What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-02 · 203 added, 190 removed, 355 unchanged (53% of the section changed)

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

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

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, the legacy funds formerly organized by The JBG Companies ("JBG") (the "JBG Legacy Funds") and other third parties.

Substantially all our assets are held by, and our operations are conducted through, JBG SMITH Properties LP ("JBG SMITH LP"), our operating partnership.

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References to "our share"

refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures, but exclude our 10% subordinated interest in one commercial building and our 33.5% subordinated interest in four commercial buildings, as well as the associated non-recourse mortgages payable, held through unconsolidated real estate ventures as our investment in each real estate venture is zero, we do not anticipate receiving any near-term cash flow distributions from the real estate ventures and have not guaranteed their obligations or otherwise committed to providing financial support.

refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures, but exclude our 10.0% subordinated interest in one commercial building and our 33.5% subordinated interest in four commercial buildings, as well as the associated non-recourse mortgages payable, held through unconsolidated real estate ventures;

these interests and debt are excluded because our investment in each real estate venture is zero, we do not anticipate receiving any near-term cash flow distributions from the real estate ventures and we have not guaranteed their obligations or otherwise committed to providing financial support.

Occupancy, non-GAAP financial measures, leverage metrics, operating assets and operating metrics also exclude these subordinated interests.

We were organized for the purpose of receiving, via the spin-off on July 17, 2017 (the "Separation"), substantially all of the assets and liabilities of Vornado Realty Trust's ("Vornado") Washington, D.C.

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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, 2022 and December 31, 2021, and for the three and six months ended June 30, 2022 and 2021.

References to our balance sheets refer to our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

References to our statements of operations refer to our condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021.

References to our financial statements refer to our unaudited condensed consolidated financial statements as of September 30, 2022 and December 31, 2021, and for the three and nine months ended September 30, 2022 and 2021.

References to our balance sheets refer to our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

References to our statements of operations refer to our condensed consolidated statements of

operations for the three and nine months ended September 30, 2022 and 2021.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021.

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.

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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.

Our revenues and expenses are, to some extent, subject to seasonality during the year, which impacts quarterly net earnings, cash flows and funds from operations that affects the sequential comparison of our results in individual quarters over time.

Our revenues and expenses are, to some extent, subject to seasonality during the year, which impacts quarterly net earnings, cash flows and funds from operations;

this seasonality affects the sequential comparison of our results in individual quarters over time.

For instance, we have historically experienced higher utility costs in the first and third quarters of the year.

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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, 2022, our Operating Portfolio consisted of 56 operating assets comprising 35 commercial assets totaling 10.5 million square feet (8.9 million square feet at our share), 19 multifamily assets totaling 7,359 units (6,496 units at our share) and two wholly owned land assets for which we are the ground lessor.

As of September 30, 2022, our Operating Portfolio consisted of 56 operating assets comprising 35 commercial assets totaling 10.5 million square feet (8.9 million square feet at our share), 19 multifamily assets totaling 7,359 units (6,608 units at our share) and two wholly owned land assets for which we are the ground lessor.

Additionally, we have:

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

Additionally, the cutting-edge digital infrastructure investments we are making, including our ownership of Citizens Broadband Radio Service wireless spectrum in National Landing and an agreement with AT&T, are advancing our efforts to make National Landing among the first 5G-operable submarkets in the nation.

Additionally, the cutting-edge digital infrastructure investments we are making, including our ownership of Citizens Broadband Radio Service wireless spectrum in National Landing and our agreements with AT&T and Federated Wireless, are advancing our efforts to make National Landing among the first 5G-operable submarkets in the nation.

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

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We have sold to Amazon two of our National Landing development sites, Metropolitan Park and Pen Place.

We are currently constructing two new office buildings for Amazon on Metropolitan Park, totaling 2.1 million square feet, inclusive of over 50,000 square feet of street-level retail with new shops and restaurants.

We are currently constructing two new office buildings for Amazon on Metropolitan Park, 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 maximize long-term net asset value ("NAV") per share is active capital allocation.

We evaluate development, acquisition, disposition, share repurchase and other investment decisions based on how they may impact long-term NAV per share.

We intend to continue to opportunistically sell non-core office assets outside of National Landing as well as land sites where a ground lease or joint venture execution may represent the most attractive path to maximizing value.

We evaluate development, acquisition, disposition, share repurchases and other investment decisions based on how they may impact long-term NAV per share.

We intend to continue to opportunistically sell non-core office assets as well as land sites where a ground lease or joint venture execution may represent the most attractive path to maximizing value.

Successful execution of our capital allocation strategy enables us to source capital at NAV from the disposition of assets generating low cash yields and invest those proceeds in new acquisitions with higher cash yields and growth, as well as in development projects with significant yield spreads and profit potential.

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These discussions and negotiations may or may not lead to definitive documentation or closed transactions.

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

Our office portfolio occupancy improved by 280 basis points in the second quarter as compared to March 31, 2022.

Excluding assets that were sold during the quarter, our operating commercial operating occupancy increased by 40 basis points in the second quarter.

New leasing has been slow to recover from the pandemic and will likely continue to lag due to delayed return-to-the office plans and decision-making related to future office utilization.

We anticipate redeploying the proceeds from these sales will not only help fund our planned growth, but will also further advance the strategic shift of our portfolio to majority multifamily.

Our office portfolio occupancy as of September 30, 2022 declined by 20 basis points as compared to June 30, 2022.

Although new leasing has been slow to recover from the pandemic and will likely continue to lag due to delayed return-to-the office plans and decision-making related to future office utilization, we were able to execute 207,000 square feet at our share of office leases during the quarter, over 50% of which comprised new leases in National Landing.

We expect this lag to continue to impact our occupancy levels for the foreseeable future.

We have seen an increase in the number of employees returning to the office, with parking revenue in our commercial portfolio at approximately 74% of pre-pandemic levels of approximately $25 million annually, at our share.

Our multifamily portfolio occupancy improved by 70 basis points in the second quarter as compared to March 31, 2022, as residents continued to return to urban environments and cities repopulated.

Although asking rents in our portfolio ended the quarter above pre-pandemic levels, average in-place rents ended the quarter approximately 10.9% below asking rents.

For the second quarter lease expirations, we increased average renewal rates by approximately 8.6%.

We expect in-place rents to increase as leases roll due to the expiration of several jurisdictional restrictions on rent increases.

We have seen an increase in the number of employees returning to the office and higher transient parking, with parking revenue in our commercial portfolio at approximately 79% of pre-pandemic levels of approximately $25 million annually, at our share.

Our multifamily portfolio occupancy as of September 30, 2022 improved by 140 basis points as compared to June 30, 2022.

Average in-place rents ended the quarter 8.4% below asking rents.

For third quarter lease expirations, we increased rents by 6.7% upon renewal while achieving a 57.1% renewal rate across our portfolio.

Operating Results

Key highlights for the three and six months ended June 30, 2022 included:

● net income attributable to common shareholders of $123.3 million, or $1.02 per diluted common share, for the three months ended June 30, 2022 compared to a 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.

Net income attributable to common shareholders of $123.2 million, or $0.99 per diluted common share, for the six months ended June 30, 2022 compared to a 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;

● third-party real estate services revenue, including reimbursements, of $22.2 million and $46.1 million for the three and six months ended June 30, 2022 compared to $26.7 million and $64.9 million for the three and six months ended June 30, 2021;

● operating commercial portfolio leased and occupied percentages at our share of 87.3% and 86.1% as of June 30, 2022 compared to 85.2% and 83.3% as of March 31, 2022, and 85.9% and 84.4% as of June 30, 2021;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 95.7% and 92.3% as of June 30, 2022 compared to 94.1% and 91.6% as of March 31, 2022, and 92.8% and 88.7% as of June 30, 2021.

In-service operating multifamily portfolio leased and occupied percentages at our share of 96.6% and 93.1% as of June 30, 2022, compared to 95.5% and 92.9% as of March 31, 2022, and 96.4% and 92.7% as of June 30, 2021;

● the leasing of 326,000 square feet at our share, at an initial rent (2) of $40.34 per square foot and a GAAP-basis weighted average rent per square foot (3) of $38.43 for the three months ended June 30, 2022, and the leasing of 536,000 square feet at our share, at an initial rent (2) of $45.62 per square foot and a GAAP-basis weighted average rent per square foot (3) of $44.34 for the six months ended June 30, 2022;

● an increase in same store (4) NOI of 13.8% to $79.3 million for the three months ended June 30, 2022 compared to $69.7 million for the three months ended June 30, 2021, and an increase in same store (4) NOI of 13.9% to $155.4 million for the six months ended June 30, 2022 compared to $136.5 million for the six months ended June 30, 2021.

Key highlights for the three and nine months ended September 30, 2022 included:

● a net loss attributable to common shareholders of $19.3 million, or $0.17 per diluted common share, for the three months ended September 30, 2022 compared to net income attributable to common shareholders of $893,000, or $0.00 per diluted common share, for the three months ended September 30, 2021.

Net income attributable to common shareholders of $104.0 million, or $0.86 per diluted common share, for the nine months ended September 30, 2022 compared to a 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;

● third-party real estate services revenue, including reimbursements, of $21.8 million and $68.0 million for the three and nine months ended September 30, 2022 compared to $25.8 million and $90.7 million for the three and nine months ended September 30, 2021;

● operating commercial portfolio leased and occupied percentages at our share of 88.3% and 85.9% as of September 30, 2022 compared to 87.3% and 86.1% as of June 30, 2022, and 84.9% and 82.6% as of September 30, 2021;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 95.5% and 93.7% as of September 30, 2022 compared to 95.7% and 92.3% as of June 30, 2022, and 94.0% and 92.4% as of September 30, 2021;

● the leasing of 207,000 square feet at our share, at an initial rent (2) of $45.87 per square foot and a GAAP-basis weighted average rent per square foot (3) of $46.81 for the three months ended September 30, 2022, and the leasing of 743,000 square feet at our share, at an initial rent (2) of $45.69 per square foot and a GAAP-basis weighted average rent per square foot (3) of $45.03 for the nine months ended September 30, 2022;

● an increase in same store (4) NOI of 11.5% to $78.1 million for the three months ended September 30, 2022 compared to $70.0 million for the three months ended September 30, 2021, and an increase in same store (4) NOI of 13.0% to $231.5 million for the nine months ended September 30, 2022 compared to $204.9 million for the nine months ended September 30, 2021.

Clark Street - Residential and 900 W Street are excluded from leased and occupied percentages as they are operated as short-term rental properties

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(4) Includes the results of the properties that are owned, operated and in-service for the entirety of both periods being compared except for properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

Additionally, investing and financing activity during the six months ended June 30, 2022 included:

Additionally, investing and financing activity during the nine months ended September 30, 2022 included:

● the acquisition of the remaining 36.0% ownership interest in an unconsolidated real estate venture that owned Atlantic Plumbing, a multifamily asset, which was encumbered by a $100.0 million mortgage, for a purchase price of $19.7 million and our partner’s share of the working capital.

See Note 3 to the financial statements for additional information;

● the sale of the Universal Buildings, Pen Place and a development parcel for an aggregate gross sales price of $429.3 million.

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● the sale of investments in equity securities during the first quarter of 2022, which had been carried at cost, resulting in a realized gain of $13.9 million;

● the amendment of a $200.0 million unsecured term loan, originally maturing in January 2023, to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate to Secured Overnight Financing Rate ("SOFR") plus 1.15% to SOFR plus 1.75%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets;

● the repayment of the outstanding balance on our revolving credit facility totaling $300.0 million;

● the payment of dividends totaling $56.3 million and distributions to our redeemable noncontrolling interests of $8.2 million;

● the amendment of a $200.0 million unsecured term loan ("Tranche A-1 Term Loan"), originally maturing in January 2023, to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate to Secured Overnight Financing Rate ("SOFR") plus 1.15% to SOFR plus 1.75%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets;

● the amendment of a $200.0 million unsecured term loan ("Tranche A-2 Term Loan") to increase its borrowing capacity by $200.0 million.

The incremental $200.0 million includes a delayed draw feature, of which $150.0 million was drawn in September 2022 and the remaining $50.0 million was undrawn as of the date of this filing.

The amendment extends the maturity date of the term loan from July 2024 to January 2028 and amends the interest rate to SOFR plus 1.25% to SOFR plus 1.80%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

See Note 7 to the financial statements for additional information;

● the net repayment of the outstanding balance on our revolving credit facility totaling $200.0 million, and the amendment of the interest rate to SOFR plus 1.15% to SOFR plus 1.60%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets;

● a new mortgage loan with a principal balance of $97.5 million collateralized by WestEnd25.

The mortgage loan has a seven-year term and an interest rate of SOFR plus 1.45%.

We also entered into an interest rate swap with a total notional value of $97.5 million, which effectively fixes SOFR at an average interest rate of 2.71% through the maturity date;

● the payment of dividends totaling $82.1 million and distributions to redeemable noncontrolling interests of $12.4 million;

● the repurchase and retirement of 14.2 million of our common shares for $361.0 million, a weighted average purchase price per share of $25.49;

● the investment of $218.8 million in development, construction in progress and real estate additions.

Activity subsequent to June 30, 2022 included:

● the borrowing of $100.0 million under our revolving credit facility, and the amendment of the interest rate to SOFR plus 1.15% to SOFR plus 1.60%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets;

● the amendment of a $200.0 million unsecured term loan to increase its borrowing capacity by $200.0 million.

The incremental $200.0 million includes a one-year delayed draw feature, which was undrawn as of the date of this filing.

The amendment extends the maturity date of the term loan from July 2024 to January 2028 and amends the interest rate to SOFR plus 1.25% to SOFR plus 1.80% per annum, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

We also entered into two forward-starting interest rate swaps with an effective date of July 2024 and a total notional value of $200.0 million, which will effectively fix SOFR at a weighted average interest rate of 2.25% through the maturity date;

● the acquisition of the remaining 36.0% ownership interest in Atlantic Plumbing, a multifamily asset owned by an unconsolidated real estate venture, for $19.7 million;

● the repurchase and retirement of 1.5 million common shares for $36.0 million, a weighted average purchase price per share of $23.92, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended;

● the declaration of a quarterly dividend of $0.225 per common share, payable on August 26, 2022 to shareholders of record as of August 12, 2022.

Activity subsequent to September 30, 2022 included:

● the acquisition of an additional 3.7% interest in The Wren, a multifamily asset owned by a consolidated real estate venture, for $9.5 million, increasing our ownership interest to 99.7%;

● the acquisition of the remaining 50.0% ownership interest in 8001 Woodmont, a multifamily asset owned by an unconsolidated real estate venture, for a purchase price of $115.0 million, including the assumption of the $51.9 million mortgage at our share.

The asset is encumbered by a $103.8 million mortgage, which is consolidated in our balance sheet as of the date of acquisition;

● the repayment of the outstanding balance on our revolving credit facility of $100.0 million;

● the declaration of a quarterly dividend of $0.225 per common share, payable on November 22, 2022 to shareholders of record as of November 8, 2022.

Critical Accounting Estimates

Our Annual Report contains a description of our critical accounting estimates, including asset acquisitions, real estate, investments in real estate ventures and revenue recognition.

There have been no significant changes to our policies during the six months ended June 30, 2022.

There have been no significant changes to our policies during the nine months ended September 30, 2022.

Recent Accounting Pronouncements

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Results of Operations

During the six months ended June 30, 2022, we sold the Universal Buildings and Pen Place, and sold 7200 Wisconsin Avenue, 1730 M Street, RTC-West/RTC-West Trophy Office/RTC-West Land ("RTC-West") and Courthouse Plaza 1 and 2 to an unconsolidated real estate venture.

During the nine months ended September 30, 2022, we sold the Universal Buildings and Pen Place, and sold 7200 Wisconsin Avenue, 1730 M Street, RTC-West/RTC-West Trophy Office/RTC-West Land ("RTC-West") and Courthouse Plaza 1 and 2 to an unconsolidated real estate venture.

We collectively refer to these assets as the "Disposed Properties"

in the discussion below.

In November 2021, we acquired The Batley.

Comparison of the Three Months Ended June 30, 2022 to 2021

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, 2022 compared to the same period in 2021:

Three Months Ended June 30,

In November 2021, we acquired The Batley, and in August 2022, we acquired the remaining 36.0% ownership interest in an unconsolidated real estate venture that owned Atlantic Plumbing, which was consolidated upon acquisition.

Comparison of the Three Months Ended September 30, 2022 to 2021

Three Months Ended September 30,

(Dollars in thousands)

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Interest expense

Gain on the sale of real estate, net

* Not meaningful.

Property rental revenue decreased by approximately $6.1 million, or 4.8%, to $119.8 million in 2022 from $125.9 million in 2021.

The decrease was primarily due to a $16.8 million decrease related to the Disposed Properties and a $1.3 million decrease related to 2451 Crystal Drive due to construction management services provided to tenants in 2021 .

The decrease in property rental revenue was partially offset by (i) a $4.6 million increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street), (ii) a $2.8 million increase related to The Batley, (iii) a $1.8 million increase at RiverHouse and The Bartlett due to higher occupancy , (iv) a $1.4 million increase related to Crystal City Marriott due to increased occupancy, (v) a $1.3 million increase due to cash basis tenants paying previously deferred rent in 2022 and to a decrease in uncollectible operating lease receivables, and (vi) an $808,000 increase related to the commencement of a lease with Amazon at 2100 Crystal Drive.

The decrease was primarily due to a $17.8 million decrease in revenue from our commercial assets, partially offset by a $10.6 million increase in revenue from our multifamily assets.

The decrease in revenue from our commercial assets

was primarily due to an $18.2 million decrease related to the Disposed Properties.

The increase in revenue from our multifamily assets was primarily due to (i) a $2.6 million increase related to The Batley, (ii) a $2.6 million increase at RiverHouse and The Bartlett due to higher occupancy and rents, (iii) a $2.1 million increase related to higher occupancy at several recently developed properties (West Half, The Wren, 900 W Street and 901 W Street) and (iv) a $1.7 million increase related to Atlantic Plumbing.

Third-party real estate services revenue, including reimbursements, decreased by approximately $4.0 million, or 15.5%, to $21.8 million in 2022 from $25.8 million in 2021.

The decrease was primarily due to (i) a $2.2 million decrease in development fees related to the timing of development projects, (ii) a $954,000 decrease in reimbursement revenue and (iii) a $716,000 decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

The decrease was primarily due to a $2.6 million decrease in development fees related to the timing of development projects and a $1.4 million decrease in reimbursement revenue.

Depreciation and amortization expense decreased by approximately $6.7 million, or 11.8%, to $50.1 million in 2022 from $56.7 million in 2021.

The decrease was primarily due to an $8.7 million decrease related to the Disposed Properties and a $1.7 million decrease related to 2345 Crystal Drive primarily due to the amortization and disposal of certain tenant improvements in 2021.

The decrease in depreciation and amortization expense was partially offset by a $2.9 million increase related to The Batley.

Property operating expense increased by approximately $445,000, or 1.3%, to $35.4 million in 2022 from $35.0 million in 2021.

The increase was primarily due to (i) a $2.8 million increase in property operating expenses across our portfolio, primarily utility, and repairs and maintenance expenses, (ii) an $875,000 increase related to The Batley, (iii) an $821,000 increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street), (iv) a $772,000 increase at properties in our development pipeline due to an increase in marketing expenses and (v) a $552,000 increase related to technology initiatives in National Landing.

The increase in property operating expense was partially offset by a $5.6 million decrease related to the Disposed Properties.

The decrease was primarily due to a $7.7 million decrease related to the Disposed Properties, which was partially offset by a $1.4 million increase related to The Batley.

Property operating expense decreased by approximately $3.8 million, or 9.5%, to $36.4 million in 2022 from $40.2 million in 2021.

The decrease was primarily due to a $6.5 million decrease related to the Disposed Properties.

The decrease in property operating expense was partially offset by (i) a $940,000 increase related to The Batley, (ii) a $756,000 increase in cleaning, and repairs and maintenance expenses across our same store portfolio and (iii) a $531,000 increase related to Atlantic Plumbing.

Real estate tax expense decreased by approximately $3.5 million, or 19.3%, to $14.7 million in 2022 from $18.3 million in 2021.

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General and administrative expense:

corporate and other increased by approximately $887,000, or 6.4%, to $14.8 million in 2022 from $13.9 million in 2021.

The increase was primarily due to an increase in compensation expense.

corporate and other remained relatively unchanged at $12.1 million in 2022 and 2021 as a decrease in employee compensation costs was offset by an increase in travel and costs associated with employees working in the office.

General and administrative expense:

third-party real estate services decreased by approximately $4.3 million, or 16.9%, to $21.2 million in 2022 from $25.5 million in 2021.

The decrease was primarily due to a decrease in reimbursable expenses, partially offset by an increase in compensation expense.

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

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $2.9 million, or 64.5%, to $1.6 million in 2022 from $4.4 million in 2021.

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $2.9 million, or 84.3%, to $548,000 in 2022 from $3.5 million in 2021.

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 $2.0 million in 2022 included (i) $854,000 of expenses related to completed, potential and pursued transactions, (ii) $727,000 of integration and severance costs and (iii) $406,000 of demolition costs related to 223 23 rd Street and 2250/2300 Crystal Drive.

Transaction and other costs of $2.3 million in 2021 included (i) $1.6 million of expenses related to completed, potential and pursued transactions, (ii) $439,000 of demolition costs related to 2000/2001 South Bell Street and (iii) $222,000 of integration and severance costs.

Transaction and other costs of $1.7 million in 2022 primarily included $1.0 million of severance costs and $600,000 of expenses related to completed, potential and pursued transactions.

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

Income (loss) from unconsolidated real estate ventures decreased by approximately $34.4 million, or 167.6%, to a loss of $13.9 million for 2022 from income of $20.5 million in 2021.

The decrease was primarily due to a $4.3 million reduction in gains on sale of real estate related to various asset sales in 2022 compared to 2021 and a $1.8 million loss on the extinguishment of debt related to a property that was sold in 2022.

Interest expense decreased by approximately $732,000, or 4.4%, to $16.0 million in 2022 from $16.8 million in 2021.

The decrease in interest expense was due to a $2.0 million increase in the fair value of our interest rate caps due to rising interest rates and a $1.0 million decrease related to the Disposed Properties.

The decrease in interest expense was partially offset by (i) a $1.1 million increase due to new mortgage loans entered into in 2021 at 1225 S.

The decrease was primarily due to a $23.1 million gain at our share from the sale of 500 L'Enfant Plaza in 2021 and a $14.0 million increase in impairment losses in 2022 compared to 2021.

Interest expense increased by approximately $689,000, or 4.0%, to $17.9 million in 2022 from $17.2 million in 2021.

The increase in interest expense was primarily due to (i) a $2.2 million increase due to new mortgage loans entered into during 2022 and 2021 at WestEnd25, 1225 S.

Clark Street and 1215 S.

Clark Street, (ii) a $445,000 increase related to a higher average outstanding balance on our revolving credit facility, (iii) a $276,000 increase at 4747 Bethesda due to rising interest rates and (iv) a $199,000 increase due to an increase in rates related to the Tranche A-1 Term Loan.

Gain on the sale of real estate of $158.8 million in 2022 was due to the disposition of the Disposed Properties.

See Note 3 to the financial statements for additional information.

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.

Comparison of the Six Months Ended June 30, 2022 to 2021

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, 2022 compared to the same period in 2021:

Six Months Ended June 30,

Clark Street, (ii) a $954,000 increase at 4747 Bethesda due to rising interest rates and (iii) a $789,000 increase related to a higher average outstanding balance on our revolving credit facility.

The increase in interest expense was partially offset by a $3.1 million increase in the fair value of our interest rate caps due to rising interest rates .

Comparison of the Nine Months Ended September 30, 2022 to 2021

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, 2022 compared to the same period in 2021:

Nine Months Ended September 30,

(Dollars in thousands)

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Transaction and other costs

Income from unconsolidated real estate ventures, net

Interest and other income (loss), net

Income (loss) from unconsolidated real estate ventures, net

Interest and other income, net

Interest expense

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* Not meaningful .

Property rental revenue increased by approximately $3.6 million, or 1.5%, to $248.6 million in 2022 from $245.1 million in 2021.

The increase was primarily due to (i) a $9.1 million increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street), (ii) a $5.6 million increase related to The Batley, (iii) a $3.7 million increase related to the commencement of a lease with Amazon at 2100 Crystal Drive, (iv) a $3.0 million increase at RiverHouse and The Bartlett due to higher occupancy and (v) a $1.4 million increase related to Crystal City Marriott due to increased occupancy.

The increase in property rental revenue was partially offset by an $18.5 million decrease related to the Disposed Properties.

Property rental revenue decreased by approximately $2.5 million, or 0.7%, to $368.4 million in 2022 from $371.0 million in 2021.

The decrease was primarily due to a $34.7 million decrease in revenue from our commercial assets, partially offset by a $30.4 million increase in revenue from our multifamily assets.

The decrease in revenue from our commercial assets was primarily due to (i) a $36.8 million decrease related to the Disposed Properties and (ii) a $2.0 million decrease related to 2451 Crystal Drive due to construction management services provided to tenants in 2021, partially offset by (iii) a $3.4 million increase related to the commencement of a lease with Amazon at 2100 Crystal Drive.

The increase in revenue from our multifamily assets was primarily due to (i) a $10.6 million increase related to higher occupancy at several recently developed properties (West Half, The Wren, 900 W Street and 901 W Street), (ii) an $8.0 million increase related to The Batley, (iii) a $7.8 million increase at RiverHouse, The Bartlett and 2221 S.

Clark Street - Residential due to higher occupancy and rents and (iv) a $1.7 million increase related to Atlantic Plumbing.

Third-party real estate services revenue, including reimbursements, decreased by approximately $22.7 million, or 25.1%, to $68.0 million in 2022 from $90.7 million in 2021.

The decrease was primarily due to a $13.0 million decrease in development fees related to the timing of development projects and a $3.9 million decrease in reimbursement revenue due to the termination of a management agreement.

The decrease was primarily due to (i) a $15.6 million decrease in development fees related to the timing of development projects, (ii) a $5.2 million decrease in reimbursement revenue due to the termination of a management agreement and (iii) a $1.8 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

Depreciation and amortization expense decreased by approximately $20.5 million, or 11.5%, to $157.6 million in 2022 from $178.1 million in 2021.

The decrease was primarily due to an $18.5 million decrease related to the Disposed Properties and a $3.6 million decrease related to 2345 Crystal Drive primarily due to the amortization and disposal of certain tenant improvements in 2021.

The decrease in depreciation and amortization expense was partially offset by a $7.2 million increase related to The Batley and an $820,000 increase related to 1770 Crystal Drive due to new tenants taking occupancy.

The decrease was primarily due to a $26.4 million decrease related to the Disposed Properties and a $4.9 million decrease related to 2345 Crystal Drive primarily due to the amortization and disposal of certain tenant improvements in 2021.

The decrease in depreciation and amortization expense was partially offset by an $8.6 million increase related to The Batley and a $1.2 million increase related to 1770 Crystal Drive due to Amazon taking occupancy.

Property operating expense increased by approximately $2.5 million, or 2.3%, to $112.5 million in 2022 from $109.9 million in 2021.

The increase was primarily due to (i) a $4.2 million increase in property operating expenses across our portfolio, primarily utility, and repairs and maintenance expenses, (ii) a $2.3 million increase related to technology initiatives in National Landing, (iii) a $1.8 million increase related to The Batley, (iv) a $1.4 million increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street), (v) a $1.0 million increase at properties in our development pipeline due to an increase in marketing expenses and (vi) a $902,000 increase related to 2221 S.

Clark Street – Residential due to higher property management and other operating

The increase was primarily due to (i) a $5.6 million increase in utility, cleaning, repairs and maintenance, and other property expenses across our same store portfolio, (ii) a $2.7 million increase related to The Batley, (iii) a $2.5 million increase related to technology initiatives in National Landing, (iv) a $1.8 million increase related to higher occupancy at several recently developed properties (4747 Bethesda Avenue, West Half, The Wren, 900 W Street and 901 W Street), and (v) a $912,000 increase related to 2221 S.

Clark Street – Residential due to higher property management and other operating expenses resulting from higher occupancy.

The increase in property operating expense was partially offset by a $12.2 million decrease related to the Disposed Properties.

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third-party real estate services decreased by approximately $7.6 million, or 9.5%, to $72.4 million in 2022 from $80.0 million in 2021.

The decrease was primarily due to a decrease in reimbursable expenses, partially offset by an increase in compensation expense.

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 $2.9 million in 2022 included (i) $1.6 million of expenses related to completed, potential and pursued transactions, (ii) $872,000 of integration and severance costs and (iii) $428,000 of demolition costs related to 223 23 rd Street and 2250/2300 Crystal Drive.

Transaction and other costs of $4.6 million in 2022 included (i) $2.2 million of expenses related to completed, potential and pursued transactions, (ii) $2.0 million of integration and severance costs and (iii) $428,000 of demolition costs primarily related to 223 23 rd Street and 2250/2300 Crystal Drive.

Transaction and other costs of $8.9 million in 2021 included (i) $5.4 million of expenses related to completed, potential and pursued transactions, (ii) $2.9 million of demolition costs related to 2000/2001 South Bell Street and (iii) $616,000 of integration and severance costs.

Income from unconsolidated real estate ventures decreased by approximately $2.0 million, or 65.5%, to $1.0 million for 2022 from $3.0 million in 2021.

The decrease was primarily due to a $1.0 million reduction in gains on sale of real estate related to various asset sales in 2022 compared to 2021.

Interest and other income of $15.9 million in 2022 was primarily related to a realized gain of $13.9 million from the sale of investments in equity securities during the first quarter of 2022, which had been carried at cost, and a $1.2 million unrealized gain in 2022 related to equity investments carried at fair value.

Interest expense decreased by approximately $750,000, or 2.3%, to $32.3 million in 2022 from $33.1 million in 2021.

The decrease in interest expense was due to a $5.4 million increase in the fair value of our interest rate caps due to rising interest rates and a $1.2 million decrease related to 1730 M Street and RTC-West, which were sold to an unconsolidated real estate venture in April 2022.

The decrease in interest expense was partially offset by (i) a $2.0 million increase due to new mortgage loans entered into in 2021 at 1225 S.

Income (loss) from unconsolidated real estate ventures decreased by approximately $36.3 million, or 154.6%, to a loss of $12.8 million for 2022 from income of $23.5 million in 2021.

The decrease was primarily due to a $22.1 million reduction in gains at our share from the sale of various assets in 2022 as compared to 2021 and a $14.0 million increase in impairment losses in 2022 compared to 2021.

Interest and other income of $16.9 million in 2022 was primarily related to a realized gain of $13.9 million from the sale of investments in equity securities, which had been carried at cost, during the first quarter of 2022 and a $928,000 unrealized gain in 2022 related to equity investments carried at fair value.

Interest expense remained relatively unchanged at $50.3 million in 2022 and 2021.

Interest expense decreased by $8.4 million due to an increase in the fair value of our interest rate caps as a result of rising interest rates and a $2.0 million increase in capitalized interest primarily related to 1900 Crystal Drive.

The decrease in interest expense was offset by (i) a $4.1 million increase due to new mortgage loans entered into in 2022 and 2021 at WestEnd25, 1225 S.

Clark Street and 1215 S.

Clark Street, (ii) a $1.6 million increase at Courthouse Plaza 1 and 2 due to a ground lease amendment in December 2021, which resulted in the ground lease being treated as a finance lease until we sold the asset to an unconsolidated real estate venture in April 2022, (iii) a $1.3 million increase related to a higher average outstanding balance on our revolving credit facility, (iv) a $326,000 increase related to 4747 Bethesda Avenue due to rising interest rates and (v) a $244,000 increase due to an increase in rates related to the Tranche A-1 Term Loan.

Clark Street, (ii) a $2.1 million increase related to a higher average outstanding balance on our revolving credit facility, (iii) a $1.6 million increase related to Courthouse Plaza 1 and 2 as its associated ground lease was reclassified to a finance lease in December 2021, (iv) a $1.3 million increase related to 4747 Bethesda Avenue due to rising interest rates, (v) a $947,000 increase related to additional draws on our term loans and (vi) a $565,000 increase related to Atlantic Plumbing.

Gain on the sale of real estate of $158.6 million in 2022 was primarily due to the sale of the Disposed Properties.

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FFO is a non-GAAP financial measure computed in accordance with the definition established by the National Association of Real Estate Investment Trusts ("Nareit") in the Nareit FFO White Paper - 2018 Restatement.

of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, including our share of such adjustments for unconsolidated real estate ventures.

We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because FFO excludes real estate depreciation and amortization expense and other non-comparable income and expenses, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions.

Nareit defines FFO as net income (loss) (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, including our share of such adjustments for unconsolidated real estate ventures.

We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because FFO excludes real estate depreciation and amortization expense, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions and other non-comparable income and expenses.

FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income (loss) (computed in accordance with GAAP), as a performance measure or cash flow as a liquidity measure.

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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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Net income (loss) attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

Net income (loss) attributable to noncontrolling interests

Net income (loss)

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Real estate depreciation and amortization

Impairment related to 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) Related to decreases in the value of the underlying assets.

NOI and Same Store NOI

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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.

During the three months ended June 30, 2022, our same store pool decreased to 52 properties from 59 properties due to the exclusion of the Universal Buildings, 7200 Wisconsin Avenue, 1730 M Street, RTC-West, Courthouse Plaza 1 and 2, Galvan and 1900 N Street, which were sold during the period.

During the six months ended June 30, 2022, our same store pool decreased to 52 properties from 55 properties due to the inclusion of West Half, 901 W Street, 900 W Street, 1770 Crystal Drive, and 4747 Bethesda Avenue, and the exclusion of The Alaire, The Terano, the Universal Buildings, 7200 Wisconsin Avenue, 1730 M Street, RTC-West, Courthouse Plaza 1 and 2, and Galvan, which were sold during the period.

During the three months ended September 30, 2022, our same store pool increased to 53 properties from 52 properties due to the inclusion of The Wren.

During the nine months ended September 30, 2022, our same store pool decreased to 52 properties from 55 properties due to the inclusion of West Half, 901 W Street, 900 W Street, 1770 Crystal Drive, and 4747 Bethesda Avenue, and the exclusion of The Alaire, The Terano, the Universal Buildings, 7200 Wisconsin Avenue, 1730 M Street, RTC-West, Courthouse Plaza 1 and 2, and Galvan, which were sold during the period.

While there is judgment surrounding changes in designations, a property is removed from the same store pool when the property is considered to be under-construction because it is undergoing significant redevelopment or renovation pursuant to a formal plan or is being repositioned in the market and such renovation or repositioning is expected to have a significant impact on property NOI.

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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 $9.6 million, or 13.8%, to $79.3 million for the three months ended June 30, 2022 from $69.7 million for the same period in 2021.

Same store NOI increased $18.9 million, or 13.9%, to $155.4 million for the six months ended June 30, 2022 from $136.5 million for the same period in 2021.

The increase was substantially attributable to (i) higher occupancy and rents, and lower concessions and bad debt reserves in our multifamily portfolio, (ii) higher occupancy and average daily rates at the Crystal City Marriott, (iii) an increase in parking revenue in our commercial portfolio and (iv) the burn-off of rent abatement in our commercial portfolio.

Same store NOI increased $8.1 million, or 11.5%, to $78.1 million for the three months ended September 30, 2022 from $70.0 million for the same period in 2021.

Same store NOI increased $26.6 million, or 13.0%, to $231.5 million for the nine months ended September 30, 2022 from $204.9 million for the same period in 2021.

The increase was substantially attributable to (i) higher occupancy and rents and lower concessions in our multifamily portfolio, (ii) higher occupancy and average daily rates at the Crystal City Marriott, (iii) an increase in parking revenue in our commercial portfolio and (iv) abatement burn-off at certain assets.

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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Loss on the extinguishment of debt

Income tax expense (benefit)

Income tax expense

Net income (loss) attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

Net income (loss) attributable to noncontrolling interests

Third-party real estate services, including reimbursements revenue

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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 the sale of real estate, net

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The following represents the components of revenue from our third-party asset management and 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) As of June 30, 2022, we had estimated unrecognized development fee revenue totaling $43.2 million, of which $7.1 million, $12.3 million and $6.6 million is expected to be recognized during the remainder of 2022, 2023 and 2024, and $17.2 million is expected to be recognized thereafter through 2027 as unsatisfied performance obligations are completed.

(1) As of September 30, 2022, we had estimated unrecognized development fee revenue totaling $41.1 million, of which $3.6 million, $12.4 million and $6.8 million is expected to be recognized during the remainder of 2022, 2023 and 2024, and $18.3 million is expected to be recognized thereafter through 2027 as unsatisfied performance obligations are completed.

Changes in the timing and costs of planned development projects may impact these amounts.

(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.

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the three and six months ended June 30, 2022 in the preceding pages under "Results of Operations."

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, 2022 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, 2022 and 2021.

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, 2022 and 2021.

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, ground leases in which we are the lessor, corporate entities and the elimination of inter-segment activity.

Comparison of the Three Months Ended June 30, 2022 to 2021

Property rental revenue decreased by $16.1 million, or 17.4%, to $76.1 million in 2022 from $92.1 million in 2021.

Comparison of the Three Months Ended September 30, 2022 to 2021

Property revenue decreased by $17.5 million, or 18.9%, to $75.1 million in 2022 from $92.6 million in 2021.

Consolidated NOI decreased by $7.1 million, or 13.3%, to $46.4 million in 2022 from $53.5 million in 2021.

The decreases in property revenue and consolidated NOI were due to the Disposed Properties, which were partially offset by an increase at the Crystal City Marriott due to higher occupancy, an increase in parking revenue driven by an increase in both contract and transient parking, and an increase at 2100 Crystal Drive due to the commencement of a lease with Amazon.

Property rental revenue increased by $10.4 million, or 31.6%, to $43.2 million in 2022 from $32.8 million in 2021.

The decreases in property revenue and consolidated NOI were due to the Disposed Properties, which were partially offset by an increase at the Crystal City Marriott due to higher occupancy and an increase in parking revenue driven by an increase in both contract and transient parking.

Property revenue increased by $10.8 million, or 30.6%, to $45.9 million in 2022 from $35.1 million in 2021.

Consolidated NOI increased by $8.5 million, or 53.0%, to $24.5 million in 2022 from $16.0 million in 2021.

The increases in property revenue and consolidated NOI were due to the acquisition of The Batley in November 2021, higher occupancy and rental rates, and lower bad debt reserves across the portfolio.

The increase in property rental revenue and consolidated NOI were partially offset by an increase in operating costs.

Comparison of the Six Months Ended June 30, 2022 to 2021

Property rental revenue decreased by $14.3 million, or 7.9%, to $167.7 million in 2022 from $182.0 million in 2021.

The increases in property revenue and consolidated NOI were due to the acquisition of The Batley in November 2021, and higher occupancy and rental rates across the portfolio.

The increase in consolidated NOI was partially offset by an increase in operating costs.

Comparison of the Nine Months Ended September 30, 2022 to 2021

Property revenue decreased by $31.8 million, or 11.6%, to $242.8 million in 2022 from $274.6 million in 2021.

Consolidated NOI decreased by $15.0 million, or 9.3%, to $147.5 million in 2022 from $162.5 million in 2021.

Property rental revenue increased by $20.0 million, or 30.5%, to $85.4 million in 2022 from $65.5 million in 2021.

Property revenue increased by $30.7 million, or 30.5%, to $131.3 million in 2022 from $100.6 million in 2021.

Consolidated NOI increased by $24.1 million, or 51.3%, to $71.0 million in 2022 from $46.9 million in 2021.

The increases in property revenue and consolidated NOI were due to the acquisition of The Batley in November 2021, higher

occupancy and rental rates, and lower bad debt reserves across the portfolio.

The increase in property rental revenue and consolidated NOI were partially offset by an increase in operating costs.

The increases in property revenue and consolidated NOI were due to the acquisition of The Batley in November 2021, and

higher occupancy and rental rates across the portfolio.

The increase in consolidated NOI was partially offset by an increase in operating costs.

Liquidity and Capital Resources

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

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

In addition, our third-party asset management and real estate services business provides fee-based real estate services to the WHI Impact Pool, the JBG Legacy Funds and other third parties.

Our assets provide a relatively consistent level of cash flow that enables us to pay operating expenses, debt service, recurring capital expenditures, dividends to shareholders, and distributions to holders of OP Units and long-term incentive partnership units ("LTIP Units").

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Interest Rate (1)

June 30, 2022

September 30, 2022

December 31, 2021

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Mortgages payable, net

(1) Weighted average effective interest rate as of June 30, 2022.

(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, 2022 and December 31, 2021, excludes $5.7 million and $6.4 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net."

As of June 30, 2022 and December 31, 2021, the net carrying value of real estate collateralizing our mortgages payable, totaled $1.6 billion and $1.8 billion.

(1) Weighted average effective interest rate as of September 30, 2022.

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

As of September 30, 2022, one-month London Interbank Offered Rate ("LIBOR") was 3.14% and one-month term SOFR was 3.04%, as applicable.

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

(4) As of September 30, 2022 and December 31, 2021, excludes $2.3 million and $6.4 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net."

As of September 30, 2022 and December 31, 2021, the net carrying value of real estate collateralizing our mortgages payable totaled $1.9 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 June 30, 2022 and December 31, 2021, we had various interest rate swap and cap agreements on certain mortgages payable with an aggregate notional value of $1.2 billion and $1.3 billion.

In August 2022, we entered into a mortgage with a principal balance of $97.5 million collateralized by WestEnd25.

The mortgage loan has a seven-year term and an interest rate of SOFR plus 1.45%.

We also entered into an interest rate swap with a total notional value of $97.5 million, which effectively fixes SOFR at an average interest rate of 2.71% through the maturity date.

As of September 30, 2022 and December 31, 2021, we had various interest rate swap and cap agreements on certain mortgages payable with an aggregate notional value $1.3 billion.

See Note 15 to the financial statements for additional information.

Credit Facility

As of June 30, 2022, 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 2025 and a $200.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024.

As of September 30, 2022, our $1.6 billion credit facility consisted of a $1.0 billion revolving credit facility maturing in January 2025, a $200.0 million Tranche A-1 Term Loan maturing in January 2025, and a $400.0 million Tranche A-2 Term Loan maturing in January 2028, of which $50.0 million remains available to be borrowed until July 2023.

In January 2022, the Tranche A-1 Term Loan was amended to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate to SOFR plus 1.15% to SOFR plus 1.75%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

In connection with the loan amendment, we amended the related interest rate swaps, extending the maturity to July 2024 and converting the hedged rate from one-month LIBOR to one-month SOFR.

In connection with the loan amendment, we amended the related interest rate swaps, extending the maturity to July 2024 and converting the hedged rate from one-month LIBOR to one-month term SOFR.

In July 2022, the Tranche A-2 Term Loan was amended to increase its borrowing capacity by $200.0 million.

The incremental $200.0 million includes a delayed draw feature, of which $150.0 million was drawn in September 2022 and the remaining $50.0 million was undrawn as of the date of this filing.

We entered into two interest rate swaps with an effective date of September 30, 2022 and a total notional value of $150.0 million, which effectively fix SOFR at a weighted average interest rate of 2.15% through the maturity date.

Additionally, we amended the interest rate of the revolving credit facility to SOFR plus 1.15% to SOFR plus 1.60%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

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

Interest Rate (1)

June 30, 2022

September 30, 2022

December 31, 2021

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Unsecured term loans, net

(1) Effective interest rate as of June 30, 2022.

(1) Effective interest rate as of September 30, 2022.

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

(2) As of June 30, 2022 and December 31, 2021, letters of credit with an aggregate face amount of $467,000 and $911,000 were outstanding under our revolving credit facility.

(3) As of June 30, 2022 and December 31, 2021, excludes $4.2 million and $5.0 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net."

(4) In July 2022, we borrowed $100.0 million under our revolving credit facility.

(5) As of June 30, 2022 and December 31, 2021, the outstanding balance was fixed by interest rate swap agreements.

As of June 30, 2022, the interest rate swaps mature in July 2024, fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan, and fix LIBOR at a weighted average interest rate of 1.34% for the Tranche A-2 Term Loan.

In July 2022, the Tranche A-2 Term Loan was amended to increase its borrowing capacity by $200.0 million.

The incremental $200.0 million includes a one-year delayed draw feature, which was undrawn as of the date of this filing.

As of June 30, 2022, we had floating rate debt with a principal balance totaling $1.1 billion and hedging arrangements with a notional value totaling $1.2 billion that use LIBOR as a reference rate.

(2) As of September 30, 2022, one-month term SOFR was 3.04%.

As of September 30, 2022 and December 31, 2021, letters of credit with an aggregate face amount of $467,000 and $911,000 were outstanding under our revolving credit facility.

In October 2022, we repaid the outstanding balance under our revolving credit facility.

(3) As of September 30, 2022 and December 31, 2021, excludes $3.8 million and $5.0 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net."

(4) As of September 30, 2022 and December 31, 2021, the outstanding balance was fixed by interest rate swap agreements.

As of September 30, 2022, the interest rate swaps fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.15% for the Tranche A-2 Term Loan.

As of September 30, 2022, we had floating rate debt with a principal balance totaling $882.7 million and hedging arrangements with a notional value totaling $1.0 billion that use LIBOR as a reference rate.

On November 30, 2020, the United Kingdom regulator announced its intentions, subject to confirmation following an early December consultation, to cease the publication of the one-week and two-month USD-LIBOR immediately following the December 31, 2021 publications, and the remaining USD-LIBOR tenors immediately following the June 30, 2023 publications.

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We can provide no assurance regarding the future of LIBOR and when our LIBOR-based instruments will transition from LIBOR as a reference rate to SOFR or another reference rate.

The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things, result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions.

metric, including LIBOR, could, among other things, result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions.

In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations.

Common Shares Repurchased

In March 2020, our Board of Trustees authorized the repurchase of up to $500.0 million of our outstanding common shares and in June 2022, increased the authorized repurchase amount by $500.0 million to an aggregate of $1.0 billion.

During the three and six months ended June 30, 2022, we repurchased and retired 8.5 million and 11.8 million common shares for $213.9 million and $307.0 million, a weighted average purchase price per share of $25.15 and $25.91.

During the six months ended June 30, 2021, we repurchased and retired 619,749 common shares for $19.2 million, a weighted average purchase price per share of $30.96.

In March 2020, our Board of Trustees authorized the repurchase of up to $500.0 million of our outstanding common shares, which it increased to an aggregate of $1.0 billion in June 2022.

During the three and nine months ended September 30, 2022, we repurchased and retired 2.3 million and 14.2 million common shares for $54.0 million and $361.0 million, a weighted average purchase price per share of $23.35 and $25.49.

During the 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, a weighted average purchase price per share of $29.73 and $29.99.

Since we began the share repurchase program, we have repurchased and retired 23.3 million common shares for $623.5 million, a weighted average purchase price per share of $26.74.

In July 2022, we repurchased and retired 1.5 million common shares for $36.0 million, a weighted average purchase price per share of $23.92, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

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.

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● normal recurring expenses;

● debt service and principal repayment obligations, including balloon payments on maturing debt — As of June 30, 2022, we had no mortgages payable on a consolidated basis and $86.6 million at our share scheduled to mature in 2022;

● capital expenditures, including major renovations, tenant improvements and leasing costs — As of June 30, 2022, we had committed tenant-related obligations totaling $74.3 million ($68.8 million related to our consolidated entities and $5.5 million related to our unconsolidated real estate ventures at our share);

● development expenditures — As of June 30, 2022, we had assets under construction that will, based on our current plans and estimates, require an additional $528.5 million to complete, which we anticipate will be primarily expended over the next two to three years;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — On July 29, 2022, our Board of Trustees declared a quarterly dividend of $0.225 per common share;

● possible common share repurchases — In July 2022, we repurchased and retired 1.5 million common shares for $36.0 million and we are authorized to repurchase an additional $394.5 million under our current common share repurchase program;

● possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests therein — On August 1, 2022, we acquired the remaining 36.0% ownership interest in Atlantic Plumbing, a multifamily asset owned by an unconsolidated real estate venture, for $19.7 million.

● debt service and principal repayment obligations, including balloon payments on maturing debt — As of September 30, 2022, we had no mortgages payable on a consolidated basis and $22.5 million at our share scheduled to mature in 2022.

In October 2022, we repaid the outstanding balance on our revolving credit facility of $100.0 million;

● capital expenditures, including major renovations, tenant improvements and leasing costs — As of September 30, 2022, we had committed tenant-related obligations totaling $67.3 million ($64.9 million related to our consolidated entities and $2.4 million related to our unconsolidated real estate ventures at our share);

● development expenditures — As of September 30, 2022, we had assets under construction that, based on our current plans and estimates, require an additional $468.1 million to complete, which we anticipate will be primarily expended over the next two to three years;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — On October 25, 2022, our Board of Trustees declared a quarterly dividend of $0.225 per common share;

● possible common share repurchases;

● possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests – On October 5, 2022, we acquired the remaining 50.0% ownership interest in 8001 Woodmont, a multifamily asset owned by an unconsolidated real estate venture, for a purchase price of $115.0 million, including the assumption of the $51.9 million mortgage at our share.

The asset is encumbered by a $103.8 million mortgage, which is consolidated in our balance sheet as of the date of acquisition.

On October 4, 2022, we acquired an additional 3.7% ownership interest in The Wren, a multifamily asset owned by a consolidated real estate venture, for $9.5 million, increasing our ownership interest to 99.7%.

We expect to satisfy these needs using one or more of the following:

● cash and cash equivalents — As of June 30, 2022, we had cash and cash equivalents of $162.3 million and had restricted cash of $187.4 million held by a qualified intermediary to facilitate a potential like-kind exchange transaction ;

● cash and cash equivalents — As of September 30, 2022, we had cash and cash equivalents of $258.9 million and had restricted cash of $188.0 million held by a qualified intermediary all of which was released in October 2022;

● cash flows from operations;

● distributions from real estate ventures;

● borrowing capacity under our current credit facility — As of June 30, 2022, we had $999.5 million of availability under our credit facility.

In July 2022, we borrowed $100.0 million under our revolving credit facility and amended our Tranche A ‑ 2 Term Loan to increase its borrowing capacity by $200.0 million.

The incremental $200.0 million includes a one-year delayed draw feature, which was undrawn as of the date of this filing;

● borrowing capacity under our current credit facility — As of September 30, 2022, we had $949.5 million of availability under our credit facility, including $50.0 million undrawn under our Tranche A-2 Term Loan;

● proceeds from financings, asset sales and recapitalizations.

While we do not expect the need to do so during the next 12 months, we also can issue securities to raise funds.

During the six months ended June 30, 2022, there were no significant changes to the material cash requirements information presented in Item 7 of Part II of our Annual Report, except for a $1.4 billion decrease in future finance lease payments related to the Disposed Properties, a $300.0 million decrease in the principal amount due on our revolving credit facility and a $164.8 million decrease in the principal amount due on mortgages payable related to the Disposed Properties.

During the nine months ended September 30, 2022, there were no significant changes to the material cash requirements information presented in Item 7 of Part II of our Annual Report, except for a $1.4 billion decrease in future finance lease payments related to the Disposed Properties, a $200.0 million net decrease in the principal amount due on our revolving credit facility, a $164.8 million decrease in the principal amount due on mortgages payable related to the Disposed Properties, a $150.0 million draw under our unsecured term loan and a new mortgage loan with a principal balance of $97.5 million collateralized by WestEnd25.

See additional information in the following pages under "Commitments and Contingencies."

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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)

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Net cash used in financing activities

Cash Flows for the Six Months Ended June 30, 2022

Cash and cash equivalents, and restricted cash increased $73.0 million to $375.1 million as of June 30, 2022, compared to $302.1 million as of December 31, 2021.

Cash Flows for the Nine Months Ended September 30, 2022

Cash and cash equivalents, and restricted cash increased $169.8 million to $471.9 million as of September 30, 2022, compared to $302.1 million as of December 31, 2021.

This increase resulted from $674.4 million of net cash provided by investing activities and $130.4 million of net cash provided by operating activities, partially offset by $635.0 million of net cash used in financing activities.

Our outstanding debt was $2.0 billion and $2.5 billion as of June 30, 2022 and December 31, 2021.

Our outstanding debt was $2.4 billion and $2.5 billion as of September 30, 2022 and December 31, 2021.

Net cash provided by operating activities of $130.4 million primarily comprised:

(i) $140.1 million of net income (before $178.9 million of non-cash items and a $158.6 million gain on the sale of real estate), (ii) $8.5 million of return on capital from unconsolidated real estate ventures and (iii) $18.2 million of net change in operating assets and liabilities.

Non-cash income adjustments of $112.8 million primarily include depreciation and amortization expense, share-based compensation expense, net income from investments, deferred rent, amortization of lease incentives and other non-cash items.

Non-cash income adjustments of $178.9 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, net income from investments, amortization of lease incentives and other non-cash items.

Net cash provided by investing activities of $674.4 million comprised:

(i) $923.1 million of proceeds from the sale of real estate, (ii) $52.5 million of distributions of capital from unconsolidated real estate ventures and (iii) $19.0 million of proceeds from the sale of investments, partially offset by (iv) $128.1 million of development costs, construction in progress and real estate additions and (v) $81.2 million of investments in unconsolidated real estate ventures and other investments.

(i) $923.1 million of proceeds from the sale of real estate, (ii) $54.8 million of distributions of capital from unconsolidated real estate ventures and (iii) $19.0 million of proceeds from the sale of investments, partially offset by (iv) $218.8 million of development costs, construction in progress and real estate additions, (v) $86.7 million of investments in unconsolidated real estate ventures and other investments and (vi) $15.2 million for the acquisition of real estate.

Net cash used in financing activities of $635.0 million primarily comprised:

(i) $300.0 million of repayments of our revolving credit facility, (ii) $297.0 million of common shares repurchased, (iii) $167.1 million of repayments of mortgages payable, (iv) $56.3 million of dividends paid to common shareholders and (v) $8.2 million of distributions to our redeemable noncontrolling interests, partially offset by (vi) $9.2 million of contributions from noncontrolling interests.

(i) $361.0 million of common shares repurchased, (ii) $300.0 million of repayments of our revolving credit facility, (iii) $268.6 million of repayments of mortgages payable, (iv) $82.1 million of dividends paid to common shareholders and (v) $12.4 million of distributions to our redeemable noncontrolling interests, partially offset by (vi) $150.0 million of borrowings under our unsecured term loan, (vii) $134.3 million of borrowings under mortgages payable, (viii) $100.0 million of borrowings under our revolving credit facility and (ix) $9.4 million of contributions from noncontrolling interests.

Unconsolidated Real Estate Ventures

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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, 2022, we had investments in unconsolidated real estate ventures totaling $414.3 million.

As of September 30, 2022, we had investments in unconsolidated real estate ventures totaling $360.8 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.

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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, 2022, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $66.4 million.

As of June 30, 2022, we had no principal payment guarantees related to our unconsolidated real estate ventures.

As of September 30, 2022, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $64.0 million.

As of September 30, 2022, we had no principal payment guarantees related to our unconsolidated real estate ventures.

We evaluate reconsideration events as we become aware of them.

Reconsideration events include amendments to real estate venture agreements or changes in our partner's ability to make contributions to the venture.

Under certain circumstances, we may purchase our partner's interest.

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

Reconsideration events include, among other criteria, amendments to real estate venture agreements or changes in the capital requirements of the real estate venture.

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

Commitments and Contingencies

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Construction Commitments

As of June 30, 2022, we had assets under construction that will, based on our current plans and estimates, require an additional $528.5 million to complete, which we anticipate will be primarily expended over the next two to three years.

As of September 30, 2022, we had assets under construction that, based on our current plans and estimates, require an additional $468.1 million to complete, which we anticipate will be primarily expended over the next two to 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 sales and recapitalizations, and available cash.

As of June 30, 2022, we had committed tenant-related obligations totaling $74.3 million ($68.8 million related to our consolidated entities and $5.5 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.

As of September 30, 2022, we had committed tenant-related obligations totaling $67.3 million ($64.9 million related to our consolidated entities and $2.4 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.

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, 2022, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.

As of September 30, 2022, 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 assets.

Most of our assets have been subject 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.

Soil and/or groundwater subsurface testing is conducted at our assets, when necessary, to further investigate any issues raised by the initial assessment that could reasonably be expected to pose a material concern to the property or result in us incurring material environmental liabilities as a result of redevelopment.

to the property or result in us incurring material environmental liabilities as a result of redevelopment.

They may not, however, have included extensive sampling or subsurface investigations.

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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 $19.4 million and $18.2 million as of June 30, 2022 and December 31, 2021 and are included in "Other liabilities, net"

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $18.0 million and $18.2 million as of September 30, 2022 and December 31, 2021 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