What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 231 added, 156 removed, 316 unchanged (55% of the section changed)

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Organization and Basis of Presentation

JBG SMITH Properties ("JBG SMITH"), a Maryland real estate investment trust, owns and operates a portfolio of multifamily and commercial assets amenitized with ancillary retail.

JBG SMITH's portfolio reflects its longstanding strategy of owning and operating assets within Metro-served submarkets in the Washington, D.C.

metropolitan area with high barriers to entry and vibrant urban amenities.

Approximately two-thirds of our portfolio is in National Landing, which is anchored by four key demand drivers:

JBG SMITH Properties ("JBG SMITH"), a Maryland real estate investment trust, owns, operates, invests in and develops mixed-use properties in high growth and high barrier-to-entry submarkets in and around Washington, D.C.

Through an intense focus on placemaking, JBG SMITH cultivates vibrant, amenity-rich, walkable neighborhoods throughout the Washington, D.C.

metropolitan area.

Approximately two-thirds of our holdings are in the National Landing submarket in Northern Virginia, which is anchored by four key demand drivers:

Amazon.com, Inc.'s ("Amazon") new headquarters;

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and our deployment of next-generation public and private 5G digital infrastructure.

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.

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

References to our financial statements refer to our unaudited condensed consolidated financial statements as of March 31, 2023 and December 31, 2022, and for the three months ended March 31, 2023 and 2022.

References to our balance sheets refer to our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.

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

March 31, 2023 and 2022.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022.

References to our financial statements refer to our unaudited condensed consolidated financial statements as of June 30, 2023 and December 31, 2022, and for the three and six months ended June 30, 2023 and 2022.

References to our balance sheets refer to our condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

References to our statements of operations refer to our condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022.

The accompanying financial statements and notes 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 the 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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Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

As of March 31, 2023, our Operating Portfolio consisted of 51 operating assets comprising 31 commercial assets totaling 9.7 million square feet (8.2 million square feet at our share), 18 multifamily assets totaling 6,756 units (6,756 units at our share) and two wholly owned land assets for which we are the ground lessor.

Additionally, we have two under-construction multifamily assets with 1,583 units (1,583 units at our share) and 20 assets in the development pipeline totaling 12.5 million square feet (9.8 million square feet at our share) of estimated potential development density.

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

As of June 30, 2023, our Operating Portfolio consisted of 51 operating assets comprising 31 commercial assets totaling 9.7 million square feet (8.2 million square feet at our share), 18 multifamily assets totaling 6,756 units (6,756 units at our share) and two wholly owned land assets for which we are the ground lessor.

Additionally, we have two under-construction

multifamily assets with 1,583 units (1,583 units at our share) and 20 assets in the development pipeline totaling 12.5 million square feet (9.8 million square feet at our share) of estimated potential development density.

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

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

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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.

We expect Amazon to occupy its new headquarters at Metropolitan Park in National Landing in June 2023.

We currently have leases with Amazon totaling 1.0 million square feet across six office buildings in National Landing.

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

During the second quarter of 2023, we completed the construction of two new office buildings for Amazon on Metropolitan Park in National Landing, totaling 2.1 million square feet, inclusive of approximately 50,000 square feet of street-level retail with new shops and restaurants, and Amazon took occupancy of its new headquarters in June 2023.

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

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

We currently have leases with Amazon totaling 1.0 million square feet across six office buildings in National Landing.

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

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We intend to continue to opportunistically sell or recapitalize 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.

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 share repurchases, new acquisitions with higher cash yields and growth, as well as in development projects with significant yield spreads and profit potential.

We view this strategy as a key tool to source capital.

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In the meantime, we continue to advance our two under-construction multifamily assets in National Landing, 1900 Crystal Drive and 2000/2001 South Bell Street, totaling 1,583 units.

Our office portfolio occupancy as of March 31, 2023 increased by 10 basis points compared to December 31, 2022.

Although new leasing has been slow to recover 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 114,000 square feet of office leases during the first quarter, over 90% of which comprised leases in National Landing.

We have 619,000 square feet of office leases expiring in 2023 with another 40,500 square feet currently in month-to-month status.

Our ability to renew or re-lease this space will impact our occupancy in 2023.

Our multifamily portfolio occupancy as of March 31, 2023 decreased by 70 basis points compared to December 31, 2022 as lower leasing volume is typical for the first quarter.

For first quarter lease expirations, we increased rents by 9.3% upon renewal while achieving a 54.7% renewal rate across our portfolio.

Our office portfolio occupancy as of June 30, 2023 decreased by 120 basis points to 84.0% as compared to March 31, 2023.

New leasing and lease renewals have been slow and will likely continue to lag due to decision-making related to future office utilization, resulting in higher concessions and an increase in vacancy.

During the three months ended June 30, 2023, we executed 210,000 square feet of office leases, approximately 30% of which comprised leases in National Landing.

We have 1.8 million square feet of office leases in National Landing expiring through 2024 or on a month-to-month status.

Based on tenant discussions to date, we anticipate 1.2 million square feet will vacate, implying an approximately 33% retention rate.

Over half of the anticipated vacates are leases with Amazon (678,000 square feet), 300,000 square feet of which expires in 2023, and 378,000 square feet in 2024.

444,000 square feet of the Amazon vacates represent the entirety

of 1800 South Bell Street and 2100 Crystal Drive, two assets that we plan to take off-line and entitle for an alternate use.

Our ability to renew or re-lease this space will impact our future occupancy.

Our multifamily portfolio occupancy as of June 30, 2023 increased by 80 basis points compared to March 31, 2023 as higher leasing volume is typical for summer months.

For second quarter lease expirations, we increased gross rents by 7.5% upon renewal while achieving a 49.3% renewal rate across our portfolio.

Operating Results

Key highlights for the three months ended March 31, 2023 included:

● net income attributable to common shareholders of $21.2 million, or $0.19 per diluted common share, compared to a net loss attributable to common shareholders of $32,000, or $0.00 per diluted common share, for the three months ended March 31, 2022;

● third-party real estate services revenue, including reimbursements, of $22.8 million compared to $24.0 million for the three months ended March 31, 2022;

● operating commercial portfolio leased and occupied percentages at our share of 87.6% and 85.2% as of March 31, 2023 compared to 88.5% and 85.1% as of December 31, 2022, and 85.2% and 83.3% as of March 31, 2022;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 95.0% and 92.9% as of March 31, 2023 compared to 94.5% and 93.6% as of December 31, 2022, and 94.1% and 91.6% as of March 31, 2022;

● the leasing of 114,000 square feet at our share, at an initial rent (2) of $50.92 per square foot and a GAAP-basis weighted average rent per square foot (3) of $51.03;

● a decrease in same store (4) NOI of 0.7% to $76.1 million compared to $76.6 million for the three months ended March 31, 2022.

Key highlights for the three and six months ended June 30, 2023 included:

● net loss attributable to common shareholders of $10.5 million, or $0.10 per diluted common share, for the three months ended June 30, 2023 compared to 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.

Net income attributable to common shareholders of $10.6 million, or $0.09 per diluted common share, for the six months ended June 30, 2023 compared to $123.2 million, or $0.99 per diluted common share, for the six months ended June 30, 2022;

● third-party real estate services revenue, including reimbursements, of $22.9 million and $45.6 million for the three and six months ended June 30, 2023, as compared to $22.2 million and $46.1 million for the three and six months ended June 30, 2022;

● operating commercial portfolio leased and occupied percentages at our share of 86.3% and 84.0% as of June 30, 2023 compared to 87.6% and 85.2% as of March 31, 2023, and 87.3% and 86.1% as of June 30, 2022;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 96.8% and 93.7% as of June 30, 2023 compared to 95.0% and 92.9% as of March 31, 2023, and 95.7% and 92.3% as of June 30, 2022;

● the leasing of 210,000 square feet at our share, at an initial rent (2) of $45.49 per square foot and a GAAP-basis weighted average rent per square foot (3) of $44.47 for the three months ended June 30, 2023, and the leasing of 323,000 square feet at our share, at an initial rent (2) of $47.40 per square foot and a GAAP-basis weighted average rent per square foot (3) of $46.78 for the six months ended June 30, 2023;

● an increase in same store (4) NOI of 0.1% to $78.3 million for the three months ended June 30, 2023 compared to $78.2 million for the three months ended June 30, 2022, and a decrease in same store (4) NOI of 0.7% to $153.5 million for the six months ended June 30, 2023 compared to $154.7 million for the six months ended June 30, 2022.

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 three months ended March 31, 2023 included:

● a $187.6 million loan facility, collateralized by The Wren and F1RST Residences.

The loan has a seven-year term and a fixed interest rate of 5.13%.

This loan is the initial advance under a Fannie Mae multifamily credit facility which provides flexibility for collateral substitutions, future advances tied to performance, ability to mix fixed and floating rates, and staggered maturities.

Proceeds from the loan were used, in part, to repay the $131.5 million mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%;

● the sale of a development parcel for a gross sales price of $5.5 million;

Additionally, investing and financing activity during the six months ended June 30, 2023 included:

● the sale of an 80.0% interest in 4747 Bethesda Avenue.

See Note 4 to the financial statements for additional information;

● a $187.6 million loan facility, collateralized by The Wren and F1RST Residences.

See Note 7 to the financial statements for additional information;

● the repayment of $142.4 million in mortgage loans collateralized by Falkland Chase – South & West and 800 North Glebe Road;

● net borrowings of $62.0 million under our revolving credit facility;

● the amendment of our revolving credit facility.

See Note 7 to the financial statements for additional information;

● the drawing of the $50.0 million remaining advance under our Tranche A-2 Term Loan.

See Note 7 to the financial statements for additional information;

● a $120.0 million term loan.

See Note 7 to the financial statements for additional information;

● the payment of dividends totaling $49.5 million and distributions to redeemable noncontrolling interests of $7.9 million;

● the increase by our Board of Trustees of our common share repurchase authorization to $1.5 billion;

● the repurchase and retirement of 10.5 million of our common shares for $155.8 million, a weighted average purchase price per share of $14.79;

● the investment of $164.8 million in development, construction in progress and real estate additions.

Activity subsequent to March 31, 2023 included:

● the increase by our Board of Trustees of our common share repurchase authorization to $1.5 billion;

Activity subsequent to June 30, 2023 included:

● the repurchase and retirement of 2.0 million common shares for $31.5 million, a weighted average purchase price per share of $16.03, 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 June 30, 2023 to shareholders of record as of June 23, 2023.

● the declaration of a quarterly dividend of $0.225 per common share, payable on August 31, 2023 to shareholders of record as of August 17, 2023.

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 three months ended March 31, 2023.

There have been no significant changes to our policies during the six months ended June 30, 2023.

Recent Accounting Pronouncements

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Results of Operations

During the three months ended March 31, 2023, we sold an 80.0% interest in 4747 Bethesda Avenue to an unconsolidated real estate venture.

In March 2023, we sold an 80.0% interest in 4747 Bethesda Avenue to an unconsolidated real estate venture.

In 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 and Courthouse Plaza 1 and 2 to an unconsolidated real estate venture.

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In 2022, we acquired the remaining 36.0% ownership interest in Atlantic Plumbing and the remaining 50.0% ownership interest in 8001 Woodmont, which were previously owned by unconsolidated real estate ventures and consolidated upon acquisition.

Comparison of the Three Months Ended March 31, 2023 to 2022

The following summarizes certain line items from our statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the three months ended March 31, 2023 compared to the same period in 2022:

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2023 to 2022

Three Months Ended June 30,

(Dollars in thousands)

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

Income (loss) from unconsolidated real estate ventures, net

Interest expense

Gain on the sale of real estate, net

Property rental revenue increased by approximately $3.6 million, or 3.0%, to $120.6 million in 2023 from $117.0 million in 2022.

The increase was primarily due to a $9.5 million increase in revenue from our multifamily assets, partially offset by a $7.6 million decrease in revenue from our commercial assets.

The increase in revenue from our multifamily assets was primarily due to a $6.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancies and rents across the portfolio.

The decrease in revenue from our commercial assets was primarily due to a $5.9 million decrease related to the Disposed Properties.

Third-party real estate services revenue, including reimbursements, increased by approximately $705,000, or 3.2%, to $22.9 million in 2023 from $22.2 million in 2022.

The increase was primarily due to a $608,000 increase in development fees related to the timing of development projects.

Depreciation and amortization expense decreased by approximately $261,000, or 0.5%, to $49.2 million in 2023 from $49.5 million in 2022.

The decrease was primarily due to a $2.3 million decrease related to the Disposed Properties and a $1.4 million decrease due to the amortization of the acquired in-place lease intangible at The Batley in 2022.

The decrease in depreciation and amortization expense was partially offset by a $2.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

Property operating expense increased by approximately $467,000, or 1.3%, to $35.9 million in 2023 from $35.4 million in 2022.

The increase was primarily due to a $2.6 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $879,000 increase in property operating expenses across our multifamily portfolio, primarily related to higher compensation expenses, cleaning expenses and rising costs.

The increase in property operating expense was partially offset by a $1.7 million decrease related to the Disposed Properties and an $855,000 decrease in insurance claims covered by our captive insurance subsidiary.

Real estate tax expense decreased by approximately $522,000, or 3.5%, to $14.4 million in 2023 from $14.9 million in 2022.

The decrease was primarily due to a $920,000 decrease related to the Disposed Properties, partially offset by a $728,000 increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

General and administrative expense:

corporate and other increased by approximately $311,000, or 2.1%, to $15.1 million in 2023 from $14.8 million in 2022.

The increase was primarily due to a decrease in capitalized payroll, partially offset by lower compensation expenses.

General and administrative expense:

third-party real estate services decreased by approximately $2.0 million, or 8.4%, to $22.1 million in 2023 from $24.1 million in 2022.

The decrease was primarily due to lower compensation expenses.

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $1.6 million, or 100.0%, to $0 in 2023 from $1.6 million in 2022.

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, as well as an increase in expense recovery due to termination forfeitures.

Income (loss) from unconsolidated real estate ventures increased by approximately $2.6 million, or 124.2%, to income of $510,000 in 2023 from a loss of $2.1 million in 2022.

The increase was primarily due to a $2.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont as these assets were not yet stabilized and incurring losses, and a $1.8 million loss on the extinguishment of debt related to a property that was sold in 2022.

The increase in income (loss) from unconsolidated real estate ventures was partially offset by a $936,000 gain at our share from the sale of various assets in 2022.

Interest expense increased by approximately $9.8 million, or 61.1%, to $25.8 million in 2023 from $16.0 million in 2022.

The increase in interest expense was primarily due to (i) a $5.0 million decrease in the fair value of our ineffective interest rate caps due to a decline in the forward interest rate curve, (ii) a $3.8 million increase due to new mortgage loans, (iii) a $3.7 million increase related to variable rate mortgage loans due to rising interest rates, (iv) a $2.1 million increase related to construction draws for 1900 Crystal Drive, (v) a $2.1 million increase related to additional draws on our term loans and (vi) a $1.2 million increase related to the consolidation of 8001 Woodmont.

The increase in interest expense was partially offset by (i) a $4.2 million increase in capitalized interest, (ii) a $2.0 million decrease related to mortgage loans

collateralized by 2121 Crystal Drive and Falkland Chase – South & West repaid during 2023 and (iii) a $1.5 million decrease related to the Disposed Properties.

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

Comparison of the Six Months Ended June 30, 2023 to 2022

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, 2023 compared to the same period in 2022:

Six Months Ended June 30,

(Dollars in thousands)

Property rental revenue

Third-party real estate services revenue, including reimbursements

Depreciation and amortization expense

Property operating expense

Real estate taxes expense

General and administrative expense:

Corporate and other

Third-party real estate services

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

Income from unconsolidated real estate ventures, net

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Interest expense

Gain (loss) on the sale of real estate, net

* Not meaningful .

Gain on the sale of real estate, net

Property rental revenue decreased by approximately $4.0 million, or 1.6%, to $244.6 million in 2023 from $248.6 million in 2022.

The decrease was primarily due to a $23.3 million decrease in revenue from our commercial assets, partially offset by a $17.3 million increase in revenue from our multifamily assets.

The decrease in revenue from our commercial assets was primarily due to an $18.5 million decrease related to the Disposed Properties, partially offset by a $1.2 million decrease in bad debt reserves.

The increase in revenue from our multifamily assets was primarily due to a $5.4 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $1.6 million increase due to higher occupancies and rents at RiverHouse, The Bartlett and 2221 S.

Clark Street - Residential.

Third-party real estate services revenue, including reimbursements, decreased by approximately $1.2 million, or 4.9%, to $22.8 million in 2023 from $24.0 million in 2022.

The decrease was primarily due to a $1.6 million decrease in development fees related to the timing of development projects and a $668,000 decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

The decrease in third-party real estate services revenue was partially offset by a $776,000 increase in reimbursement revenue.

The decrease in revenue from our commercial assets was primarily due to a $24.4 million decrease related to the Disposed Properties.

The increase in revenue from our multifamily assets was primarily due to an $11.4 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancies and rents across the portfolio.

Third-party real estate services revenue, including reimbursements, decreased by approximately $481,000, or 1.0%, to $45.6 million in 2023 from $46.1 million in 2022.

The decrease was primarily due to a $945,000 decrease in development fees related to the timing of development projects and a $926,000 decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

The decrease in third-party real estate services revenue was partially offset by a $683,000 increase in reimbursement revenue, a $456,000 increase in construction management fees and a $331,000 increase in other service revenue.

Depreciation and amortization expense decreased by approximately $4.9 million, or 4.5%, to $102.6 million in 2023 from $107.5 million in 2022.

The decrease was primarily due to a $7.3 million decrease related to the Disposed Properties and a $2.9 million decrease due to the amortization of the acquired in-place lease intangible in 2022 at The Batley.

The decrease was primarily due to a $9.6 million decrease related to the Disposed Properties and a $4.3 million decrease due to the amortization of the acquired in-place lease intangible at The Batley in 2022.

The decrease in depreciation and amortization expense was partially offset by a $9.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

Property operating expense decreased by approximately $4.6 million, or 6.0%, to $71.5 million in 2023 from $76.1 million in 2022.

The decrease was primarily due to a $6.7 million decrease related to the Disposed Properties, and a $1.5 million decrease in costs incurred related to digital infrastructure initiatives in National Landing.

The decrease in property operating expense was partially offset by a $2.7 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and an $876,000 increase in property expenses across our multifamily portfolio, primarily related to higher compensation expenses, cleaning expenses and rising costs.

The decrease was primarily due to (i) an $8.4 million decrease related to the Disposed Properties, (ii) a $1.2 million decrease in costs incurred related to digital infrastructure initiatives in National Landing and (iii) a $933,000 decrease in insurance claims covered by our captive insurance subsidiary.

The decrease in property operating expense was partially offset by a $5.3 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $1.9 million increase in property operating expenses across our multifamily portfolio, primarily related to higher compensation expenses, cleaning expenses and rising costs.

Real estate tax expense decreased by approximately $3.5 million, or 10.5%, to $29.6 million in 2023 from $33.1 million in 2022.

The decrease was primarily due to a $3.3 million decrease related to the Disposed Properties, partially offset by a $727,000 increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

The decrease was primarily due to a $4.2 million decrease related to the Disposed Properties, partially offset by a $1.5 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

General and administrative expense:

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third-party real estate services decreased by approximately $5.3 million, or 10.3%, to $45.9 million in 2023 from $51.2 million in 2022.

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

The decrease was primarily due to lower compensation expenses.

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $3.5 million, or 90.8%, to $351,000 in 2023 from $3.8 million in 2022.

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.

Income from unconsolidated real estate ventures decreased by approximately $2.7 million, or 86.2%, to $433,000 in 2023 from $3.1 million in 2022.

Income from unconsolidated real estate ventures decreased by approximately $95,000, or 9.2%, to $943,000 in 2023 from $1.0 million in 2022.

The decrease was primarily due to a $6.2 million gain at our share from the sale of various assets in 2022.

The decrease in income from unconsolidated real estate ventures was partially offset by a $1.8 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont as these assets are not yet stabilized, and an $883,000 increase related to our suspension of the equity method of accounting for the L’Enfant Plaza Assets.

Interest and other income decreased by approximately $10.2 million, or 71.4%, to $4.1 million in 2023 from $14.2 million in 2022 primarily due to a realized gain of $13.9 million in 2022 from the sale of investments in equity securities, partially offset by a $2.1 million increase in interest income on our outstanding cash balances and a $1.8 million increase in unrealized gains from investments in real estate-focused technology companies.

The decrease in income from unconsolidated real estate ventures was partially offset by (i) a $3.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont as these assets were not yet stabilized and incurring losses, (ii) a $1.8 million loss on the extinguishment of debt related to a property that was sold in 2022, and (iii) an $875,000 increase related to our suspension of the equity method of accounting for the L’Enfant Plaza Assets as it was incurring losses.

Interest and other income decreased by approximately $9.6 million, or 60.1%, to $6.4 million in 2023 from $15.9 million in 2022.

The decrease was primarily due to a $14.4 million decrease in realized gains primarily from the sale of investments in equity securities in 2022, partially offset by a $4.6 million increase in interest income on our outstanding cash balances and a $458,000 increase in unrealized gains from investments in real estate-focused technology companies.

Interest expense increased by approximately $20.4 million, or 63.0%, to $52.7 million in 2023 from $32.3 million in 2022.

The increase in interest expense was primarily due to (i) a $6.1 million change in the fair value of our ineffective interest rate caps due to a decline in the forward interest rate curve, (ii) a $4.7 million increase related to 1225 S.

Clark Street, The Bartlett, 1221 Van Street, 220 20 th Street, 4747 Bethesda Avenue and 800 North Glebe Road, due to rising interest rates, (iii) a $2.8 million increase due to new mortgage loans entered into at WestEnd25, The Wren and F1RST Residences, (iv) a $2.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and (v) a $1.6 million increase related to additional draws on our term loans.

The increase in interest expense was partially offset by (i) a $3.4 million increase in capitalized interest primarily related to 1900 Crystal Drive, (ii) a $2.9 million decrease related to the Disposed Properties and (iii) an $870,000 decrease related to a lower average outstanding balance on our revolving credit facility.

Gain on the sale of real estate of $40.7 million in 2023 was primarily due to the sale of an 80.0% interest in 4747 Bethesda Avenue.

Loss on the sale of real estate of $136,000 in 2022 was due to the sale of a development parcel.

The increase in interest expense was primarily due to (i) an $11.0 million decrease in the fair value of our ineffective interest rate caps due to a decline in the forward interest rate curve, (ii) an $8.0 million increase related to variable rate mortgage loans due to rising interest rates, (iii) a $6.6 million increase due to new mortgage loans, (iv) a $3.5 million increase related to additional draws on our term loans, (v) a $3.5 million increase related to construction draws for 1900 Crystal Drive and (vi) a $2.5 million increase related to the consolidation of 8001 Woodmont.

The increase in interest expense was partially offset by (i) a $7.6 million increase in capitalized interest, (ii) a $3.4 million decrease related to the Disposed Properties, (iii) a $3.2 million decrease related to mortgage loans collateralized by 2121 Crystal Drive and Falkland Chase – South & West repaid during 2023 and (iv) a $927,000 decrease related to a lower average outstanding balance on our revolving credit facility.

Gain on the sale of real estate of $40.7 million in 2023 and $158.6 million in 2022 was due to the sale of the Disposed Properties.

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.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net income (loss) attributable to common shareholders

Net income attributable to redeemable noncontrolling interests

Net income (loss) attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

Net income (loss)

(Gain) loss on the sale of real estate, net of tax

Gain on the sale of real estate, net of tax

Gain on the sale of unconsolidated real estate assets

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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 disposed properties or properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

During the three months ended March 31, 2023, our same store pool increased to 49 properties from 47 properties due to the inclusion of The Wren and The Batley as they were in service for the entirety of the comparable periods.

During the three months ended June 30, 2023, our same store pool increased to 50 properties from 49 properties due to the inclusion of 8001

Woodmont as it was in service for the entirety of the comparable period.

During the six months ended June 30, 2023, our same store pool increased to 49 properties from 47 properties due to the inclusion of The Wren and The Batley as they were in service for the entirety of the comparable periods.

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 decreased $528,000, or 0.7%, to $76.1 million for the three months ended March 31, 2023 from $76.6 million for the same period in 2022.

The decrease was substantially attributable to (i) increased abatement and higher utilities, partially offset by an increase in parking revenue in our commercial portfolio and (ii) higher occupancy and rents in our multifamily portfolio.

Same store NOI increased $104,000, or 0.1%, to $78.3 million for the three months ended June 30, 2023 from $78.2 million for the same period in 2022.

Same store NOI decreased $1.1 million, or 0.7%, to $153.5 million for the six months ended June 30, 2023 from $154.7 million for the same period in 2022.

The decrease for the six months ended June 30, 2023 was substantially attributable to (i) increased abatement and higher vacancy, partially offset by an increase in parking revenue in our commercial portfolio and (ii) higher occupancy and rents, partially offset by higher concessions and higher operating expenses, in our multifamily portfolio.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

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Loss on the extinguishment of debt

Income tax benefit

Net income attributable to redeemable noncontrolling interests

Income tax expense

Net income (loss) attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

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Other revenue

Income from unconsolidated real estate ventures, net

Income (loss) from unconsolidated real estate ventures, net

Interest and other income, net

Gain (loss) on the sale of real estate, net

Gain on the sale of real estate, net

Consolidated NOI

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

(2) Adjustment to include other revenue and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue and allocated corporate general and administrative expenses to operating properties.

(3) Includes the results of our under-construction assets and assets in the development pipeline.

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

Accordingly, we aggregate our

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

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

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the three months ended March 31, 2023 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 six months ended June 30, 2023 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 months ended March 31, 2023 and 2022.

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, 2023 and 2022.

The following is a summary of NOI by segment:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Consolidated NOI

(1) Includes property rental revenue and parking revenue.

(2) Includes activity related to development assets, corporate entities, land assets for which we are the ground lessor and the elimination of inter-segment activity.

Comparison of the Three Months Ended March 31, 2023 to 2022

(3) Includes property operating expenses and real estate taxes.

Comparison of the Three Months Ended June 30, 2023 to 2022

Property revenue decreased by $7.3 million, or 9.7%, to $68.7 million in 2023 from $76.1 million in 2022.

Consolidated NOI decreased by $5.1 million, or 10.8%, to $42.3 million in 2023 from $47.4 million in 2022.

The decreases in property revenue and consolidated NOI were due to the Disposed Properties, partially offset by increased occupancy at 1550 Crystal Drive and 241 18 th Street, and the recovery of previously reserved balances.

The decreases in property revenue and consolidated NOI were primarily due to the Disposed Properties, partially offset by increased occupancy at 800 North Glebe and 2121 Crystal Drive.

Property revenue increased by $9.5 million, or 22.1%, to $52.7 million in 2023 from $43.2 million in 2022.

Consolidated NOI increased by $5.4 million, or 23.3%, to $28.7 million in 2023 from $23.3 million in 2022.

The increases in property revenue and consolidated NOI were due to the consolidation of Atlantic Plumbing and 8001 Woodmont in 2022, and higher occupancy and rental rates across the portfolio.

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

The increases in property revenue and consolidated NOI were primarily due to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancy and rents across the portfolio.

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

Comparison of the Six Months Ended June 30, 2023 to 2022

Property revenue decreased by $22.9 million, or 13.7%, to $144.8 million in 2023 from $167.7 million in 2022.

Consolidated NOI decreased by $11.1 million, or 11.0%, to $90.0 million in 2023 from $101.1 million in 2022.

The decreases in property revenue and consolidated NOI were primarily due to the Disposed Properties.

Property revenue increased by $17.4 million, or 20.4%, to $102.9 million in 2023 from $85.4 million in 2022.

Consolidated NOI increased by $9.2 million, or 19.8%, to $55.8 million in 2023 from $46.5 million in 2022.

The increases in property revenue and consolidated NOI were primarily due to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancy and rents across the portfolio.

The increase in consolidated NOI was partially offset by an increase in property 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 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)

March 31, 2023

June 30, 2023

December 31, 2022

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Mortgage loans, net

(1) Weighted average effective interest rate as of March 31, 2023.

(1) Weighted average effective interest rate as of June 30, 2023.

(2) Includes variable rate mortgage loans with interest rate cap agreements.

For mortgage loans with interest rate caps, the weighted average interest rate cap strike is 2.35%, and the weighted average maturity date of the interest rate caps is August 1, 2023.

For mortgage loans with interest rate caps, the weighted average interest rate cap strike was 2.42%, and the weighted average maturity date of the interest rate caps is August 2023.

The interest rate cap strike is exclusive of the credit spreads associated with the mortgage loans.

As of March 31, 2023, one-month London Interbank Offered Rate ("LIBOR") was 4.86% and one-month term Secured Overnight Financing Rate ("SOFR") was 4.80%.

As of June 30, 2023, one-month London Interbank Offered Rate ("LIBOR") was 5.22% and one-month term Secured Overnight Financing Rate ("SOFR") was 5.14%.

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

(4) As of March 31, 2023 and December 31, 2022, excludes $2.1 million and $2.2 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net"

(4) As of June 30, 2023 and December 31, 2022, excludes $2.0 million and $2.2 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net"

in our balance sheets.

As of March 31, 2023 and December 31, 2022, the net carrying value of real estate collateralizing our mortgage loans totaled $2.2 billion.

As of June 30, 2023 and December 31, 2022, the net carrying value of real estate collateralizing our mortgage loans totaled $2.1 billion and $2.2 billion.

Our mortgage loans 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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Proceeds from the loan were used, in part, to repay the $131.5 million mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%.

As of March 31, 2023 and December 31, 2022, we had various interest rate swap and cap agreements on certain mortgage loans with an aggregate notional value of $1.2 billion and $1.3 billion.

Proceeds from the loan were used, in part, to repay the $131.5 million mortgage loan collateralized by 2121 Crystal Drive, which had a fixed interest rate of 5.51%.

In June 2023, we repaid $142.4 million in mortgage loans collateralized by Falkland Chase – South & West and 800 North Glebe Road.

As of June 30, 2023 and December 31, 2022, we had various interest rate swap and cap agreements on certain mortgage loans with an aggregate notional value of $1.2 billion and $1.3 billion.

See Note 15 to the financial statements for additional information.

Credit Facility

As of March 31, 2023 and December 31, 2022, our $1.6 billion credit facility consisted of an undrawn $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 $350.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in January 2028, which has a $50.0 million additional advance available, which we will draw in May 2023.

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

Revolving Credit Facility and Term Loans

As of June 30, 2023, our unsecured revolving credit facility and term loans totaling $1.5 billion consisted of a $750.0 million revolving credit facility maturing in June 2027, a $200.0 million term loan ("Tranche A-1 Term Loan") maturing in January 2025, a $400.0 million term loan ("Tranche A-2 Term Loan") maturing in January 2028, which includes the

$50.0 million remaining advance drawn in May 2023, and a $120.0 million term loan ("2023 Term Loan") maturing in June 2028.

Effective as of June 29, 2023, the revolving credit facility was amended to:

(i) reduce the borrowing capacity from $1.0 billion to $750.0 million, (ii) extend the maturity date from January 2025 to June 2027 and (iii) amend the interest rate to daily SOFR plus 1.40% to daily SOFR plus 1.85%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

We have the option to increase the $750.0 million revolving credit facility or add term loans up to $500.0 million, and we also have the right to extend the maturity date beyond June 2027 via two six-month extension options.

In addition, on June 29, 2023, we entered into a $120.0 million term loan maturing in June 2028 with an interest rate of one-month term SOFR plus 1.25% to one-month term SOFR plus 1.80%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

We also entered into an interest rate swap with a total notional value of $120.0 million, which fixes SOFR at an interest rate of 4.01% through the maturity date.

In July 2023, we amended the covenants related to the Tranche A-1 Term Loan and the Tranche A-2 Term Loan to be consistent with those of the revolving credit facility and 2023 Term Loan covenants.

The following is a summary of amounts outstanding under the revolving credit facility and term loans:

Interest Rate (1)

March 31, 2023

June 30, 2023

December 31, 2022

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Tranche A-2 Term Loan (4)

Unsecured term loans

2023 Term Loan (5)

Unamortized deferred financing costs, net

Unsecured term loans, net

(1) Effective interest rate as of March 31, 2023.

Term loans, net

(1) Effective interest rate as of June 30, 2023.

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

(2) As of March 31, 2023, one-month term SOFR was 4.80%.

As of March 31, 2023 and December 31, 2022, letters of credit with an aggregate face amount of $467,000 were outstanding under our revolving credit facility.

(3) As of March 31, 2023 and December 31, 2022, excludes $2.9 million and $3.3 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net"

(2) As of June 30, 2023, daily SOFR was 5.09%.

As of June 30, 2023 and December 31, 2022, letters of credit with an aggregate face amount of $467,000 were outstanding under our revolving credit facility.

(3) As of June 30, 2023 and December 31, 2022, excludes $11.7 million and $3.3 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net"

in our balance sheets.

(4) As of March 31, 2023 and December 31, 2022, the outstanding balance was fixed by interest rate swap agreements, which fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.14% for the Tranche A-2 Term Loan.

(4) As of June 30, 2023 and December 31, 2022, the outstanding balance was fixed by interest rate swap agreements.

As of June 30, 2023, these interest rate swap agreements fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.29% for the Tranche A-2 Term Loan.

Interest rate swaps for the Tranche A-1 Term Loan with a total notional value of $200.0 million mature in July 2024.

Interest rate swaps for the Tranche A-2 Term Loan with a total notional value of $200.0 million mature in July 2024 and with a total notional value of $200.0 million mature in January 2028.

We have two forward-starting interest rate swaps that will be effective July 2024 with a total notional value of $200.0 million, which will effectively fix SOFR at a weighted average interest rate of 2.61% through the maturity date.

The interest rate for our Tranche A-2 Term Loan excludes a 0.15% per annum commitment fee on the undrawn $50.0 million of commitments.

As of March 31, 2023, we had debt with a principal balance totaling $692.7 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 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.

Though an alternative reference rate for LIBOR, the SOFR, exists, significant uncertainties still remain.

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.

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.

We have two forward-starting interest rate swaps that will be effective July 2024 with a total notional value of $200.0 million, which will effectively fix SOFR for the Tranche A-2 Term Loan at a weighted average interest rate of 2.81% through the maturity date.

(5) As of June 30, 2023, the outstanding balance was fixed by an interest rate swap agreement, which fixes SOFR at an interest rate of 4.01% through the maturity date.

As of June 30, 2023, we had fully-hedged debt with a principal balance totaling $692.7 million that used LIBOR as a reference rate.

As of the date of this filing, all our debt and hedging arrangements use SOFR as a reference rate.

Common Shares Repurchased

Our Board of Trustees previously authorized the repurchase of up to $1.0 billion of our outstanding common shares, and in May 2023, increased the common share repurchase authorization to $1.5 billion.

During the three months ended March 31, 2023, we repurchased and retired 1.2 million common shares for $20.1 million, a weighted average purchase price per share of $16.66.

During the three months ended March 31, 2022, we repurchased and retired 3.3 million common shares for $93.1 million, a weighted average purchase price per share of $27.86.

Since we began the share repurchase

program, as of March 31, 2023, we have repurchased and retired 24.5 million common shares for $643.6 million, a weighted average purchase price per share of $26.25.

During the second quarter of 2023, through the date of this filing, we repurchased and retired 2.8 million common shares for $40.1 million, a weighted average purchase price per share of $14.16, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

During the three and six months ended June 30, 2023, we repurchased and retired 9.3 million and 10.5 million common shares for $135.7 million and $155.8 million, a weighted average purchase price per share of $14.54 and $14.79.

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.

Since we began the share repurchase program through June 30, 2023, we have repurchased and retired 33.8 million common shares for $779.3 million, a weighted average purchase price per share of $23.02.

During the third quarter of 2023, through the date of this filing, we repurchased and retired 2.0 million common shares for $31.5 million, a weighted average purchase price per share of $16.03, 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 mortgage loans — as of March 31, 2023, we had $143.0 million on a consolidated basis and $165.0 million at our share scheduled to mature in 2023;

● capital expenditures, including major renovations, tenant improvements and leasing costs — as of March 31, 2023, we had committed tenant-related obligations totaling $60.6 million ($58.6 million related to our consolidated entities and $2.0 million related to our unconsolidated real estate ventures at our share);

● development expenditures — as of March 31, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $346.5 million to complete, which we anticipate will be primarily expended over the next three years;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — on May 4, 2023, our Board of Trustees declared a quarterly dividend of $0.225 per common share;

● possible common share repurchases — during the second quarter of 2023, through the date of this filing, we repurchased and retired 2.8 million common shares for $40.1 million;

● debt service and principal repayment obligations, including balloon payments on maturing mortgage loans — as of June 30, 2023, we had no debt on a consolidated basis and $13.7 million at our share scheduled to mature in 2023;

● capital expenditures, including major renovations, tenant improvements and leasing costs — as of June 30, 2023, we had committed tenant-related obligations totaling $53.1 million ($51.4 million related to our consolidated entities and $1.7 million related to our unconsolidated real estate ventures at our share);

● development expenditures — as of June 30, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $284.7 million to complete, which we anticipate will be primarily expended over the next three years;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — on August 3, 2023, our Board of Trustees declared a quarterly dividend of $0.225 per common share;

● possible common share repurchases — during the third quarter of 2023, through the date of this filing, we repurchased and retired 2.0 million common shares for $31.5 million;

● possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests.

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

● cash and cash equivalents — as of March 31, 2023, we had cash and cash equivalents of $279.6 million ;

● cash and cash equivalents — as of June 30, 2023, we had cash and cash equivalents of $156.6 million ;

● cash flows from operations;

● distributions from real estate ventures;

● borrowing capacity under our current credit facility — as of March 31, 2023, we had $1.0 billion of availability under our credit facility, including $50.0 million undrawn under our Tranche A-2 Term Loan which we will draw in May 2023;

● borrowing capacity under our revolving credit facility — as of June 30, 2023, we had $687.5 million of availability under our revolving credit facility;

● proceeds from financings, asset sales and recapitalizations.

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

During the three months ended March 31, 2023, there were no significant changes to the material cash requirements information presented in Item 7 of Part II of our Annual Report.

During the six months ended June 30, 2023, there were no significant changes to the material cash requirements information presented in Item 7 of Part II of our Annual Report.

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:

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Cash Flows for the Three Months Ended March 31, 2023

Cash and cash equivalents, and restricted cash increased $47.8 million to $321.9 million as of March 31, 2023, compared to $274.1 million as of December 31, 2022.

This increase resulted from $42.6 million of net cash provided by operating activities and $31.9 million of net cash provided by financing activities, partially offset by $26.7 million of net cash used in investing activities.

Our outstanding debt was $2.4 billion and $2.5 billion as of March 31, 2023 and December 31, 2022.

Net cash (used in) provided by investing activities

Net cash used in financing activities

Cash Flows for the Six Months Ended June 30, 2023

Cash and cash equivalents, and restricted cash decreased $71.2 million to $202.8 million as of June 30, 2023, compared to $274.1 million as of December 31, 2022.

This decrease resulted from $135.5 million of net cash used in investing activities and $25.2 million of net cash used in financing activities, partially offset by $89.4 million of net cash provided by operating activities.

Our outstanding debt was $2.5 billion as of June 30, 2023 and December 31, 2022.

Net cash provided by operating activities of $89.4 million comprised:

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Non-cash income adjustments of $114.8 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent and other non-cash items.

Net cash used in investing activities of $26.7 million primarily comprised:

(i) $78.3 million of development costs, construction in progress and real estate additions and (ii) $16.9 million of investments in unconsolidated real estate ventures and other investments, partially offset by (iii) $69.0 million of proceeds from the sale of real estate.

Net cash provided by financing activities of $31.9 million primarily comprised:

(i) $223.3 million of borrowings under mortgage loans, partially offset by (ii) $133.9 million of repayments of mortgage loans, (iii) $25.7 million of dividends paid to common shareholders, (iv) $20.1 million of common shares repurchased, (v) $7.2 million of debt issuance and modification costs, and (vi) $4.0 million of distributions to our redeemable noncontrolling interests.

Net cash used in investing activities of $135.5 million comprised:

(i) $164.8 million of development costs, construction in progress and real estate additions, (ii) $20.2 million of investments in unconsolidated real estate ventures and other investments and (iii) a $19.6 million payment of a deferred purchase price related to the acquisition of a development parcel in 2020, partially offset by (iv) $69.0 million of proceeds from the sale of real estate.

Net cash used in financing activities of $25.2 million primarily comprised:

(i) $278.5 million of repayments of mortgage loans, (ii) $155.8 million of common shares repurchased, (iii) $60.0 million of repayments on the revolving credit facility, (iv) $49.5 million of dividends paid to common shareholders, (v) $17.2 million of debt issuance and modification costs, and (vi) $7.9 million of distributions to our redeemable noncontrolling interests, partially offset by (vii) $251.7 million of borrowings under mortgage loans, (viii) $170.0 million of borrowings under term loans and (ix) $122.0 million of borrowings under the revolving credit facility.

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 March 31, 2023, we had investments in unconsolidated real estate ventures totaling $312.7 million.

As of June 30, 2023, we had investments in unconsolidated real estate ventures totaling $309.2 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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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.

At times, we also have agreements with certain of our outside venture partners whereby we agree to either indemnify the partners and/or the associated ventures with respect to certain contingent liabilities associated with operating assets or to reimburse our partner for its share of any payments made by them under certain guarantees.

Guarantees (excluding environmental) customarily terminate either upon the satisfaction of specified

circumstances or repayment of the underlying debt.

associated with operating assets or to reimburse our partner for its share of any payments made by them under certain guarantees.

Guarantees (excluding environmental) customarily terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt.

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

As of March 31, 2023, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $62.6 million.

As of March 31, 2023, 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, 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.

As of June 30, 2023, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $62.0 million.

As of June 30, 2023, we had no debt principal payment guarantees related to our unconsolidated real estate ventures.

Commitments and Contingencies

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We are responsible for deductibles and losses in excess of the insurance coverage, which could be material.

Our debt, consisting of mortgage loans secured by our properties, a revolving credit facility and unsecured term loans, contains customary covenants requiring adequate insurance coverage.

Our debt, consisting of mortgage loans secured by our properties, a revolving credit facility and term loans, contains customary covenants requiring adequate insurance coverage.

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

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Construction Commitments

As of March 31, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $346.5 million to complete, which we anticipate will be primarily expended over the next three years.

As of June 30, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $284.7 million to complete, which we anticipate will be primarily expended over the next three years.

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

As of March 31, 2023, we had committed tenant-related obligations totaling $60.6 million ($58.6 million related to our consolidated entities and $2.0 million related to our unconsolidated real estate ventures at our share).

As of June 30, 2023, we had committed tenant-related obligations totaling $53.1 million ($51.4 million related to our consolidated entities and $1.7 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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With respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (i) guarantee portions of the principal, interest and other amounts, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (iii) provide guarantees to lenders, tenants and other third parties for the completion of development projects.

As of March 31, 2023, 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.

As of June 30, 2023, the aggregate amount of debt principal payment guarantees was $8.3 million for our consolidated entities.

together with certain related transactions, is determined not to be tax-free.

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

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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 $18.0 million as of March 31, 2023 and December 31, 2022 and are included in "Other liabilities, net"

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $18.0 million as of June 30, 2023 and December 31, 2022 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