What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-03 · 173 added, 184 removed, 390 unchanged (48% of the section changed)

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metropolitan area that have high barriers to entry and vibrant urban amenities.

Over half of our portfolio is in National Landing where we serve as the exclusive developer for Amazon.com, Inc.'s ("Amazon") new headquarters and where Virginia Tech's planned new $1 billion Innovation Campus is located.

Over half of our portfolio is in National Landing where we serve as the exclusive developer for Amazon.com, Inc.'s ("Amazon") new headquarters and where Virginia Tech's under-construction $1 billion Innovation Campus is located.

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

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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 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.

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

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

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

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the nine months ended September 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 disclosure 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.

Actual results could differ from these estimates.

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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 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).

As of September 30, 2021, our Operating Portfolio consisted of 63 operating assets comprising 42 commercial assets totaling 13.1 million square feet (11.3 million square feet at our share) and 21 multifamily assets totaling 7,776 units (6,125 units at our share).

Additionally, we have:

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and (iii) 25 future development assets totaling 14.3 million square feet (11.6 million square feet at our share) of estimated potential development density.

In 2021, we achieved carbon neutrality across our Operating Portfolio through the purchase of verified carbon offsets and renewable energy credits.

We continue to focus on our comprehensive plan to reposition our holdings in National Landing in Northern Virginia by executing a broad array of Placemaking strategies.

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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 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.

We currently have leases with Amazon totaling approximately 1.0 million square feet at six 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.

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 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.

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

Since our inception in 2017, we have completed the sale, recapitalization and/or ground lease of $1.7 billion of primarily office assets, and we intend to opportunistically sell at least another $1.4 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.

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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 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.

The pandemic continues to evolve, and while we are optimistic about the future, 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.

Occupancy of our commercial portfolio declined by 180 basis points from June 30, 2021, the majority of which was related to pre-pandemic decision making, although we had two civilian agency Government Services Administration tenants that reduced their leased square footage due to a planned shift toward working from home.

We expect continued pressure on our office occupancy through the end of the year and into 2022.

Although parking revenue increased during the three months ended September 30, 2021 as compared to the same period in 2020, parking revenue in our commercial portfolio was approximately 60% below pre-pandemic levels of approximately $30 million annually due to delayed return-to-the-office plans for many of our office tenants.

We are seeing improvements in our multifamily portfolio, with a 390 basis point increase in the occupancy of our operating multifamily portfolio from June 30, 2021 and an increase in market rents due to increased demand and limited new supply.

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 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 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.

Key highlights for the three and nine months ended September 30, 2021 included:

● net income attributable to common shareholders of $893,000, or $0.00 per diluted common share, for the three months ended September 30, 2021 compared to a net loss attributable to common shareholders of $22.8 million, or $0.18 per

diluted common share, for the three months ended September 30, 2020.

Net loss attributable to common shareholders of $22.8 million, or $0.18 per diluted common share, for the nine months ended September 30, 2021 compared to $16.6 million, or $0.14 per diluted common share, for the nine months ended September 30, 2020;

● third-party real estate services revenue, including reimbursements, of $25.8 million and $90.7 million for the three and nine months ended September 30, 2021 compared to $27.0 million and $83.9 million for the three and nine months ended September 30, 2020;

● operating commercial portfolio leased and occupied percentages at our share of 84.9% and 82.6% as of September 30, 2021 compared to 85.9% and 84.4% as of June 30, 2021, and 88.4% and 85.3% as of September 30, 2020;

● operating multifamily portfolio leased and occupied percentages at our share of 92.9% and 90.2% as of September 30, 2021 compared to 91.6% and 86.3% as of June 30, 2021, and 83.0% and 76.6% as of September 30, 2020.

The in-service operating multifamily portfolio was 95.1% leased and 92.1% occupied as of September 30, 2021, compared to 95.0% leased and 89.8% occupied as of June 30, 2021, and 92.8% leased and 88.1% occupied as of September 30, 2020;

● the leasing of 159,000 square feet, or 126,000 square feet at our share, at an initial rent (1) of $44.82 per square foot and a GAAP-basis weighted average rent per square foot (2) of $45.87 for the three months ended September 30, 2021, and the leasing of 1.2 million square feet on a consolidated basis and at our share, at an initial rent (1) of $46.04 per square foot and a GAAP-basis weighted average rent per square foot (2) of $45.43 for the nine months ended September 30, 2021;

● same store (3) NOI of $72.7 million for the three months ended September 30, 2021 was unchanged compared to the three months ended September 30, 2020, and a decrease in same store (3) NOI of 3.3% to $223.3 million for the nine months ended September 30, 2021 compared to $231.0 million for the nine months ended September 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 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.

Additionally, investing and financing activity during the nine months ended September 30, 2021 included:

● the lease 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.

Through the structure of the 1900 Crystal Drive transaction, we have the ability to facilitate an exchange out of an asset into 1900 Crystal Drive .

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● 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.

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;

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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 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 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;

● the execution of an agreement to acquire The Batley, a 432-unit multifamily asset in the Union Market submarket of Washington, D.C., for a purchase price of approximately $205 million, which we intend to use as a replacement property in a like-kind exchange for the proceeds from the sale of Pen Place to Amazon.

See Note 3 to the financial statements for additional information;

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

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

● the payment of dividends to our common shareholders totaling $88.9 million and distributions to our noncontrolling interests of $13.7 million;

● the repurchase and retirement of 2.9 million of our common shares for $88.1 million, an average purchase price of $29.99 per share;

● the investment of $108.4 million in development, construction in progress and real estate additions.

Activity subsequent to September 30, 2021 included:

● the declaration of a quarterly dividend of $0.225 per common share, payable on November 24, 2021 to shareholders of record as of November 10, 2021.

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 six months ended June 30, 2021.

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

Recent Accounting Pronouncements

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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

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 June 30, 2021 compared to the same period in 2020:

Three Months Ended June 30,

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

Three Months Ended September 30,

(Dollars in thousands)

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Interest expense

Gain on sale of real estate

* Not meaningful.

Property rental revenue increased by approximately $7.2 million, or 6.1%, to $125.9 million in 2021 from $118.7 million in 2020.

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.

The increase was primarily due to (i) a $5.1 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 $4.7 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 $2.6 million increase related to 1770 Crystal Drive, which was placed into service in the fourth quarter of 2020, and (iv) a $1.8 million increase related to the commencement of the lease with Amazon at 2100 Crystal Drive.

The increase in property rental revenue was partially offset by a $6.4 million decrease related to lower occupancy at the Universal Buildings, 2011 Crystal Drive, 2101 L Street and RTC-West.

Third-party real estate services revenue, including reimbursements, decreased by approximately $1.1 million, or 4.2%, to $25.8 million in 2021 from $27.0 million in 2020.

The decrease was primarily due to a $2.0 million decrease in reimbursements revenue, a $705,000 decrease in other service revenue and a $584,000 decrease in construction management fees, partially offset by a $1.4 million increase in development fee revenue primarily related to the timing of development projects and a $736,000 increase in leasing fees.

Depreciation and amortization expense increased by approximately $245,000, or 0.4%, to $56.7 million in 2021 from $56.5 million in 2020.

The increase was primarily due to (i) a $1.9 million increase related to 2345 Crystal Drive due to an increase in tenant improvements, (ii) a $1.7 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, and (iii) a $924,000 increase due to 1770 Crystal Drive being placed into service.

The increase in depreciation and amortization expense was partially offset by a $4.0 million decrease related to 2000 South Bell Street and 2001 South Bell Street as we commenced construction on two new buildings in 2021.

Property operating expense increased by approximately $2.6 million, or 7.0%, to $40.2 million in 2021 from $37.6 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.

The increase was primarily due to (i) a $1.2 million increase related to 2451 Crystal Drive for costs incurred for construction management services provided to tenants, (ii) an $885,000 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 $576,000 increase due to 1770 Crystal Drive being placed into service and (iv) $535,000 related to 2221 South Clark Street due to higher operating expenses.

The increase in property operating expense was partially offset by a $1.5 million decrease related to 1901 South Bell Street due to costs incurred in 2020 for construction management services provided to tenants.

Real estate tax expense increased by approximately $905,000, or 5.2%, to $18.3 million in 2021 from $17.4 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.

The increase was primarily due to a $548,000 increase related to 4747 Bethesda Avenue and The Wren as these properties placed additional space into service, and a $543,000 increase related to 5 M Street Southwest due to an increase in its applicable tax rate in 2021.

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.

corporate and other increased by approximately $1.0 million, or 9.2%, to $12.1 million in 2021 from $11.1 million in 2020.

The increase was primarily due to a decrease in capitalizable payroll costs related to development projects.

General and administrative expense:

third-party real estate services decreased by approximately $2.7 million, or 9.4%, to $25.5 million in 2021 from $28.2 million in 2020.

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

The decrease was primarily due to a decrease in reimbursable expenses.

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 $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,

Transaction and other costs of $3.0 million in 2021 primarily included $1.4 million of demolition costs related to 2000 South Bell Street and 2001 South Bell Street and $1.4 million of expenses related to completed, potential and pursued transactions.

Transaction and other costs of $845,000 in 2020 consisted of $406,000 of integration and severance costs, $260,000 of expenses related to completed, potential and pursued transactions, and $179,000 of demolition costs related to 223 23rd Street and 2300 Crystal Drive.

Income from unconsolidated real estate ventures increased by approximately $21.5 million to $20.5 million for 2021 from a loss of $965,000 in 2020.

The increase was primarily due to the recognition of our proportionate share of the gain from the sale of 500 L'Enfant Plaza of $23.1 million.

The increase in income from unconsolidated real estate ventures was

partially offset by a $1.4 million impairment of our investment in an unconsolidated real estate venture due to a decrease in the value of the underlying asset.

Interest expense increased by approximately $358,000, or 2.1%, to $17.2 million in 2021 from $16.9 million in 2020.

The increase was primarily due to a $1.3 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, and a $293,000 increase due to a new mortgage loan at 1225 S.

Clark Street.

The increase in interest expense was partially offset by a $1.2 million decrease related to the repayment of a mortgage loan at WestEnd25 in 2020.

Comparison of the Nine Months Ended September 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 nine months ended September 30, 2021 compared to the same period in 2020:

Nine Months Ended September 30,

(Dollars in thousands)

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Property rental revenue increased by approximately $16.4 million, or 4.6%, to $371.0 million in 2021 from $354.5 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.

The increase was primarily due to (i) a $12.8 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, (ii) an $11.1 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, (iii) a $7.4 million increase related to 1770 Crystal Drive, which was placed into service in the fourth quarter of 2020, (iv) a $3.9 million increase related to 1225 S.

Clark Street due to the commencement of a lease and (v) a $3.2 million increase related to the additional space leased by Amazon at 2345 Crystal Drive.

The increase in property rental revenue was partially offset by (i) a $14.1 million decrease related to lower occupancy at the Universal Buildings, 2011 Crystal Drive, 2101 L Street and RTC-West, (ii) a $4.2 million decrease related to RiverHouse Apartments and The Bartlett due to increased rent concessions and lower market rents, and (iii) a $3.4 million decrease related to 1901 South Bell Street due to tenant reimbursements for construction services in 2020.

Third-party real estate services revenue, including reimbursements, increased by approximately $6.8 million, or 8.1%, to $90.7 million in 2021 from $83.9 million in 2020.

The increase was primarily due to a $14.2 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.

The increase in third-party real estate services revenue was partially offset by a $3.8 million decrease in reimbursements revenue, a $1.7 million decrease in property and asset management fees due to the sale of assets within the JBG Legacy Funds and a $1.7 million decrease in construction management fees due to the timing of construction projects.

Depreciation and amortization expense increased by approximately $20.5 million, or 13.0%, to $178.1 million in 2021 from $157.6 million in 2020.

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.

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 $6.8 million increase related to the Universal Buildings due to the write-off of certain tenant improvements, (iii) a $6.0 million increase related to 2345 Crystal Drive due to an increase in tenant improvements, (iv) a $2.5 million increase due to 1770

Crystal Drive being placed into service, (v) a $1.5 million increase related to 1550 Crystal Drive as additional space was placed into service and (vi) a $1.3 million increase related to RTC-West due to the acceleration of depreciation of certain assets.

The increase in depreciation and amortization expense was partially offset by a $5.1 million decrease related to 2000 South Bell Street and 2001 South Bell Street as we commenced construction on two new buildings in 2021.

Property operating expense increased by approximately $4.1 million, or 3.8%, to $109.9 million in 2021 from $105.9 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 $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.

The increase was primarily due to (i) a $3.3 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 $2.8 million increase related to 2451 Crystal Drive due to costs incurred for construction management services provided to tenants, (iii) a $1.4 million increase due to 1770 Crystal Drive being placed into service and (iv) an $832,000 increase at Courthouse Plaza 1 and 2 related to ground rent expense.

The increase in property operating expense was partially offset by a $4.3 million decrease related to 1901 South Bell Street due to costs incurred in 2020 for construction management services provided to tenants.

Real estate tax expense increased by approximately $1.7 million, or 3.2%, to $55.1 million in 2021 from $53.4 million in 2020.

The increase was primarily due to (i) a $1.8 million increase at 4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street as these properties placed additional space into service, (ii) a $701,000 increase related to 5 M Street Southwest due to an increase in its applicable tax rate in 2021 and (iii) an increase of $533,000 due to 1770 Crystal Drive being placed into service.

The increase in real estate tax expense was 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 $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.

corporate and other increased by approximately $997,000, or 2.7%, to $38.5 million in 2021 from $37.5 million in 2020.

The increase was primarily due to a decrease in capitalizable payroll costs related to development projects.

General and administrative expense:

third-party real estate services decreased by approximately $6.2 million, or 7.2%, to $80.0 million in 2021 from $86.3 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.

This decrease was primarily due to a decrease in reimbursable expenses 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 $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.

Transaction and other costs of $8.9 million in 2021 consisted of $5.4 million of expenses related to completed, potential and pursued transactions, $2.9 million of demolition costs related to 2000 South Bell Street and 2001 South Bell Street and $616,000 of integration and severance costs.

Transaction and other costs of $7.5 million in 2020 primarily included $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 $3.1 million of integration and severance costs.

Income from unconsolidated real estate ventures increased by approximately $40.7 million, or 237.2%, to $23.5 million for 2021 from a loss of $17.1 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 .

The increase was primarily due to (i) the recognition of our proportionate share of the gain from the sale of various assets totaling $28.3 million as compared to a $3.0 million loss from the sale of Woodglen in 2020 and (ii) a $6.5 million impairment charge recognized in 2020 related to our investment in a venture that owned The Marriott Wardman Park hotel, and $2.7 million for losses incurred from its COVID-19 related closure.

The increase in income from unconsolidated real estate ventures was partially offset by a $1.4 million impairment of our investment in an unconsolidated real estate venture due to a decrease in the value of the underlying asset.

Interest expense increased by approximately $5.7 million, or 12.7%, to $50.3 million in 2021 from $44.7 million in 2020.

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.

The increase was primarily due to a $6.7 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 and a $5.7 million increase due to new mortgage loans entered into in 2020 at 1221 Van Street, The Bartlett and 220 20 th Street.

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

The increase in interest expense was

partially offset by a lower outstanding balance under our revolving credit facility and a $3.6 million decrease related to the repayment of a mortgage loan at WestEnd25 in 2020.

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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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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Gain on sale of real estate

(Gain) loss on sale from unconsolidated real estate ventures

(Gain) loss on sale of unconsolidated real estate assets

Real estate depreciation and amortization

Impairment of investment in unconsolidated real estate venture (1)

Impairment of investments in unconsolidated real estate ventures (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.

(1) Related to decreases in the value of the underlying assets.

NOI and Same Store NOI

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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.

of free rent and payments associated with assumed lease liabilities) less operating expenses and ground rent, if applicable.

NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and the amortization of acquired above-market leases and below-market ground lease intangibles.

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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 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.

During the three months ended September 30, 2021, our same store pool decreased to 55 properties from 56 properties due to the exclusion of 500 L'Enfant Plaza, which was sold by an unconsolidated real estate venture during the period.

During the nine months ended September 30, 2021, our same store pool increased from 52 properties to 55 properties due to the inclusion of 1800 South Bell Street, F1RST Residences, 1221 Van Street and the commercial portion of 2221 S.

Clark Street, and the exclusion of Fairway Apartments, which was sold during the period.

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 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.

Same store NOI remained at $72.7 million for the three months ended September 30, 2021 compared to the same period in 2020.

Same Store NOI was positively impacted by a decrease in uncollectable operating lease receivables and rent deferrals, which was offset by lower occupancy in our commercial portfolio, and lower rents and higher concessions for certain of our multifamily assets.

Same store NOI decreased $7.7 million, or 3.3%, to $223.3 million for the nine months ended September 30, 2021 from $231.0 million for the same period in 2020.

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

These declines were partially offset by 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Income (loss) from unconsolidated real estate ventures, net

Interest and other income (loss), net

Interest and other income, net

Gain on sale of real estate

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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 both 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.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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Third-party real estate services revenue less expenses

(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.

(1) Estimated development fee revenue totaling $51.2 million as of September 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, 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.

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the three and nine months ended September 30, 2021 in the preceding pages under "Results of Operations."

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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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.

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 nine months ended September 30, 2021 and 2020.

The following is a summary of NOI by segment:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 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 June 30, 2021 to 2020

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

Property rental revenue increased by $3.0 million, or 3.2%, to $96.0 million in 2021 from $93.1 million in 2020.

Consolidated NOI increased by $2.7 million, or 4.9%, to $56.9 million in 2021 from $54.2 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.

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 1770 Crystal Drive as the property was 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 related to the Universal Buildings and 2101 L Street due to lower occupancy.

Property rental revenue increased by $4.6 million, or 15.1%, to $35.1 million in 2021 from $30.5 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

Consolidated NOI increased by $3.3 million, or 26.5%, to $16.0 million in 2021 from $12.6 million in 2020.

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

These increases were partially offset by lower rents and higher concessions at RiverHouse Apartments and 2221 South Clark Street.

Comparison of the Nine Months Ended September 30, 2021 to 2020

Property rental revenue increased by $8.1 million, or 2.9%, to $284.9 million in 2021 from $276.8 million in 2020.

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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 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.

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, 2101 L Street and RTC-West due to lower occupancy.

Property rental revenue increased by $5.5 million, or 5.8%, to $100.6 million in 2021 from $95.1 million in 2020.

Consolidated NOI increased by $125,000, or 0.3%, to $46.9 million in 2021 from $46.8 million in 2020.

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

These increases were partially offset by lower rents and higher concessions at RiverHouse Apartments and The Bartlett.

Liquidity and Capital Resources

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Interest Rate (1)

June 30, 2021

September 30, 2021

December 31, 2020

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Mortgages payable, net

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

(1) Weighted average effective interest rate as of September 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 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.

(4) As of September 30, 2021, net deferred financing costs related to an unfunded mortgage loan totaling $4.0 million were included in "Other assets, net."

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

As of September 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 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.

As of September 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)

June 30, 2021

September 30, 2021

December 31, 2020

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Unsecured term loans, 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."

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

(2) As of September 30, 2021 and December 31, 2020, letters of credit with an aggregate face amount of $1.4 million and $1.5 million were outstanding under our revolving credit facility.

(3) As of September 30, 2021 and December 31, 2020, net deferred financing costs related to our revolving credit facility totaling $5.4 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 June 30, 2021 and December 31, 2020, the outstanding balance was fixed by interest rate swap agreements.

(5) As of September 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.

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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 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.

During three and nine months ended September 30, 2021, we repurchased and retired 2.3 million and 2.9 million common shares for $68.9 million and $88.1 million, an average purchase price of $29.73 and $29.99 per share.

During the three and nine months ended September 30, 2020, we repurchased and retired 1.4 million and 2.9 million common shares for $38.4 million and $79.6 million, an average purchase price of $26.64 and $27.82 per share.

Since we began the share repurchase program, we have repurchased and retired 6.7 million common shares for $192.9 million, an average purchase price of $28.71 per share.

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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 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.

As of September 30, 2021, we had $998.6 million of availability under our credit facility (net of outstanding letters of credit totaling $1.4 million).

As of September 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 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).

During the nine months ended September 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 September 30, 2021, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $66.1 million.

As of September 30, 2021, we had committed tenant-related obligations totaling $76.9 million ($73.6 million related to our consolidated entities and $3.3 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 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.

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

On October 27, 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:

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

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.

Cash Flows for the Nine Months Ended September 30, 2021

Cash and cash equivalents, and restricted cash decreased $34.2 million to $229.2 million as of September 30, 2021, compared to $263.3 million as of December 31, 2020.

This decrease resulted from $91.8 million of net cash used in financing activities and $96.8 million of net cash used in investing activities, partially offset by $154.4 million of net cash provided by operating activities.

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

Our outstanding debt was $2.1 billion and $2.0 billion as of September 30, 2021 and December 31, 2020.

Net cash provided by operating activities of $154.4 million primarily comprised:

(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.

(i) $147.7 million of net income (before $185.4 million of non-cash items and $11.3 million gain on sale of real estate), (ii) $13.2 million of return on capital from unconsolidated real estate ventures and (iii) $6.5 million of net change in operating assets and liabilities.

Non-cash income adjustments of $185.4 million primarily include depreciation and amortization expense, share-based compensation expense, net income from unconsolidated real estate ventures, deferred rent and amortization of lease incentives.

Net cash used in investing activities of $96.8 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.

(i) $108.4 million of development costs, construction in progress and real estate additions, (ii) $32.7 million of investments in unconsolidated real estate ventures and other, and (iii) $10.3 million of deposits for real estate and other acquisitions, partially offset by (iv) $40.2 million of distributions of capital from unconsolidated real estate ventures and (v) $14.4 million of proceeds from the sale of real estate.

Net cash used in financing activities of $91.8 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.

(i) $88.9 million of dividends paid to common shareholders, (ii) $82.3 million of common shares repurchased, (iii) $13.7 million of distributions to redeemable noncontrolling interests, (iv) $5.7 million of debt issuance costs, and (v) $4.5 million of repayments of mortgages payable, partially offset by (vi) $85.0 million of borrowings under mortgages payable and (vii) $17.5 million of contributions from 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 June 30, 2021, we have investments in unconsolidated real estate ventures totaling $497.8 million.

As of September 30, 2021, we have investments in unconsolidated real estate ventures totaling $486.1 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.

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.

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.

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 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.

As of September 30, 2021, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures totaling $66.1 million.

As of September 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.

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Construction Commitments

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.

As of September 30, 2021, we had assets under construction that will, based on our current plans and estimates, require an additional $320.3 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.

The timing and

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

There are various legal actions against us in the ordinary course of business.

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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 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.

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

As of September 30, 2021, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.

Environmental Matters

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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 June 30, 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 September 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