase related to F1RST Residences and an increase in property operating expenses across various properties throughout the portfolio.

The increase in property operating expense was partially offset by a $6.0 million decrease related to the Disposed Properties.

Real estate tax expense increased by approximately $567,000, or 1.6%, to $36.1 million in 2020 from $35.5 million in 2019.

The increase was primarily due to an increase in real estate taxes related to various properties throughout our portfolio due to higher assessments and a decrease in capitalized real estate taxes at 4747 Bethesda Avenue and West Half.

The increase was primarily due to a $1.6 million increase at 4747 Bethesda Avenue and West Half due to a reduction in capitalized real estate taxes as those assets were placed in service, a $678,000 increase related to F1RST Residences and an increase in real estate taxes related to various properties located in National Landing.

The increase in real estate tax expense was partially offset by a $2.6 million decline related to the Disposed Properties.

General and administrative expense:

corporate and other increased by approximately $862,000, or 7.0%, to $13.2 million in 2020 from $12.3 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards and an increase in overall consulting, legal and marketing expenses, partially offset by a decrease in rent expense.

corporate and other increased by approximately $2.5 million, or 10.6%, to $26.4 million in 2020 from $23.9 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards and an increase in compensation costs, partially offset by a decrease in professional fees and rent expense.

General and administrative expense:

third-party real estate services increased by approximately $748,000, or 2.7%, to $28.8 million in 2020 from $28.1 million in 2019.

third-party real estate services increased by approximately $1.3 million, or 2.2%, to $58.1 million in 2020 from $56.8 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in rent expense.

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share-based compensation related to Formation Transaction and special equity awards decreased by approximately $2.4 million, or 11.4%, to $18.3 million in 2020 from $20.7 million in 2019.

The decrease was primarily due to the vesting of certain awards issued in prior years.

Transaction and other costs of $5.3 million in 2020 include $4.0 million of costs related to a charitable commitment to the Washington Housing Conservancy, a non-profit that will acquire and own affordable workforce housing in the Washington D.C.

Transaction and other costs of $6.7 million in 2020 includes $4.0 million of costs related to a charitable commitment to the Washington Housing Conservancy, a non-profit that acquires and owns affordable workforce housing in the Washington D.C.

metropolitan region, and $2.7 million of costs incurred in connection with the Formation Transaction (including integration and severance costs).

Transaction and other costs of $4.9 million in 2019 include $2.3 million of demolition costs related to 1900 Crystal Drive, $2.1 million of costs incurred in connection with the Formation Transaction (including integration and severance costs) and $471,000 of expenses related to other completed, potential and pursued transactions.

Income (loss) from unconsolidated real estate ventures decreased by approximately $6.3 million, or 174.8%, to a loss of $2.7 million for 2020 from income of $3.6 million in 2019.

The decrease was primarily due to the recognition of $6.4 million of income, during the first quarter of 2019, related to distributions from the real estate venture that owns 1101 17th Street.

Transaction and other costs of $7.9 million in 2019 includes $4.1 million of demolition costs related to 1900 Crystal Drive, $3.3 million of costs incurred in connection with the Formation Transaction (including integration and severance costs) and $480,000 of expenses related to completed, potential and pursued transactions.

Income (loss) from unconsolidated real estate ventures decreased by approximately $18.0 million to a net loss of $16.2 million for 2020 from net income of $1.8 million in 2019.

The decrease was primarily due to a $6.5 million impairment charge related to an investment in an unconsolidated real estate venture due to a decline in the fair value of the underlying asset, The Marriott Wardman Park hotel, and losses incurred during the quarter resulting from its closure in March 2020 due to the effects of COVID-19, and a $3.0 million loss from the sale of Woodglen by an unconsolidated real estate venture.

The decrease was also due to the recognition of $6.4 million of income, during the first quarter of 2019, primarily related to distributions from the real estate venture that owns 1101 17th Street.

Interest expense decreased by approximately $2.5 million, or 8.3%, to $27.8 million in 2020 from $30.3 million in 2019.

The decrease was primarily due to a $5.7 million decrease related to the Disposed Properties and the repayment of several mortgages payable during 2019.

The decrease in interest expense was partially offset by a higher average outstanding balance under our revolving credit facility and a new mortgage loan collateralized by 4747 Bethesda Avenue.

The decrease in interest expense was also partially offset by a $1.6 million decrease in capitalized interest primarily due to a reduction in the capitalization of interest for 4747 Bethesda Avenue, West Half and 1900 N Street.

The decrease in interest expense was partially offset by higher average outstanding balances under our revolving credit facility and unsecured term loans, and a new mortgage loan collateralized by 4747 Bethesda Avenue.

The decrease in interest expense was partially offset by a $6.3 million decrease in capitalized interest primarily due to a reduction in the capitalization of interest for 4747 Bethesda Avenue, West Half and 1900 N Street as those assets were placed in service.

Gain on the sale of real estate of $59.5 million in 2020 was due to the sale of Metropolitan Park.

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FFO is a non-GAAP financial measure computed in accordance with the definition established by the National Association of Real Estate Investment Trusts ("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.

NAREIT defines FFO as net income (loss) (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.

We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because FFO excludes 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 does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income (computed in accordance with GAAP) as a performance measure or cash flow as a liquidity measure.

FFO does not represent cash generated from operating activities and is 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 may not be comparable to similarly titled measures used by other companies.

The following is the reconciliation of net income attributable to common shareholders, the most directly comparable GAAP measure, to FFO:

Three Months Ended March 31,

The following is the reconciliation of net income (loss) attributable to common shareholders, the most directly comparable GAAP measure, to FFO:

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except per share amounts)

Net income attributable to common shareholders

Net income attributable to redeemable noncontrolling interests

Net income (loss) attributable to common shareholders

Net income (loss) attributable to redeemable noncontrolling interests

Net income (loss)

Gain on sale of real estate

Loss (gain) on sale from unconsolidated real estate ventures

Real estate depreciation and amortization

Impairment of investment in unconsolidated real estate venture (1)

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

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

FFO attributable to common limited partnership units ("OP Units")

FFO attributable to noncontrolling interests in consolidated real estate ventures

FFO attributable to common limited partnership units

("OP Units")

FFO attributable to redeemable noncontrolling interests

FFO attributable to common shareholders

FFO per diluted common share

Weighted average diluted shares

FFO per common share — basic and diluted

Weighted average number of common shares outstanding — basic and diluted

In connection with the preparation and review of our second quarter 2020 financial statements, we determined that our investment in the venture that owns The Marriott Wardman Park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment charge of $6.5 million, reducing the net book value of our investment to zero.

NOI and Same Store NOI

We utilize NOI, which is a non-GAAP financial measure, to assess a segment's performance.

The most directly comparable GAAP measure is net income attributable to common shareholders.

The most directly comparable GAAP measure is net income (loss) 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.

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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.

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.

We believe that to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) attributable to common shareholders as presented in our financial statements.

NOI should not be considered as an alternative to net income (loss) 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.

We also provide certain information on a "same store"

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Acquisitions are moved into the same store pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment.

During the three months ended March 31, 2020, our same store pool changed due to the inclusion of our 50% interest in Central Place Tower and 1700 M Street.

Same store NOI increased by $3.9 million, or 5.2%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

The increase in same store NOI was largely attributable to increased occupancy and the burn off of rent abatements, as the lease renewals we executed in 2017 and 2018 reduced our NOI in 2019, primarily due to free rent associated with these early renewals.

The following is the reconciliation of net income attributable to common shareholders to NOI and same store NOI:

Three Months Ended March 31,

During the three months ended June 30, 2020, our same store pool changed due to the inclusion of 1800 South Bell and 1221 Van Street, and the exclusion of Woodglen, which was sold by an unconsolidated real estate venture during the second quarter of 2020.

During the six months ended June 30, 2020, our same store pool changed due to the inclusion of our 50% interest in Central Place Tower and 1700 M Street, and the exclusion of Woodglen.

Same store NOI decreased by $2.3 million, or 3.0%, and increased $558,000 and 0.4%, for the three and six months ended June 30, 2020, as compared to the three and six months ended June 30, 2019.

The decrease in same store NOI for the three months ended June 30, 2020 was driven by (i) lower occupancy, a reduction in revenue and higher operating costs at our multifamily properties, which were all related to the COVID-19 pandemic, and (ii) a reduction in revenue in our commercial portfolio due to the deferral of rent, an increase in uncollectable operating lease receivables, and a decline in parking revenue, all attributable to the COVID-19 pandemic, offset by the burn-off of rent abatements.

The increase in same store NOI for the six months ended June 30, 2020 was largely due to the burn off of rent abatements and increase in occupancy in our commercial portfolio, which was partially offset by higher operating costs and a reduction in revenue due to the deferral of rent and an increase in uncollectable operating lease receivables attributable to the COVID-19 pandemic.

The following is the reconciliation of net income (loss) attributable to common shareholders to NOI and same store NOI:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

Net income attributable to common shareholders

Net income (loss) attributable to common shareholders

Depreciation and amortization expense

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Loss on extinguishment of debt

Income tax benefit

Net income attributable to redeemable noncontrolling interests

Income tax expense (benefit)

Net income (loss) attributable to redeemable noncontrolling interests

Third-party real estate services, including reimbursements

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Number of properties in same store pool

(1) Excludes parking revenue of $6.4 million and $6.5 million for the three months ended March 31, 2020 and 2019.

(1) Excludes parking revenue of $810,000 and $7.2 million for the three and six months ended June 30, 2020, and $6.7 million and $13.1 million for the three and six months ended June 30, 2019.

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

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We defined our reportable segments to be aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker ("CODM"), makes key operating decisions, evaluates financial results, allocates resources and manages our business.

Accordingly, we aggregate our

operating segments into three reportable segments (commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.

Accordingly, we aggregate our operating segments into three reportable segments (commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.

The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party asset management and real estate services business, based on the NOI of properties within each segment.

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With respect to the third-party asset management and real estate services business, the CODM reviews revenue streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative:

third-party real estate services"), which are disclosed separately in our statements of operations and discussed in the preceding pages under "Results of Operations."

third-party real estate services"), which are both disclosed separately in our statements of operations and discussed in the preceding pages under "Results of Operations."

The following represents the components of revenue from our third-party real estate services business:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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(1) Represents reimbursements of expenses incurred by us on behalf of third parties, including allocated payroll costs and amounts paid to third-party contractors for construction management projects.

Third-party real estate services revenue, including reimbursements, increased by approximately $2.0 million, or 7.3%, to $29.7 million in 2020 from $27.7 million in 2019.

The increase was primarily due to a $1.2 million increase in development fee income, primarily from Amazon, and a $752,000 increase in other service revenue.

Third-party real estate services expenses increased by approximately $748,000, or 2.7%, to $28.8 million in 2020 from $28.1 million in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in rent expense.

Third-party real estate services revenue, including reimbursements, decreased by approximately $2.3 million, or 7.9%, to $27.2 million for the three months ended June 30, 2020 from $29.5 million for the same period in 2019.

The decrease was primarily due to a $1.2 million decrease in asset management fees, and a $1.0 million decrease in property management fees primarily due to the sale of assets within the JBG Legacy Funds, and a $489,000 decrease in reimbursements revenue.

The decrease in third-party real estate services revenue was partially offset by a $515,000 increase in development fee income, primarily from Amazon.

Third-party real estate services expenses increased by approximately $529,000, or 1.8%, to $29.2 million for the three months ended June 30, 2020 from $28.7 million for the same period in 2019.

The increase was primarily due to an increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in consulting costs and rent expense.

Third-party real estate services revenue, including reimbursements, decreased by approximately $295,000, or 0.5%, to $56.9 million for the six months ended June 30, 2020 from $57.2 million for the same period in 2019.

The decrease was primarily due to a $1.9 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds and a $757,000 decrease in leasing fees.

The decrease in third-party real estate services revenue was partially offset by a $1.7 million increase in development fee income, primarily from Amazon, and an $831,000 increase in other service revenue.

Third-party real estate services expenses increased by approximately $1.3 million, or 2.2%, to $58.1 million for the six months ended June 30, 2020 from $56.8 million for the same period in 2019.

The increase was primarily due to an

increase in share-based compensation expense from the issuance of the 2020 equity awards, partially offset by a decrease in rent expense.

Consistent with internal reporting presented to our CODM and our definition of NOI, the third-party asset management and real estate services operating results are excluded from the NOI data below.

Property revenue is calculated as property rentals revenue plus other property revenue (primarily parking revenue).

Property revenue is calculated as property rental revenue plus other property revenue (primarily parking revenue).

Property expense is calculated as property operating expenses plus real estate taxes.

Consolidated NOI is calculated as total property revenue less total property expense.

See Note 16 to the financial statements for the reconciliation of net income attributable to common shareholders to consolidated NOI for the three months ended March 31, 2020 and 2019.

See Note 16 to the financial statements for the reconciliation of net income (loss) attributable to common shareholders to consolidated NOI for the three and six months ended June 30, 2020 and 2019.

The following is a summary of NOI by segment:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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(1) Includes activity related to future development assets and corporate entities and the elimination of intersegment activity.

Comparison of the Three Months Ended March 31, 2020 to 2019

Rental revenue decreased by $5.2 million, or 5.0%, to $97.4 million in 2020 from $102.6 million in 2019.

Comparison of the Three Months Ended June 30, 2020 to 2019

Property rental revenue decreased by $14.9 million, or 14.7%, to $86.3 million in 2020 from $101.2 million in 2019.

Consolidated NOI decreased by $11.8 million, or 18.9%, to $50.3 million in 2020 from $62.1 million in 2019 .

The decrease in property revenue and consolidated NOI was primarily due to the sale of the Disposed Properties.

The decrease in property revenues and consolidated NOI was partially offset by an increase in revenue from 4747 Bethesda Avenue, which we placed into service during the fourth quarter of 2019, and to properties with spaces leased to Amazon beginning in 2019 (1800 South Bell, 241 18 th Street South and 2345 Crystal Drive).

Rental revenue increased by $4.6 million, or 16.3%, to $32.9 million in 2020 from $28.3 million in 2019.

Consolidated NOI increased by $1.1 million, or 6.4%, to $17.9 million in 2020 from $16.8 million in 2019.

The increase in property revenue and consolidated NOI was primarily due the acquisition of F1RST Residences and increased occupancy at 1221 Van Street.

Rental revenue also increased due to the placing of West Half into service in the second half of 2019.

The decrease in property revenue and consolidated NOI was primarily due to the sale of the Disposed Properties, a decrease in property rental revenue due to the deferral of rent for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to the COVID-19 pandemic, and a $2.4 million decrease due to bad debt reserves recorded in connection with the filing for bankruptcy by one of our parking operators.

Property rental revenue increased by $2.7 million, or 9.3%, to $31.7 million in 2020 from $29.0 million in 2019.

Consolidated NOI decreased by $359,000, or 2.2%, to $16.3 million in 2020 from $16.6 million in 2019.

The increase in property revenue was primarily due the acquisition of F1RST Residences and placing West Half into service in the second half of 2019.

The decrease in NOI was primarily due to increased payroll costs related to the COVID-19 pandemic and to no longer capitalizing expenses at 901 W Street as the property was placed into service in the first quarter of 2020.

Comparison of the Six Months Ended June 30, 2020 to 2019

Property rental revenue decreased by $20.1 million, or 9.8%, to $183.8 million in 2020 from $203.8 million in 2019.

Consolidated NOI decreased by $14.3 million, or 11.7%, to $107.4 million in 2020 from $121.7 million in 2019.

Property rental revenue increased by $7.3 million, or 12.7%, to $64.6 million in 2020 from $57.3 million in 2019.

Consolidated NOI increased by $723,000, or 2.2%, to $34.2 million in 2020 from $33.4 million in 2019.

The increase in property revenue and consolidated NOI was primarily due to the acquisition of F1RST Residences and increased occupancy at 1221 Van Street.

Property rental revenue also increased due to the placing of West Half into service in the second half of 2019.

Liquidity and Capital Resources

Property rental income is our primary source of operating cash flow and is dependent on a number of factors including occupancy levels and rental rates, as well as our tenants' ability to pay rent.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to the legacy funds formerly organized by JBG, the Washington Housing Initiative ("WHI") Impact Pool and other third parties.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to third parties, the Washington Housing Initiative ("WHI") Impact Pool, Amazon and the JBG Legacy Funds.

Our assets provide a relatively consistent level of cash flow that enables us to pay operating expenses, debt service, recurring capital expenditures, dividends to shareholders and distributions to holders of OP Units.

Other sources of liquidity to fund cash requirements include proceeds from financings, asset sales and the issuance and sale of equity securities.

We anticipate that cash flows from continuing operations and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be

adequate to fund our business operations, debt amortization, capital expenditures, and any dividends to shareholders and distributions to holders of OP Units over the next 12 months.

We anticipate that cash flows from continuing operations and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders and distributions to holders of OP Units over the next 12 months.

Financing Activities

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Interest Rate (1)

March 31, 2020

June 30, 2020

December 31, 2019

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Mortgages payable, net

(1) Weighted average effective interest rate as of March 31, 2020.

(1) Weighted average effective interest rate as of June 30, 2020.

(2) Includes variable rate mortgages payable with interest rate cap agreements.

(3) Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.

As of March 31, 2020 and December 31, 2019, the net carrying value of real estate collateralizing our mortgages payable totaled $1.6 billion and $1.4 billion.

As of June 30, 2020 and December 31, 2019, the net carrying value of real estate collateralizing our mortgages payable totaled $1.6 billion and $1.4 billion.

Our mortgages payable contain covenants that limit our ability to incur additional indebtedness on these properties and, in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity.

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See Note 17 to the financial statements for additional information.

During the three months ended March 31, 2020, we entered into a mortgage loan with a principal balance of $175.0 million collateralized by 4747 Bethesda Avenue.

In April 2020, we refinanced the mortgage loan collateralized by RTC-West, increasing the principal balance to $117.3 million from $97.1 million.

During the three months ended March 31, 2020, we repaid mortgages payable with an aggregate principal balance of $2.2 million.

As of March 31, 2020 and December 31, 2019, we had various interest rate swap and cap agreements on certain of our mortgages payable with an aggregate notional value of $1.0 billion and $867.6 million.

During the six months ended June 30, 2020, we entered into a mortgage loan with a principal balance of $175.0 million collateralized by 4747 Bethesda Avenue, and refinanced the mortgage loan collateralized by RTC-West, increasing the principal balance by $20.2 million.

In July 2020, we entered into three separate mortgage loans with an aggregate principal balance of $385.0 million, collateralized by The Bartlett, 1221 Van Street and 220 20 th Street.

As of June 30, 2020 and December 31, 2019, we had various interest rate swap and cap agreements on certain of our mortgages payable with an aggregate notional value of $945.4 million and $867.6 million.

See Note 15 to the financial statements for additional information.

Credit Facility

As of March 31, 2020, our $1.4 billion credit facility consisted of a $1.0 billion revolving credit facility maturing in January 2025, a delayed draw $200.0 million unsecured term loan ("Tranche A-1 Term Loan") maturing in January 2023, and a delayed draw $200.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024.

As of December 31, 2019, we had an outstanding balance of $200.0 million under the revolving credit facility, which was repaid in February 2020.

In March 2020, we drew $200.0 million under the revolving credit facility.

In April 2020, we drew an additional $300.0 million under the revolving credit facility and the remaining $100.0 million under our Tranche A-1 Term Loan.

As of March 31, 2020 and December 31, 2019, we had interest rate swaps with an aggregate notional value of $300.0 million and $237.6 million.

The interest rate swaps effectively convert the variable interest rate applicable to our Tranche A-1 and A-2 Term Loans to a fixed interest rate.

The interest rate swaps applicable to our Tranche A-1 and A-2 Term Loans mature in January 2023 and July 2024 and provide a weighted average base interest rate under the Tranche A-1 and A-2 Term Loans of 2.12% and 1.34% per annum as of March 31, 2020.

As of March 31, 2020, we had a forward-starting swap with an effective date of July 18, 2020 and a notional value of $100.0 million, which will effectively convert the variable interest rate applicable to the April 2020 draw of $100.0 million under our Tranche A-1 Loan to a fixed interest rate upon the effective date of the swap.

As of June 30, 2020, our $1.4 billion credit facility consisted of a $1.0 billion revolving credit facility maturing in January 2025, a $200.0 million unsecured term loan ("Tranche A-1 Term Loan") maturing in January 2023, and a $200.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024.

The following is a summary of amounts outstanding under the credit facility:

Interest Rate (1)

March 31, 2020

June 30, 2020

December 31, 2019

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Unsecured term loans, net

(1) Effective interest rate as of March 31, 2020.

(2) As of both March 31, 2020 and December 31, 2019, letters of credit with an aggregate face amount of $1.5 million were outstanding under our revolving credit facility.

(3) As of March 31, 2020 and December 31, 2019, net deferred financing costs related to our revolving credit facility totaling $7.9 million and $3.1 million were included in "Other assets, net."

(4) The interest rate for the revolving credit facility excludes a 0.15% facility fee.

In April 2020, we drew an additional $300.0 million under the revolving credit facility.

(5) As of March 31, 2020 and December 31, 2019, the outstanding balance was fixed by interest rate swap agreements.

In April 2020, we drew $100.0 million under the Tranche A-1 Term Loan.

(6) As of March 31, 2020 and December 31, 2019, the outstanding balance was fixed by interest rate swap agreements with a notional value of $200.0 million and $137.6 million.

(1) Effective interest rate as of June 30, 2020.

(2) As of both June 30, 2020 and December 31, 2019, letters of credit with an aggregate face amount of $1.5 million were outstanding under our revolving credit facility.

(3) As of June 30, 2020 and December 31, 2019, net deferred financing costs related to our revolving credit facility totaling $7.5 million and $3.1 million were included in "Other assets, net."

(4) The interest rate for our revolving credit facility excludes a 0.15% facility fee.

In July 2020, we repaid the $500.0 million outstanding on our revolving credit facility.

(5) As of both June 30, 2020 and December 31, 2019, $100.0 million of the outstanding balance was fixed by interest rate swap agreements.

As of June 30, 2020, the interest rate swaps mature concurrently with the term loan and provide a weighted average interest rate of 1.14%.

As of June 30, 2020, we had a forward-starting swap that became effective on July 20, 2020 with a notional value of $100.0 million, which effectively converted the variable interest rate applicable to the remaining $100.0 million drawn in April 2020 under our Tranche A-1 Loan to a fixed interest rate upon the effective date of the swap.

(6) As of June 30, 2020 and December 31, 2019, $200.0 million and $137.6 million of the outstanding balance was fixed by interest rate swap agreements.

As of June 30, 2020, the interest rate swaps mature concurrently with the term loan and provide a weighted average interest rate of 1.34%.

Our existing variable rate debt instruments, including our credit facility, and our hedging arrangements, currently use LIBOR as a reference rate, and we expect a transition from LIBOR to another reference rate in the near term.

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In March 2020, our Board of Trustees authorized the repurchase of up to $500 million of our outstanding common shares.

During the three months ended March 31, 2020, we repurchased and retired 1.4 million common shares for $41.2 million, an average purchase price of $29.01 per share.

During the six months ended June 30, 2020, we repurchased and retired 1.4 million common shares for $41.2 million, an average purchase price of $29.01 per share.

Purchases, to the extent made pursuant to the program, will be made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements.

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● proceeds from the issuance and sale of equity securities.

As discussed above, we expect the COVID-19 pandemic to have an adverse impact on our liquidity and capital resources.

Future decreases in cash flow from operations resulting from tenant defaults, rent deferrals or decreases in our rents or occupancy, would decrease the cash available for the capital uses described above.

There have been severe disruptions and instability in the global financial markets, and we could face difficulty in accessing debt and equity capital on attractive terms, or at all.

In addition, a significant decline in our operating performance in the future, including as a result of tenant delinquencies, could result in us not satisfying the financial covenants applicable to our debt, which could result in us not being able to incur additional debt, including the remaining availability under our credit facility, or result in a default.

Also as discussed above, in light of the current lack of visibility regarding the long-term impact of COVID-19 on our revenue, we have taken various steps to mitigate the adverse effect of COVID-19 on our liquidity, including deferral of approximately $69 million on a consolidated basis and $73 million at our share of planned discretionary capital expenditures for our operating assets.

Because we believe constructions costs will likely decline over the next several months, we have also paused our plans to commence construction on 1900 Crystal Drive to optimize pricing.

We have increased our cash balances through $500.0 million of draws under our revolving credit facility, $300.0 million of which was drawn subsequent to quarter end;

as a result of these draws, we have $498.5 million of remaining availability under our credit facility (net of outstanding letters of credit).

While we have not experienced a significant impact to date in this regard, we expect the COVID-19 pandemic to continue to have an adverse impact on our liquidity and capital resources.

Future decreases in cash flows from operations resulting from tenant defaults, rent deferrals or decreases in our rents or occupancy, would decrease the cash available for the capital uses described above.

In light of the current lack of visibility regarding the long-term impact of COVID-19 on our revenue, we have taken various steps to mitigate the adverse effect of COVID-19 on our liquidity, including deferral of approximately $69 million on a consolidated basis and $73 million at our share of planned discretionary capital expenditures for our operating assets for 2020 and 2021.

Because we believe construction costs will likely decline over the next several months, we have also paused our plans to commence construction on 1900 Crystal Drive to optimize pricing.

During the three months ended June 30, 2020, we increased our cash balances through $500.0 million of draws under our revolving credit facility, which we repaid in July 2020, in part with the proceeds from three separate mortgage loans with an aggregate principal balance of $385.0 million, collateralized by The Bartlett, 1221 Van Street and 220 20th Street.

As of July 30, 2020, we have $998.5 million of remaining availability under our credit facility (net of outstanding letters of credit totaling $1.5 million).

We also made a $100 million draw on our Tranche A-1 Term Loan in April 2020.

In an effort to increase the likelihood of our tenants continuing to comply with their rent obligations, we are working with our local Business Improvement Districts (BIDs) to provide resources to enable tenants to find and access federal, state, and local assistance, including the CARES Act, which provides forgivable loan funding for payroll, rent, utilities and other critical expenses.

Although, we adopted a share repurchase plan, through quarter end, we limited activity to modest levels to maximize liquidity in the early stages of the crisis.

As of March 31, 2020, our scheduled debt maturities for 2020 totaled $97.1 million on a consolidated basis and $212.9 million at our share.

Since the end of the first quarter, we have addressed approximately $97.1 million on a consolidated basis and $200.3 million at our share of this amount, including the refinancing of the loan collateralized by RTC West, which increased the loan to $117.3 million and generated additional cash proceeds of $20.2 million.

Substantially all of our scheduled 2021 maturities, which total $98.0 million on a consolidated basis and $99.6 million at our share, relate to the $95.8 million mortgage loan collateralized by WestEnd25, a stabilized multifamily asset located in Washington D.C., which we plan to refinance prior to its maturity.

As of June 30, 2020, $97.6 million on a consolidated basis and $212.5 million at our share is scheduled to mature before the end of 2021.

Contractual Obligations and Commitments

During the three months ended March 31, 2020, there were no material changes to the contractual obligation information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2019.

As of March 31, 2020, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling approximately $57.5 million.

During the six months ended June 30, 2020, there were no material changes to the contractual obligation information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2019.

The only significant change was a $590.7 million increase in outstanding debt primarily from an additional $300.0 million drawn under our revolving credit facility, a $175.0 million mortgage payable collateralized by 4747 Bethesda Avenue and the remaining $100.0 million draw under our Tranche A-1 Term Loan.

As of June 30, 2020, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $57.2 million.

The WHI was launched by us and the Federal City Council in June 2018 as a scalable market-driven model that uses private capital to help address the scarcity of housing for middle income families.

We are the manager for the WHI Impact Pool, which is the social impact investment vehicle of the WHI.

As of March 31, 2020, the WHI Impact Pool had completed closings of capital commitments totaling $104.8 million, which included a commitment from us of $10.2 million.

On April 30, 2020, our Board of Trustees declared a quarterly dividend of $0.225 per common share.

As of June 30, 2020, the WHI Impact Pool had completed closings of capital commitments totaling $106.5 million, which included a commitment from us of $10.4 million.

On July 30, 2020, our Board of Trustees declared a quarterly dividend of $0.225 per common share.

Summary of Cash Flows

The following summary discussion of our cash flows is based on our statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows:

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

Net cash provided by operating activities

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Cash Flows for the Three Months Ended March 31, 2020

Cash and cash equivalents, and restricted cash increased $171.5 million to $314.0 million as of March 31, 2020, compared to $142.5 million as of December 31, 2019.

This increase resulted from $85.7 million of net cash provided by financing activities, $43.9 million of net cash provided by investing activities and $41.9 million of net cash provided by operating activities.

Our outstanding debt was $1.8 billion and $1.6 billion as of March 31, 2020 and December 31, 2019.

The $172.8 million increase in outstanding debt was primarily from a new mortgage payable collateralized by 4747 Bethesda Avenue.

Cash Flows for the Six Months Ended June 30, 2020

Cash and cash equivalents, and restricted cash increased $588.5 million to $731.0 million as of June 30, 2020, compared to $142.5 million as of December 31, 2019.

This increase resulted from $469.7 million of net cash provided by financing activities, $85.5 million of net cash provided by operating activities and $33.3 million of net cash provided by investing activities.

Our outstanding debt was $2.2 billion and $1.6 billion as of June 30, 2020 and December 31, 2019.

The $590.7 million increase in outstanding debt was primarily from an additional $300.0 million drawn under our revolving credit facility, a $175.0 million mortgage payable collateralized by 4747 Bethesda Avenue and the remaining $100.0 million draw under our Tranche A-1 Term Loan.

Net cash provided by operating activities of $85.5 million primarily comprised:

(i) $55.5 million of net income (before $66.8 million of non-cash items and a $59.5 million gain on sale of real estate) and (ii) $532,000 of return on capital from unconsolidated real estate ventures, partially offset by (iii) $14.1 million of net change in operating assets and liabilities.

Non-cash income adjustments of $66.8 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, and net loss from unconsolidated real estate ventures.

(i) $107.9 million of net income (before $159.5 million of non-cash items and a $59.5 million gain on sale of real estate) and (ii) $1.9 million of return on capital from unconsolidated real estate ventures, partially offset by (iii) $24.3 million of net change in operating assets and liabilities.

Non-cash income adjustments of $159.5 million primarily include depreciation and amortization expense, share-based compensation expense, net loss from unconsolidated real estate ventures, deferred rent and losses on operating lease and other receivables.

Net cash provided by investing activities of $33.3 million primarily comprised:

(i) $154.5 million of proceeds from the sale of real estate, partially offset by (ii) $107.0 million of development costs, construction in progress and real estate additions and (iii) $3.6 million of investments in unconsolidated real estate ventures.

(i) $154.5 million of proceeds from the sale of real estate and (ii) $70.8 million of distributions of capital from unconsolidated real estate ventures, partially offset by (iii) $181.2 million of development costs, construction in progress and real estate additions and (iv) $10.7 million of investments in unconsolidated real estate ventures.

Net cash provided by financing activities of $469.7 million primarily comprised:

(i) $200.0 million of proceeds from borrowings under our revolving credit facility and (ii) $175.0 million of proceeds from borrowings under mortgages payable, partially offset by (iii) $200.0 million of repayments of our revolving credit facility, (iv) $41.2 million of common shares repurchased, (v) $30.2 million of dividends paid to common shareholders, (vi) $9.3 million of debt issuance costs and (vii) $3.8 million of distributions to redeemable noncontrolling interests.

Cash Flows for the Three Months Ended March 31, 2019

Cash and cash equivalents, and restricted cash increased $13.9 million to $413.5 million as of March 31, 2019, compared to $399.5 million as of December 31, 2018.

This increase resulted from $44.2 million of net cash provided by investing activities and $17.9 million of net cash provided by operating activities, partially offset by $48.2 million of net cash used in financing activities.

(i) $500.0 million of proceeds from borrowings under our revolving credit facility, (ii) $195.2 million of proceeds from borrowings under mortgages payable

and (iii) $100.0 million of proceeds from borrowings under unsecured term loans, partially offset by (iv) $200.0 million of repayments of our revolving credit facility, (v) $60.3 million of dividends paid to common shareholders, (vi) $41.2 million of common shares repurchased, (vii) $9.8 million of debt issuance costs and (viii) $7.6 million of distributions to redeemable noncontrolling interests.

Cash Flows for the Six Months Ended June 30, 2019

Cash and cash equivalents, and restricted cash decreased $102.8 million to $296.8 million as of June 30, 2019, compared to $399.5 million as of December 31, 2018.

This decrease resulted from $86.8 million of net cash used in financing activities and $68.7 million of net cash used in investing activities, partially offset by $52.8 million of net cash provided by operating activities.

Net cash provided by operating activities of $52.8 million primarily comprised:

(i) $46.9 million of net income (before $57.6 million of non-cash items and a $39.0 million gain on sale of real estate) and (ii) $398,000 of return on capital from unconsolidated real estate ventures, partially offset by (iii) $29.3 million of net change in operating assets and liabilities.

Non-cash income adjustments of $57.6 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent and income from unconsolidated real estate ventures.

Net cash provided by investing activities of $44.2 million primarily comprised:

(i) $117.7 million of proceeds from sale of real estate and (ii) $6.6 million of distributions of capital from unconsolidated real estate ventures, partially offset by (iii) $68.7 million of development costs, construction in progress and real estate additions and (iv) $2.9 million of investments in unconsolidated real estate ventures.

(i) $101.1 million of net income (before $115.3 million of non-cash items and a $39.0 million gain on sale of real estate) and (ii) $1.5 million of return on capital from unconsolidated real estate ventures, partially offset by (iii) $49.9 million of net change in operating assets and liabilities.

Non-cash income adjustments of $115.3 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, amortization of lease incentives and net income from unconsolidated real estate ventures.

Net cash used in investing activities of $68.7 million primarily comprised:

(i) $181.0 million of development costs, construction in progress and real estate additions, partially offset by (ii) $117.7 million of proceeds from sale of real estate.

Net cash used in financing activities of $86.8 million primarily comprised:

(i) $39.3 million of dividends paid to common shareholders, (ii) $5.9 million of distributions to redeemable noncontrolling interests and (iii) $3.1 million of repayments of mortgages payable.

(i) $480.7 million of repayments of mortgages payable, (ii) $69.5 million of dividends paid to common shareholders and (iii) $9.7 million of distributions to redeemable noncontrolling interests, partially offset by (iv) $473.5 million of net proceeds from the issuance of common stock.

Off-Balance Sheet Arrangements

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From time to time, we may have off-balance-sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.

As of March 31, 2020, we have investments in unconsolidated real estate ventures totaling $543.0 million.

For the majority of these investments, we exercise significant influence over but do not control these entities and, therefore.

account for these investments using the equity method of accounting.

As of June 30, 2020, we have investments in unconsolidated real estate ventures totaling $464.4 million.

For the majority of these investments, we exercise significant influence over but do not control these entities and, therefore, account for these investments using the equity method of accounting.

For a more complete description of our real estate ventures, see Note 4 to the financial statements.

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Amounts that we may be required to pay in future periods in relation to guarantees associated with budget overruns or operating losses are not estimable.

As of March 31, 2020, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $57.5 million.

As of March 31, 2020, we had no principal payment guarantees related to our unconsolidated real estate ventures.

Reconsideration events could cause us to consolidate these unconsolidated real estate ventures and partnerships in the future or deconsolidate a consolidated entity.

As of June 30, 2020, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $57.2 million.

As of June 30, 2020, we had no principal payment guarantees related to our unconsolidated real estate ventures.

Reconsideration events could cause us to consolidate these unconsolidated real estate ventures in the future or deconsolidate a consolidated entity.

We evaluate reconsideration events as we become aware of them.

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Construction Commitments

As of March 31, 2020, we had construction in progress that will require an additional $114.6 million to complete ($93.9 million related to our consolidated entities and $20.7 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, which we anticipate will be primarily expended over the next one to two years.

As of June 30, 2020, we had construction in progress that will require an additional $52.6 million to complete ($35.3 million related to our consolidated entities and $17.3 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, which we anticipate will be primarily expended over the next one to two years.

These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, issuance and sale of equity securities and available cash.

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In our opinion, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

With respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (1) guarantee portions of the principal, interest and other amounts, (2) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) and (3) provide guarantees to lenders, tenants and other third parties for the completion of development projects.

As of March 31, 2020, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.

With respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (1) guarantee portions of the principal, interest and other amounts, (2) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (3) provide guarantees to lenders, tenants and other third parties for the completion of development projects.

As of June 30, 2020, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.

In connection with the Formation Transaction, we have an agreement with Vornado regarding tax matters (the "Tax Matters Agreement") that provides special rules that allocate tax liabilities if the distribution of JBG SMITH shares by Vornado, together with certain related transactions, is determined not to be tax-free.

Under the Tax Matters Agreement, we may be required to indemnify Vornado against any taxes and related amounts and costs resulting from a violation by us of the Tax Matters Agreement.

Under the Tax Matters Agreement, we may be

required to indemnify Vornado against any taxes and related amounts and costs resulting from a violation by us of the Tax Matters Agreement.

Environmental Matters

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The costs of remediation or removal of such substances may be substantial and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral.

In connection with the ownership and operation of our assets, we may be potentially

liable for such costs.

In connection with the ownership and operation of our assets, we may be potentially liable for such costs.

The operations of current and former tenants at our assets have involved, or may have involved, the use of hazardous materials or generated hazardous wastes.

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Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in significant cost to us.

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $17.9 million as of both March 31, 2020 and December 31, 2019 and are included in "Other liabilities, net"

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $17.9 million as of both June 30, 2020 and December 31, 2019 and are included in "Other liabilities, net"

in our balance sheets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis