What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-04 · 235 added, 176 removed, 339 unchanged (55% of the section changed)

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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 ("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 significance, extent and duration of the impact of COVID-19 on us and our tenants remains largely uncertain and dependent on near-term and future developments that cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19, the roll-out, effectiveness and willingness of people to take COVID-19 vaccines, the extent and effectiveness of the containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in the area in which we operate.

The significance, extent and duration of the impact of COVID-19 on us and our tenants remains largely uncertain and dependent on near-term and future developments that cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19, the distribution, effectiveness and willingness of people to take COVID-19 vaccines, the extent and effectiveness of the containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in the area in which we operate.

Moreover, investors are cautioned to interpret many of the risks identified under the section titled "Risk Factors"

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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, 2021 and December 31, 2020, and for the three months ended March 31, 2021 and 2020.

References to our balance sheets refer to our condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

References to our statements of operations refer to our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020.

References to our financial statements refer to our unaudited condensed consolidated financial statements as of June 30, 2021 and December 31, 2020, and for the three and six months ended June 30, 2021 and 2020.

References to our balance sheets refer to our condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.

References to our statements of operations refer to our condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020.

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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Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders.

We intend to adhere to these requirements and maintain our REIT status in future periods.

We also participate in the activities conducted by subsidiary entities which have elected to be treated as taxable REIT subsidiaries under the Code.

We currently adhere and intend to continue to adhere to these requirements and to maintain our REIT status in future periods.

We also participate in the activities conducted by our subsidiary entities that have elected to be treated as taxable REIT subsidiaries under the Code.

As such, we are subject to federal, state and local taxes on the income from these activities.

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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, 2021, our Operating Portfolio consisted of 63 operating assets comprising 42 commercial assets totaling 13.3 million square feet (11.4 million square feet at our share) and 21 multifamily assets totaling 7,800 units (5,999 units at our share).

As of June 30, 2021, our Operating Portfolio consisted of 64 operating assets comprising 43 commercial assets totaling 13.3 million square feet (11.4 million square feet at our share) and 21 multifamily assets totaling 7,776 units (6,125 units at our share).

Additionally, we have:

(i) two under-construction multifamily assets totaling 1,130 units (969 units at our share);

(ii) nine wholly owned near-term development assets totaling 4.8 million square feet of estimated potential development density;

(i) one under-construction multifamily asset with 808 units (808 units at our share);

(ii) 11 near-term development assets totaling 5.2 million square feet (5.0 million square feet at our share) of estimated potential development density;

and (iii) 26 future development assets totaling 14.7 million square feet (11.9 million square feet at our share) of estimated potential development density.

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In November 2018, Amazon announced it had selected sites that we own in National Landing as the location of its new headquarters.

We currently have leases with Amazon totaling approximately 857,000 square feet at five office buildings in National Landing.

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 construction associated with Amazon's new headquarters at National Landing.

We currently have leases with Amazon totaling approximately 1.0 million square feet at six office buildings in National Landing, including approximately 167,000 square feet leased during the second quarter of 2021.

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 construction associated with Amazon's new headquarters at National Landing.

In January 2020, we sold Metropolitan Park to Amazon for $155.0 million and began constructing two new office buildings thereon, totaling 2.1 million square feet, inclusive of over 50,000 square feet of street-level retail with new shops and restaurants.

We expect the sale of Pen Place to Amazon to close in 2021.

We are the developer, property manager and retail leasing agent for Amazon's new headquarters at National Landing.

A fundamental component of our strategy to maximizing long-term net asset value per share is active capital allocation.

Since our inception in 2017, we have completed the sale, recapitalization and ground lease of $1.6 billion of primarily office assets, and we intend to opportunistically sell at least another $1.5 billion of non-core office assets and land.

We are currently targeting dispositions primarily of office assets in submarkets where we have less concentration and where we anticipate lower growth rates going forward relative to other opportunities within our portfolio.

Additionally, we may market select land assets where ground lease or joint venture execution may represent the clearest path to maximizing value.

Redeploying the proceeds from any such sales and recapitalizations will not only help fund our planned growth but will also further advance the strategic shift of our portfolio to majority multifamily.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide.

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 included orders requiring the temporary closure of or imposed limitations on the operations of certain non-essential businesses, which have adversely affected many tenants, especially tenants in the retail industry.

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 adversely affected many tenants, especially tenants in the retail industry.

While many of these restrictions have been removed, it is difficult to determine the long-term impact of COVID-19 on our business, and we expect it to continue to negatively impact our operations in 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 tenants unable to pay rent while stores were closed or not operating at full capacity, resulting in increased credit losses against billed rent receivables.

During 2020, we put substantially all co-working tenants and retailers except for grocers, pharmacies, essential businesses and certain national credit tenants on the cash basis of accounting;

● a decline in parking revenue as employees of office tenants work from home and transient parking declines (for the three months ended March 31, 2021, parking revenue declined by $3.7 million, or 46.5%, compared to the same period in 2020);

● depressed near-term leasing activity in our commercial and multifamily portfolios, including delays in the lease-up of our recently delivered multifamily assets, resulting in higher concessions and lower rents in our multifamily assets;

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

● decreased income from the Crystal City Marriott hotel in National Landing due to lower occupancy.

The hotel closed in late-March 2020 and reopened in mid-June 2020.

Net operating income ("NOI") from this asset decreased $569,000 for the three months ended March 31, 2021 compared to the same period in 2020;

● 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 March 31, 2021.

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 going forward.

● rent collections for our commercial office tenants were 99.5% (1) on a consolidated basis and 99.6% at our share (2019 annual average rate was 99.7%);

● rent collections for our multifamily tenants were 98.9% both on a consolidated basis and at our share (2019 annual average rate was 99.9%);

● rent collections for our commercial retail tenants were 76.4% (1) on a consolidated basis and 74.7% at our share (2019 annual average rate was 98.4%).

(1) Excludes $888,000 of deferred and abated rents, consisting of $212,000 for commercial office tenants and $648,000 for retail tenants.

Including these deferred and abated rents, our rent collections for the first quarter of 2021 on a consolidated basis would have been 99.3% for commercial office tenants and 70.6% for retail tenants.

Our rent collections for April 2021 kept pace with our first quarter of 2021 rent collections.

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

Over the short term, uncertainty surrounding the pandemic has and will likely continue to suppress demand for office space and bias multifamily

leasing to renewals, and an already competitive marketplace will favor tenants for years to come.

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 impact of COVID-19 continues to be significant, the Washington, 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.

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.

Announcements from Amazon during the past year suggest that it intends to accelerate hiring for its new headquarters in National Landing in the years ahead, and that the organization remains fully committed to its planned occupancies in National Landing.

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

Though we remain cautious on the short-and medium-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 markets over the long term.

The pandemic continues to evolve daily, and while we are optimistic about the future, given the rapid rise of new COVID-19 infections and the higher transmissibility of new variants, we remain cautious about the medium-term implications for office assets.

Vacancy is still at record highs across the region, and most companies are still not fully back in the office.

While we have seen an increase in leasing activity in our portfolio this quarter, occupancy of our in-service commercial portfolio declined by 250 basis points from March 31, 2021.

Although parking revenue remained relatively flat during the three months ended June 30, 2021 as compared to the same period in 2020, parking revenue in our commercial portfolio was approximately 50% below pre-pandemic levels of approximately $30 million annually.

We are seeing improvements in our multifamily portfolio, with a 140 basis point increase in the occupancy of our in-service operating multifamily portfolio from March 31, 2021.

While rents have not yet recovered to pre-pandemic levels, we are seeing an increase in market rents due to increased demand and limited new supply.

Due to the business disruptions and challenges caused by COVID-19, we provided rent deferrals and other lease concessions primarily to retail tenants.

We have entered into agreements with certain tenants, many of which have been placed on the cash basis of accounting, resulting in the deferral to future periods or abatement of $2.4 million of rent that had been contractually due in the second quarter of 2021.

We are negotiating additional rent deferrals and other lease concessions with some of our tenants, which have been considered when establishing credit losses against billed and deferred rent receivables.

During 2020, we began recognizing revenue from substantially all co-working tenants and retailers except for grocers, pharmacies, essential businesses and certain national credit tenants on the cash basis of accounting.

With 95% of our retail tenants now open for business, we expect the need to enter into additional deferrals to decrease as we enter the fall unless new restrictions are imposed.

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 speed of the vaccine roll-out, the effectiveness and willingness of people to take COVID-19 vaccines, the duration of associated immunity and the efficacy of vaccines against emerging variants of COVID-19, the extent and effectiveness of other containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in areas in which we operate, once the current containment measures are lifted, and whether the residential market in the Washington, D.C.

the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States, the continued speed of the vaccine distribution, the effectiveness and willingness of people to take COVID-19 vaccines, the duration of associated immunity and the efficacy of vaccines against variants of COVID-19, the extent and effectiveness of other containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in areas in which we

operate, as containment measures continue to be lifted, and whether the residential market in the Washington, D.C.

region and any of our properties will be materially impacted by the moratoriums on residential evictions, among others.

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Operating Results

Key highlights for the three months ended March 31, 2021 included:

● net loss attributable to common shareholders of $20.7 million, or $0.16 per diluted common share, for the three months ended March 31, 2021 compared to net income of $42.9 million, or $0.32 per diluted common share, for the three months ended March 31, 2020.

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

● third-party real estate services revenue, including reimbursements, of $38.1 million for the three months ended March 31, 2021 compared to $29.7 million for the three months ended March 31, 2020;

● operating commercial portfolio leased and occupied percentages at our share of 87.3% and 86.9% as of March 31, 2021 compared to 88.1% and 87.7% as of December 31, 2020 and 91.0% and 88.7% as of March 31, 2020;

● operating multifamily portfolio leased and occupied percentages at our share of 91.0% and 85.9% as of March 31, 2021 compared to 86.5% and 81.1% as of December 31, 2020 and 87.0% and 84.5% as of March 31, 2020.

The in-service operating multifamily portfolio was 92.3% leased and 88.4% occupied as of March 31, 2021, compared to 91.3% leased and 87.8% occupied as of December 31, 2020, and 95.2% leased and 93.4% occupied as of March 31, 2020;

● the leasing of 366,000 square feet, or 344,000 square feet at our share, at an initial rent (1) of $48.73 per square foot and a GAAP-basis weighted average rent per square foot (2) of $48.28 for the three months ended March 31, 2021;

● a decrease in same store (3) NOI of 9.2% to $75.9 million for the three months ended March 31, 2021 compared to $83.6 million for the three months ended March 31, 2020.

Key highlights for the three and six months ended June 30, 2021 included:

● net loss attributable to common shareholders of $3.0 million, or $0.03 per diluted common share, for the three months ended June 30, 2021 compared to $36.8 million, or $0.28 per diluted common share, for the three months ended June 30, 2020.

Net loss attributable to common shareholders of $23.7 million, or $0.19 per diluted common share, for the six months ended June 30, 2021 compared to 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.

Net income attributable to common shareholders for the six months ended June 30, 2021 and 2020 included a gain on the sale of real estate of $11.3 million and $59.5 million;

● third-party real estate services revenue, including reimbursements, of $26.7 million and $64.9 million for the three and six months ended June 30, 2021 compared to $27.2 million and $56.9 million for the three and six months ended June 30, 2020;

● operating commercial portfolio leased and occupied percentages at our share of 85.9% and 84.4% as of June 30, 2021 compared to 87.3% and 86.9% as of March 31, 2021, and 90.4% and 88.1% as of June 30, 2020;

● operating multifamily portfolio leased and occupied percentages at our share of 91.6% and 86.3% as of June 30, 2021 compared to 91.0% and 85.9% as of March 31, 2021, and 85.8% and 82.3% as of June 30, 2020.

The in-service operating multifamily portfolio was 95.0% leased and 89.8% occupied as of June 30, 2021, compared to 92.3% leased and 88.4% occupied as of March 31, 2021, and 93.3% leased and 90.2% occupied as of June 30, 2020;

● the leasing of 722,000 square feet, or 715,000 square feet at our share, at an initial rent (1) of $44.96 per square foot and a GAAP-basis weighted average rent per square foot (2) of $43.98 for the three months ended June 30, 2021, and the leasing of 1.1 million square feet on a consolidated basis and at our share, at an initial rent (1) of $46.19 per square foot and a GAAP-basis weighted average rent per square foot (2) of $45.38 for the six months ended June 30, 2021;

● an increase in same store (3) NOI of 0.4% to $76.5 million for the three months ended June 30, 2021 compared to $76.1 million for the three months ended June 30, 2020, and a decrease in same store (3) NOI of 4.6% to $152.2 million for the six months ended June 30, 2021 compared to $159.5 million for the six months ended June 30, 2020.

(1) Represents the cash basis weighted average starting rent per square foot at our share, 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, which excludes 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, 2021 included:

Additionally, investing and financing activity during the six months ended June 30, 2021 included:

● the leasing of the land underlying 1900 Crystal Drive located in National Landing to a lessee, which plans to construct an 808-unit multifamily asset comprising two towers with ground floor retail.

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We have an option to acquire the asset until a specified period after completion.

See Note 5 to the financial statements for additional information;

● an investment in two real estate ventures, in which we have 50% ownership interests, to design, develop, manage and own approximately 2.0 million square feet of new mixed-use development located in Potomac Yard, the southern portion of National Landing.

We recognized an $11.3 million gain on the land contributed to one of the real estate

ventures based on the cash received and the remeasurement of our retained interest in the asset.

See Note 4 to the financial statements for additional information;

● recognition of an aggregate gain of $5.2 million from the sale of various assets by our unconsolidated real estate ventures.

See Note 4 to the financial statements for additional information;

● the payment of dividends to our common shareholders totaling $59.2 million and distributions to our noncontrolling interests of $9.7 million;

● the repurchase and retirement of 619,749 million of our common shares for $19.2 million, an average purchase price of $30.96 per share;

● the repurchase and retirement of 619,749 of our common shares for $19.2 million, an average purchase price of $30.96 per share;

● the investment of $67.4 million in development, construction in progress and real estate additions.

Activity subsequent to March 31, 2021 included:

● the declaration of a quarterly dividend of $0.225 per common share, payable on May 27, 2021 to shareholders of record as of May 13, 2021;

● entering into two real estate ventures, in which we have 50% ownership interests, to design, develop, manage and own approximately 2.0 million square feet of new mixed-use development located in Potomac Yard, the southern portion of National Landing.

See Note 19 to the financial statements for additional information.

Activity subsequent to June 30, 2021 included:

● the declaration of a quarterly dividend of $0.225 per common share, payable on August 27, 2021 to shareholders of record as of August 13, 2021;

● a new mortgage loan with a principal balance of $85.0 million, collateralized by 1225 S.

Clark Street.

The mortgage loan has a seven-year term and an interest rate of LIBOR plus 1.60% per annum.

Critical Accounting Policies and Estimates

Our Annual Report on Form 10-K for the year ended December 31, 2020 contains a description of our critical accounting policies, including asset acquisitions and business combinations, real estate, investments in real estate ventures, revenue recognition and share-based compensation.

There have been no significant changes to our policies during the three months ended March 31, 2021.

There have been no significant changes to our policies during the six months ended June 30, 2021.

Recent Accounting Pronouncements

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In December 2020, we acquired the Americana Portfolio, which consists of a 1.4-acre future development parcel in National Landing that was formerly occupied by the Americana Hotel and three other parcels.

Comparison of the Three Months Ended March 31, 2021 to 2020

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, 2021 compared to the same period in 2020:

Three Months Ended March 31,

In April 2021, we contributed Potomac Yard Landbay G to an unconsolidated real estate venture.

Comparison of the Three Months Ended June 30, 2021 to 2020

Three Months Ended June 30,

(Dollars in thousands)

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Transaction and other costs

Loss from unconsolidated real estate ventures, net

Income (loss) from unconsolidated real estate ventures, net

Interest expense

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Property rental revenue increased by approximately $7.4 million, or 6.4%, to $122.8 million in 2021 from $115.5 million in 2020.

The increase was primarily due to a $3.8 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, a $2.4 million increase as 1770 Crystal Drive was placed into service in the fourth quarter of 2020, a $733,000 increase related to increased occupancy at 2345 Crystal Drive and an $874,000 increase related to the commencement of leases with Amazon at 241 18th Street South and 2200 Crystal Drive.

The increase in property rental revenue was partially offset by a $2.2 million decrease at the Universal Buildings and RiverHouse Apartments due to lower occupancy, a $1.9 million decrease at 1901 South Bell Street due to higher tenant reimbursements in 2020 for construction services, a $904,000 decrease related to 2100 Crystal Drive, which is currently vacant until Amazon takes occupancy of the entire building later this year, and a $570,000 decrease related to 2000 South Bell Street and 2001 South Bell Street as the properties were placed under construction in 2021.

The increase was primarily due to (i) a $4.6 million increase related to the deferral of rent and the write-off of deferred rent receivables for tenants that were placed on the cash basis of accounting in 2020 and a decrease in uncollectable operating lease receivables attributable to COVID-19 in 2021, (ii) a $4.2 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (iii) a $2.7 million increase related to 1770 Crystal Drive, which was placed into service in the fourth quarter of 2020, and (iv) a $1.5 million increase related to the commencement of leases with Amazon at 2100 Crystal Drive and 2200 Crystal Drive.

The increase in property rental revenue was partially offset by a $3.4 million decrease related to the Universal Buildings and RTC-West due to lower occupancy and a $1.7 million decrease related to RiverHouse Apartments and The Bartlett due to increased rent concessions and lower market rents.

Third-party real estate services revenue, including reimbursements, decreased by approximately $422,000, or 1.6%, to $26.7 million in 2021 from $27.2 million in 2020.

The decrease was primarily due to a $2.0 million decrease in reimbursements revenue related to tenant services projects, partially offset by a $1.3 million increase in development fee revenue primarily related to the timing of development projects.

Depreciation and amortization expense increased by approximately $4.1 million, or 7.7%, to $56.7 million in 2021 from $52.6 million in 2020.

The increase was primarily due to a $2.2 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, a $2.0 million increase related to 2345 Crystal Drive due to an increase in tenant improvements and an $801,000 increase due to 1770 Crystal Drive being placed into service.

The increase in depreciation and amortization expense was partially offset by a $1.1 million decrease at 7200 Wisconsin Avenue due to the disposal of a tenant improvement in 2020.

Property operating expense increased by approximately $1.2 million, or 3.6%, to $35.0 million in 2021 from $33.8 million in 2020.

The increase was primarily due to a $1.6 million increase related to 2451 Crystal Drive for costs incurred for construction management services provided to tenants and a $1.1 million increase related to 4747 Bethesda Avenue, West Half, The Wren and 900 W Street as these properties placed additional space into service.

The increase in property operating expense was partially offset by a $674,000 decrease related to 1901 South Bell Street due to costs incurred in 2020 for construction management services provided to tenants and a $567,000 decrease related to the Crystal City Marriott as the property incurred higher costs due to COVID-19 in 2020.

Real estate tax expense increased by approximately $689,000, or 3.9%, to $18.6 million in 2021 from $17.9 million in 2020.

The increase was primarily due to a $641,000 increase at 4747 Bethesda Avenue, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service.

General and administrative expense:

corporate and other increased by approximately $679,000, or 5.1%, to $13.9 million in 2021 from $13.2 million in 2020.

The increase was primarily due to increases in employee compensation and consulting costs, partially offset by declines in share-based compensation expense and temporary staffing costs.

General and administrative expense:

third-party real estate services decreased by approximately $3.7 million, or 12.6%, to $25.6 million in 2021 from $29.2 million in 2020.

The decrease was primarily due to a decrease in reimbursable expenses related to tenant services projects.

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $4.4 million, or 49.9%, to $4.4 million in 2021 from $8.9 million in 2020.

The decrease was primarily due to the graded vesting of certain awards issued in prior years, which resulted in lower expense as portions of the awards vested.

Transaction and other costs of $2.3 million in 2021 includes $1.6 million of expenses related to completed, potential and pursued transactions, $439,000 of demolition costs related to 2000 South Bell Street and 2001 South Bell Street, and $222,000 of integration and severance costs.

Transaction and other costs of $1.4 million in 2020 consist primarily of integration and severance costs.

Income from unconsolidated real estate ventures increased by approximately $17.4 million, or 129.3%, to $4.0 million for 2021 from a loss of $13.5 million in 2020.

The increase was primarily due to (i) a $6.5 million impairment charge recognized in 2020 related to our investment in a venture that owned The Marriott Wardman Park hotel, and to losses incurred from the hotel’s COVID-19 related closure and (ii) an aggregate gain of $5.2 million from the sale of various assets by our real estate ventures in 2021 as compared to a $3.0 million loss from the sale of Woodglen in 2020.

Interest expense increased by approximately $1.0 million, or 6.4%, to $16.8 million in 2021 from $15.8 million in 2020.

The increase was primarily due to a $1.8 million decrease in capitalized interest primarily due to the placing of additional space into service at 4747 Bethesda Avenue, West Half, The Wren, 901 W Street and 1770 Crystal Drive.

The increase was also due to higher average outstanding balances under our mortgage loans.

The increase in interest expense was partially offset by a lower outstanding balance under our revolving credit facility.

Gain on the sale of real estate of $11.3 million in 2021 was based on the cash received and the remeasurement of our retained interest in the land we contributed to one of our unconsolidated real estate ventures.

See Note 4 to the financial statements for additional information.

Comparison of the Six Months Ended June 30, 2021 to 2020

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, 2021 compared to the same period in 2020:

Six Months Ended June 30,

(Dollars 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

Interest expense

Gain on sale of real estate

Property rental revenue increased by approximately $9.2 million, or 3.9%, to $245.1 million in 2021 from $235.8 million in 2020.

The increase was primarily due to (i) an $8.1 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (ii) a $6.1 million increase due to the deferral of rent and the write-off of deferred rent receivable for tenants that were placed on the cash basis of accounting in 2020 and a decrease in uncollectable operating lease receivables attributable to COVID-19 and (iii) a $4.8 million increase as 1770 Crystal Drive was placed into service in the fourth quarter of 2020.

The increase in property rental revenue was partially offset by a $6.1 million decrease related to the Universal Buildings and RTC-West due to lower occupancy and a $3.5 million decrease related to RiverHouse Apartments and The Bartlett due to increased rent concessions and lower market rents.

Third-party real estate services revenue, including reimbursements, increased by approximately $8.0 million, or 14.0%, to $64.9 million in 2021 from $56.9 million in 2020.

The increase was primarily due to an $11.4 million increase in development fees related to the timing of development projects.

The increase in third-party real estate services revenue was partially offset by a $1.6 million decrease in property and asset management fees due to the sale of assets within the JBG Legacy Funds, an $887,000 decrease in leasing fees and an $841,000 decrease in construction management fees due to the timing of construction projects.

The increase was primarily due to a $12.8 million increase in development fees related to the timing of development projects.

The increase in third-party real estate services revenue was partially offset by a $1.8 million decrease in reimbursements revenue related to tenant services projects, a $1.7 million decrease in property and asset management fees due to the sale of assets within the JBG Legacy Funds and a $1.1 million decrease in construction management fees due to the timing of construction projects.

Depreciation and amortization expense increased by approximately $20.3 million, or 20.1%, to $121.4 million in 2021 from $101.1 million in 2020.

The increase was primarily due to a $6.8 million increase related to the Universal Buildings due to the write-off of certain tenant improvements, a $4.2 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, a $2.1 million increase related to 2345 Crystal Drive due to an increase in tenant improvements, a $1.5 million increase related to RTC-West due to the acceleration of depreciation of certain assets and a $794,000 increase due to 1770 Crystal Drive being placed into service.

Property operating expense increased by approximately $228,000, or 0.7%, to $34.7 million in 2021 from $34.5 million in 2020.

The increase was primarily due to a $1.4 million increase related to 4747 Bethesda Avenue, The Wren, 900 W Street, and 901 W Street as these properties placed additional space into service, a $735,000 increase in ground rent expense related to Courthouse Plaza 1 and 2, and a $390,000 increase due to 1770 Crystal Drive being placed into service.

The increase in property operating expense was partially offset by a $2.1 million decrease related to 1901 South Bell Street due to costs incurred in 2020 for construction management services provided to tenants.

The increase was primarily due to a $7.0 million increase related to the Universal Buildings due to the write-off of certain tenant improvements, a $6.5 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, a $4.1 million increase related to 2345 Crystal Drive due to an increase in tenant improvements, a $1.6 million increase due to 1770 Crystal Drive being placed into service and a $1.4 million increase related to RTC-West due to the acceleration of depreciation of certain assets.

Property operating expense increased by approximately $1.4 million, or 2.1%, to $69.7 million in 2021 from $68.3 million in 2020.

The increase was primarily due to (i) a $2.4 million increase related to 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (ii) a $1.6 million increase related to 2451 Crystal Drive due to costs incurred for construction management services provided to tenants and (iii) a $990,000 increase in ground rent expense related to Courthouse Plaza 1 and 2.

The increase in property operating expense was partially offset by a $3.7 million decrease related to 1901 South Bell Street and 1235 S.

Clark Street due to costs incurred in 2020 for construction management services provided to tenants.

Real estate tax expense increased by approximately $800,000, or 2.2%, to $36.9 million in 2021 from $36.1 million in 2020.

The increase was primarily due to a $662,000 increase at 4747 Bethesda Avenue, The Wren and 901 W Street as

these properties placed additional space into service, and an increase of $178,000 due to 1770 Crystal Drive being placed into service, partially offset by a decrease in real estate tax assessments for various properties located in National Landing.

The increase was primarily due to a $1.3 million increase at 4747 Bethesda Avenue, The Wren and 901 W Street as these properties placed additional space into service and an increase of $356,000 due to 1770 Crystal Drive being placed into service, partially offset by a decrease in real estate tax assessments for various properties located in National Landing.

General and administrative expense:

corporate and other decreased by approximately $701,000, or 5.3%, to $12.5 million in 2021 from $13.2 million in 2020.

The decrease was primarily due to declines in temporary staffing, marketing, and travel and entertainment expense, partially offset by an increase in share-based compensation expense from the issuance of the 2021 equity awards and an increase in information technology costs.

corporate and other decreased by approximately $22,000, or 0.1%, to $26.4 million in 2021.

The decrease was primarily due to a decline in share-based compensation expense, temporary staffing, marketing, and travel and entertainment expense, partially offset by an increase in employee compensation costs and consulting expenses.

General and administrative expense:

third-party real estate services increased by approximately $122,000, or 0.4%, to $28.9 million in 2021 compared to $28.8 million in 2020.

The increase was primarily due to an increase in reimbursable expenses.

third-party real estate services decreased by approximately $3.6 million, or 6.1%, to $54.5 million in 2021 from $58.1 million in 2020.

This decrease was primarily due to a decrease in reimbursable expenses related to tenant services projects and a decrease in share-based compensation expense.

General and administrative expense:

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The decrease was primarily due to the graded vesting of certain awards issued in prior years, which resulted in lower expense as portions of the awards vested.

Transaction and other costs of $3.7 million in 2021 primarily includes $2.4 million of expenses related to completed, potential and pursued transactions and $1.0 million of demolition costs related to 2000 South Bell Street and 2001 South Bell Street.

Transaction and other costs of $5.3 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.

Transaction and other costs of $6.0 million in 2021 includes $4.1 million of expenses related to completed, potential and pursued transactions, $1.4 million of demolition costs related to 2000 South Bell Street and 2001 South Bell Street and $462,000 of integration and severance costs.

Transaction and other costs of $6.7 million in 2020 primarily 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 area, and $2.7 million of integration and severance costs.

Loss from unconsolidated real estate ventures decreased by approximately $1.7 million, or 65.0%, to $943,000 for 2021 compared to $2.7 million in 2020.

The decrease was primarily due to losses incurred by the Marriott Wardman Park hotel in the first quarter of 2020 due to its COVID related closure.

We transferred our interest in the real estate venture to our partner in 2020.

Income from unconsolidated real estate ventures increased by approximately $19.2 million, or 118.6%, to $3.0 million for 2021 from a loss of $16.2 million in 2020.

The increase was primarily due to (i) a $6.5 million impairment charge recognized in 2020 related to our investment in a venture that owned The Marriott Wardman Park hotel, and $2.1 million for losses incurred from its COVID-19 related closure and (ii) an aggregate gain of $5.2 million from the sale of various assets by our real estate ventures in 2021 as compared to a $3.0 million loss from the sale of Woodglen in 2020 .

Interest expense increased by approximately $5.3 million, or 19.1%, to $33.1 million in 2021 from $27.8 million in 2020.

The increase was primarily due to a $3.6 million decrease in capitalized interest primarily due to the placing of 4747 Bethesda Avenue, West Half, The Wren, 900 W Street, 901 W Street and 1770 Crystal Drive into service.

The increase was primarily due to a $5.4 million decrease in capitalized interest primarily due to the placing of additional space into service at 4747 Bethesda Avenue, West Half, The Wren, 901 W Street and 1770 Crystal Drive.

The increase was also due to higher average outstanding balances under our unsecured term loans and mortgage loans.

The increase in interest expense was partially offset by a lower outstanding balance under our revolving credit facility.

See Note 4 to the financial statements for additional information.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Gain on sale of real estate

(Gain) loss 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

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FFO attributable to common shareholders

(1) During the second quarter of 2020, 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, and we suspended equity loss recognition for the venture after June 30, 2020.

On October 1, 2020, we transferred our interest in this venture to our former venture partner.

NOI and Same Store NOI

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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.

During the three months ended March 31, 2021, our same store pool changed due to the inclusion of 1800 South Bell Street, 500 L'Enfant Plaza, F1RST Residences and 1221 Van Street.

During the three months ended June 30, 2021, our same store pool remained at 56 properties due to the inclusion of the commercial portion of 2221 S.

Clark Street, which was bifurcated from the multifamily portion of the building, and the exclusion of Fairway Apartments, which was sold by an unconsolidated real estate venture during the second quarter of 2021.

During the six months ended June 30, 2021, our same store pool increased from 52 properties to 56 properties due to the inclusion of 1800 South Bell Street, 500 L'Enfant Plaza, F1RST Residences, 1221 Van Street and the commercial portion of 2221 S.

Clark Street and the exclusion of Fairway Apartments.

Information provided on a same store basis includes the results of properties that are owned, operated and in-service for the entirety of both periods being compared, which excludes properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

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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.

Same store NOI decreased by $7.7 million, or 9.2%, for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

The decrease in same store NOI was substantially attributable to COVID-19, including:

lower occupancy, higher concessions, lower rents and higher operating costs in our multifamily portfolio, (ii) lower occupancy, rent deferrals and a decline in parking revenue in our commercial portfolio, and (iii) lower occupancy at the Crystal City Marriott.

These declines were partially offset by the burn-off of rent abatement as well as cleaning and utilities expense savings across our commercial portfolio.

Same store NOI increased by $336,000, or 0.4%, to $76.5 million for the three months ended June 30, 2021 from $76.1 million in the same period in 2020.

The increase was largely attributable to a decrease in uncollectable operating lease receivables and rent deferrals, partially offset by lower occupancy in our commercial portfolio, and lower rents and higher concessions in our multifamily portfolio.

Same store NOI decreased $7.3 million, or 4.6%, to $152.2 million for the six months ended June 30, 2021 from $159.5 million for the same period in 2020.

The decrease was substantially attributable to COVID-19, which commenced at the end of the first quarter of 2020, including (i) higher concessions, lower rents and higher operating costs in our multifamily portfolio and (ii) lower occupancy and a decline in parking revenue in our commercial portfolio.

The decline was partially offset by a decrease in rent deferrals and uncollectable operating lease receivables related to tenants impacted by COVID-19, the burn-off of rent abatements and a decrease in cleaning expenses across our commercial portfolio.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

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Other revenue

Loss from unconsolidated real estate ventures, net

Interest and other income, net

Income (loss) from unconsolidated real estate ventures, net

Interest and other income (loss), net

Gain on sale of real estate

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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.

NOI includes property rental revenue and parking revenue, and deducts property operating expenses and real estate taxes.

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:

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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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Third-party real estate services revenue less expenses

(1) Estimated development fee revenue totaling $55.9 million as of March 31, 2021 is expected to be recognized over the next six years as unsatisfied performance obligations are completed.

(1) Estimated development fee revenue totaling $55.1 million as of June 30, 2021 is expected to be recognized over the next six years as unsatisfied performance obligations are completed.

(2) 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 $8.4 million, or 28.2%, to $38.1 million for the three months ended March 31, 2021 from $29.7 million for the same period in 2020.

The increase was primarily due to an $11.4 million increase in development fees related to the timing of development projects.

Third-party real estate services expenses increased by approximately $122,000, or 0.4%, to $28.9 million for the three months ended March 31, 2021 from $28.8 million for the same period in 2020.

The increase was primarily due to an increase in reimbursable expenses.

Third-party real estate services revenue, including reimbursements, decreased by approximately $422,000, or 1.6%, to $26.7 million for the three months ended June 30, 2021 from $27.2 million for the same period in 2020.

Third-party real estate services revenue, including reimbursements, increased by approximately $8.0 million, or 14.0%, to $64.9 million for the six months ended June 30, 2021 from $56.9 million for the same period in 2020.

The increase was primarily due to a $12.8 million increase in development fees related to the timing of development projects.

Third-party real estate services expenses decreased by approximately $3.7 million, or 12.6%, to $25.6 million for the three months ended June 30, 2021 from $29.2 million for the same period in 2020.

The decrease was primarily due to a decrease in reimbursable expenses related to tenant services projects.

Third-party real estate services expenses decreased by approximately $3.6 million, or 6.1%, to $54.5 million for the six months ended June 30, 2021 from $58.1 million in 2020.

This decrease was primarily due to a decrease in reimbursable expenses related to tenant services projects and a decrease in share-based compensation 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.

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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 (loss) attributable to common shareholders to consolidated NOI for the three months ended March 31, 2021 and 2020.

Consolidated NOI is calculated as property revenue less property expense.

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, 2021 and 2020.

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, 2021 to 2020

Property rental revenue decreased by $4.1 million, or 4.3%, to $93.3 million in 2021 from $97.4 million in 2020.

Consolidated NOI increased by $419,000, or 0.7%, to $57.5 million in 2021 from $57.1 million in 2020.

The decrease in property revenue was due to a $4.0 million decline in parking revenue from the same store commercial assets primarily from reduced transient and office parking related to COVID-19.

Consolidated NOI increased due to a $2.2 million increase related to 4747 Bethesda Avenue and 1770 Crystal Drive as these properties were placed into service, a $2.7 million increase related to 1225 South Clark Street and 2345 Crystal Drive due to higher occupancy, and an $892,000 increase related to the commencement of leases with Amazon at 241 18th Street South and 2200 Crystal Drive, partially offset by a decrease in parking revenue and a $1.0 million decrease related to the Universal Buildings due to lower occupancy.

Property rental revenue decreased by $289,000, or 0.9%, to $32.7 million in 2021 from $32.9 million in 2020.

Comparison of the Three Months Ended June 30, 2021 to 2020

Property rental revenue increased by $9.2 million, or 10.7%, to $95.6 million in 2021 from $86.3 million in 2020.

Consolidated NOI increased by $8.0 million, or 15.9%, to $58.3 million in 2021 from $50.3 million in 2020.

The increase in property revenue and consolidated NOI was due to (i) a decline in rent deferrals and uncollectable operating lease receivables related to tenants impacted by COVID-19, (ii) increases related to 4747 Bethesda Avenue and 1770 Crystal Drive as these properties were placed into service, and (iii) increases related to 2100 Crystal Drive, 2200 Crystal Drive, 1225 South Clark Street and 2345 Crystal Drive due to higher occupancy.

These increases were partially offset by a decrease related to the Universal Buildings due to lower occupancy.

Property rental revenue increased by $1.2 million, or 3.7%, to $32.8 million in 2021 from $31.7 million in 2020.

Consolidated NOI decreased by $536,000, or 3.3%, to $15.7 million in 2021 from $16.3 million in 2020.

The increase in property revenue was due to The Wren, 900 W Street, 901 W Street and West Half as these properties placed additional units into service.

The decrease in consolidated NOI was due to an increase in rent concessions and lower market rates, primarily at The Bartlett and RiverHouse Apartments, partially offset by increases in consolidated NOI from The Wren, 901 W Street and West Half.

Comparison of the Six Months Ended June 30, 2021 to 2020

Property rental revenue increased by $5.1 million, or 2.8%, to $188.9 million in 2021 from $183.8 million in 2020.

Consolidated NOI increased by $8.4 million, or 7.8%, to $115.9 million in 2021 from $107.4 million in 2020.

The increase in property revenue and consolidated NOI was due to (i) a decline in rent deferrals and uncollectable operating lease receivables related to tenants impacted by COVID-19, (ii) increases in revenues related to 4747 Bethesda Avenue and 1770 Crystal Drive as these properties were placed into service, and (iii) increases related to 2100 Crystal Drive, 1225 South Clark Street and 2345 Crystal Drive due to higher occupancy.

These increases were partially offset by a decrease in parking revenue due to reduced transient and office parking and decreases related to the Universal Buildings and RTC-West due to lower occupancy.

Property rental revenue increased by $883,000, or 1.4%, to $65.5 million in 2021 from $64.6 million in 2020.

Consolidated NOI decreased by $3.2 million, or 9.4%, to $30.9 million in 2021 from $34.2 million in 2020.

The decrease in property revenue and NOI was due to lower occupancy, higher concessions, lower rents, higher operating costs and an increase in uncollectable operating lease receivables in our same store multifamily assets, which were attributable to the impact of COVID-19.

The decline in property revenue and NOI was partially offset by increases related to West Half, The Wren and 901 W Street as these properties placed additional units into service.

The increase in property revenue was due to The Wren, 900 W Street, 901 W Street and West Half as these properties placed additional units into service.

The decrease in consolidated NOI was due to (i) an increase in rent concessions and lower market rates, primarily at The Bartlett and RiverHouse Apartments, (ii) higher operating expenses and (iii) higher insurance costs.

The decrease in consolidated NOI was partially offset by increases related to The Wren, 900 W Street, 901 W Street and West Half as these properties placed additional units into service.

Liquidity and Capital Resources

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Other sources of liquidity to fund cash requirements include proceeds from financings, recapitalizations, asset sales and the issuance and sale of 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, 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, 2021

June 30, 2021

December 31, 2020

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Mortgages payable, net

(1) Weighted average effective interest rate as of March 31, 2021.

(1) Weighted average effective interest rate as of June 30, 2021.

(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.

(4) As of March 31, 2021, net deferred financing costs related to an unfunded mortgage loan totaling $4.6 million were included in "Other assets, net."

As of March 31, 2021 and December 31, 2020, the net carrying value of real estate collateralizing our mortgages payable totaled $1.8 billion.

(4) As of June 30, 2021, net deferred financing costs related to an unfunded mortgage loan totaling $4.2 million were included in "Other assets, net."

As of June 30, 2021 and December 31, 2020, the net carrying value of real estate collateralizing our mortgages payable totaled $1.7 billion and $1.8 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.

As of March 31, 2021 and December 31, 2020, we had various interest rate swap and cap agreements on certain mortgages payable with an aggregate notional value of $1.3 billion.

In July 2021, we entered into a mortgage loan with a principal balance of $85.0 million, collateralized by 1225 S.

Clark Street.

The mortgage loan has a seven-year term and an interest rate of LIBOR plus 1.60% per annum.

As of June 30, 2021 and December 31, 2020, we had various interest rate swap and cap agreements on certain mortgages payable with an aggregate notional value of $1.3 billion.

See Note 15 to the financial statements for additional information.

Credit Facility

As of March 31, 2021 and December 31, 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.

As of June 30, 2021 and December 31, 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, 2021

June 30, 2021

December 31, 2020

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Unsecured term loans, net

(1) Effective interest rate as of March 31, 2021.

(2) As of March 31, 2021 and December 31, 2020, letters of credit with an aggregate face amount of $1.5 million were outstanding under our revolving credit facility.

(3) As of March 31, 2021 and December 31, 2020, net deferred financing costs related to our revolving credit facility totaling $6.2 million and $6.7 million were included in "Other assets, net."

(1) Effective interest rate as of June 30, 2021.

(2) As of June 30, 2021 and December 31, 2020, letters of credit with an aggregate face amount of $1.5 million were outstanding under our revolving credit facility.

(3) As of June 30, 2021 and December 31, 2020, net deferred financing costs related to our revolving credit facility totaling $5.8 million and $6.7 million were included in "Other assets, net."

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

(5) As of March 31, 2021 and December 31, 2020, the outstanding balance was fixed by interest rate swap agreements.

The interest rate swaps mature concurrently with the term loan and provide a weighted average interest rate of 1.39%.

(6) As of March 31, 2021 and December 31, 2020, the outstanding balance was fixed by interest rate swap agreements.

The interest rate swaps mature concurrently with the term loan and provide a weighted average interest rate of 1.34%.

(5) As of June 30, 2021 and December 31, 2020, the outstanding balance was fixed by interest rate swap agreements.

The interest rate swaps mature concurrently with the respective term loan and provide a weighted average interest rate of 1.39% for the Tranche A-1 Term Loan and 1.34% for the Tranche A-2 Term Loan.

Our existing floating rate debt instruments, including our credit facility, with a principal balance totaling $1.5 billion and our hedging arrangements with a notional value totaling $1.7 billion currently use as a reference rate the U.S.

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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, 2021, we repurchased and retired 619,749 common shares for $19.2 million, an average purchase price of $30.96 per share.

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, 2021, we repurchased and retired 619,749 common shares for $19.2 million, an average purchase price of $30.96 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.

Since we began the share repurchase program, we have repurchased and retired 4.4 million common shares for $124.0 million, an average purchase price of $28.18 per share.

Purchases under the program are 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.

The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share price, applicable legal requirements and other factors.

The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share price,

applicable legal requirements and other factors.

The program may be suspended or discontinued at our discretion without prior notice.

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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.

As of March 31, 2021, we have $998.5 million of availability under our credit facility (net of outstanding letters of credit totaling $1.5 million).

As of March 31, 2021, we had no debt on a consolidated basis scheduled to mature in 2021, and a mortgage payable totaling $102.1 million at our share that was scheduled to mature in 2021.

In April 2021, our unconsolidated real estate venture entered into a loan modification agreement, which extended the original maturity date of the mortgage payable to May 2023.

As of June 30, 2021, we had $998.5 million of availability under our credit facility (net of outstanding letters of credit totaling $1.5 million).

As of June 30, 2021, we had no debt on a consolidated basis and at our share scheduled to mature in 2021.

Contractual Obligations and Commitments

During the three months ended March 31, 2021, 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, 2020.

As of March 31, 2021, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $53.8 million.

As of March 31, 2021, we had committed tenant-related obligations totaling $58.2 million ($54.6 million related to our consolidated entities and $3.6 million related to our unconsolidated real estate ventures at our share).

During the six months ended June 30, 2021, 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, 2020.

As of June 30, 2021, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $62.7 million.

As of June 30, 2021, we had committed tenant-related obligations totaling $68.9 million ($65.0 million related to our consolidated entities and $3.9 million related to our unconsolidated real estate ventures at our share).

The timing and amounts of payments for tenant-related obligations are uncertain and may only be due upon satisfactory performance of certain conditions.

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

As of March 31, 2021, the WHI Impact Pool closed on capital commitments totaling $114.4 million, which includes a commitment from us of $11.2 million.

On April 29, 2021, our Board of Trustees declared a quarterly dividend of $0.225 per common share.

As of June 30, 2021, the WHI Impact Pool had completed

closings of capital commitments totaling $114.4 million, which included a commitment from us of $11.2 million.

As of June 30, 2021, our remaining commitment was $8.3 million.

On July 29, 2021, 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)

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Net cash (used in) provided by financing activities

Cash Flows for the Three Months Ended March 31, 2021

Cash and cash equivalents, and restricted cash decreased $14.8 million to $248.5 million as of March 31, 2021, compared to $263.3 million as of December 31, 2020.

Cash Flows for the Six Months Ended June 30, 2021

Cash and cash equivalents, and restricted cash decreased $24.6 million to $238.7 million as of June 30, 2021, compared to $263.3 million as of December 31, 2020.

This decrease resulted from $77.8 million of net cash used in financing activities and $70.4 million of net cash used in investing activities, partially offset by $123.6 million of net cash provided by operating activities.

Our outstanding debt was $2.0 billion as of March 31, 2021 and December 31, 2020.

Our outstanding debt was $2.0 billion as of June 30, 2021 and December 31, 2020.

Net cash provided by operating activities of $123.6 million primarily comprised:

(i) $51.0 million of net income (before $75.1 million of non-cash items), (ii) $9.5 million of net change in operating assets and liabilities and (iii) $6.0 million of return on capital from unconsolidated real estate ventures.

Non-cash income adjustments of $75.1 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, amortization of lease incentives and net loss from unconsolidated real estate ventures.

(i) $101.5 million of net income (before $140.1 million of non-cash items and $11.3 million gain on sale of real estate), (ii) $11.7 million of net change in operating assets and liabilities and (iii) $10.3 million of return on capital from unconsolidated real estate ventures.

Non-cash income adjustments of $140.1 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 $70.4 million comprised:

(i) $28.5 million of development costs, construction in progress and real estate additions and (ii) $1.0 million of investments in unconsolidated real estate ventures.

Net cash provided by financing activities of $51.8 million comprised:

(i) $67.4 million of development costs, construction in progress and real estate additions and (ii) $22.0 million of investments in unconsolidated real estate ventures, partially offset by (iii) $14.4 million of proceeds from the sale of real estate and (iv) $4.6 million of distributions of capital from unconsolidated real estate ventures.

Net cash used in financing activities of $77.8 million primarily comprised:

(i) $59.2 million of dividends paid to common shareholders, (ii) $19.2 million of common shares repurchased, (iii) $9.7 million of distributions to redeemable noncontrolling interests, (iv) $4.6 million of debt issuance costs, and (v) $3.3 million of repayments of mortgages payable, partially offset by (vi) $17.5 million of contributions from noncontrolling interests.

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.

Net cash provided by operating activities of $41.9 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.

Net cash provided by investing activities of $43.9 million 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.

Net cash provided by financing activities of $85.7 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.

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, 2021, we have investments in unconsolidated real estate ventures totaling $455.5 million.

As of June 30, 2021, we have investments in unconsolidated real estate ventures totaling $497.8 million.

For 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.

From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to unconsolidated real estate ventures, to (i) guarantee portions of the principal, interest and other amounts in connection with borrowings, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with borrowings or (iii) provide guarantees to

lenders and other third parties for the completion of development projects.

guarantees against fraud, misrepresentation and bankruptcy) in connection with borrowings or (iii) provide guarantees to lenders and other third parties for the completion of development projects.

We customarily have agreements with our outside venture partners whereby the partners agree to reimburse the real estate venture or us for their share of any payments made under certain of these guarantees.

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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, 2021, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $53.8 million.

As of March 31, 2021, 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.

As of June 30, 2021, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $62.7 million.

As of June 30, 2021, we had no principal payment guarantees related to our unconsolidated real estate ventures.

A reconsideration event could cause us to consolidate an unconsolidated real estate venture in the future or deconsolidate a consolidated entity.

We evaluate reconsideration events as we become aware of them.

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Although we believe that we currently have adequate insurance coverage, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future.

If lenders insist on greater coverage than we are able to obtain, it could adversely affect the ability to finance or refinance our properties.

If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.

Construction Commitments

As of March 31, 2021, we had construction in progress that will require an additional $351.3 million to complete ($345.9 million related to a consolidated entity and $5.4 million related to an unconsolidated real estate venture at our share), based on our current plans and estimates, which we anticipate will be primarily expended over the next four years.

As of June 30, 2021, we had assets under construction that will, based on our current plans and estimates, require an additional $330.7 million to complete, which we anticipate will be primarily expended over the next three 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 securities, and available cash.

The timing and amounts of payments for tenant-related obligations are uncertain and may only be due upon satisfactory performance of certain conditions.

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

As of March 31, 2021, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.

As of June 30, 2021, 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.

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To the extent we send contaminated materials to other locations for treatment or disposal, we may be liable for cleanup of those sites if they become contaminated.

Most of our assets have been subject, at some point, to environmental assessments that are intended to evaluate the environmental condition of the subject and surrounding assets.

Most of our assets have been subject, at some point, to environmental assessments that are intended to evaluate the environmental condition of the assets.

These environmental assessments generally have included a historical review, a public records review, a visual inspection of the site and surrounding assets, visual or historical evidence of underground storage tanks, and the preparation and issuance of a written report.

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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 $18.2 million as of March 31, 2021 and December 31, 2020 and are included in "Other liabilities, net"

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $18.2 million as of June 30, 2021 and December 31, 2020 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