What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-08 · 184 added, 174 removed, 373 unchanged (49% of the section changed)

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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.

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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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, 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.

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

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

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

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

As of September 30, 2023, our Operating Portfolio consisted of 48 operating assets comprising 30 commercial assets totaling 9.2 million square feet (8.1 million square feet at our share), 16 multifamily assets totaling 6,318 units (6,318 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.

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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 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.

To that end, we saw the delivery of two Placemaking projects, Water Park and Dining in the Park.

Additionally, the 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.

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

As of September 30, 2023, we have leases with Amazon totaling approximately 980,000 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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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.

Consequently, at any given time, we expect to be in various stages of discussions and negotiations with potential buyers, real estate venture partners, ground lessors and other counterparties with respect to sales, joint ventures and/or ground leases for certain of our assets, including portfolios thereof.

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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 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.

Our office portfolio occupancy as of September 30, 2023 increased by 40 basis points to 84.4% as compared to June 30, 2023.

During the three months ended September 30, 2023, we executed 434,000 square feet of office leases, approximately 88% of which comprised leases in National Landing.

We have 1.7 million square feet of office leases in National Landing expiring through 2024 or on a month-to-month status, which includes leases with Amazon (623,000 square feet), 245,000 square feet of which expire in 2023, and 378,000 square feet which expire 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 multifamily portfolio occupancy as of September 30, 2023 increased by 190 basis points to 95.6% compared to June 30, 2023 as higher leasing volume is typical for summer months.

For third quarter lease expirations, we increased gross rents by 4.8% upon renewal while achieving a 55.2% renewal rate across our portfolio.

Operating Results

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.

Key highlights for the three and nine months ended September 30, 2023 included:

● net loss attributable to common shareholders of $58.0 million, or $0.58 per diluted common share, for the three months ended September 30, 2023 compared to 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.

Net loss attributable to common shareholders of $47.4 million, or $0.45 per diluted common share, for the nine months ended September 30, 2023 compared to 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;

● third-party real estate services revenue, including reimbursements, of $23.9 million and $69.6 million for the three and nine months ended September 30, 2023, as compared to $21.8 million and $68.0 million for the three and nine months ended September 30, 2022;

● operating commercial portfolio leased and occupied percentages at our share of 85.6% and 84.4% as of September 30, 2023 compared to 86.3% and 84.0% as of June 30, 2023, and 88.3% and 85.9% as of September 30, 2022;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 96.9% and 95.6% as of September 30, 2023 compared to 96.8% and 93.7% as of June 30, 2023, and 95.5% and 93.7% as of September 30, 2022;

● the leasing of 434,000 square feet at our share, at an initial rent (2) of $47.73 per square foot and a GAAP-basis weighted average rent per square foot (3) of $46.29 for the three months ended September 30, 2023, and the leasing of 757,000 square feet at our share, at an initial rent (2) of $47.59 per square foot and a GAAP-basis weighted average rent per square foot (3) of $46.49 for the nine months ended September 30, 2023;

● an increase in same store (4) NOI of 3.7% to $76.9 million for the three months ended September 30, 2023 compared to $74.1 million for the three months ended September 30, 2022, and an increase in same store (4) NOI of 0.5% to $225.9 million for the nine months ended September 30, 2023 compared to $224.8 million for the nine months ended September 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 six months ended June 30, 2023 included:

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

Additionally, investing and financing activity during the nine months ended September 30, 2023 included:

● the sale of Falkland Chase-South & West and Falkland Chase-North ("Falkland Chase-South & West/North").

See Note 3 to the financial statements for additional information;

● the sale of an 80.0% interest in 4747 Bethesda Avenue, and the sale of Stonebridge at Potomac Town Center by one of our unconsolidated real estate ventures.

See Note 4 to the financial statements for additional information;

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

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● 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.

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● the investment of $241.3 million in development, construction in progress and real estate additions.

Activity subsequent to June 30, 2023 included:

Activity subsequent to September 30, 2023 included:

● the sale of 5 M Street Southwest.

See Note 3 to the financial statements for additional information;

● an additional $50.0 million draw under the revolving credit facility;

● the repurchase and retirement of 2.0 million common shares for $28.0 million, a weighted average purchase price per share of $13.85, 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 31, 2023 to shareholders of record as of August 17, 2023.

● the declaration of a quarterly dividend of $0.225 per common share, payable on December 1, 2023 to shareholders of record as of November 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 six months ended June 30, 2023.

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

Recent Accounting Pronouncements

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Results of Operations

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

During the nine months ended September 30, 2023, we sold an 80.0% interest in 4747 Bethesda Avenue to an unconsolidated real estate venture, and we sold Falkland Chase-South & West/North.

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 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 three months ended June 30, 2023 compared to the same period in 2022:

Three Months Ended June 30,

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

Three Months Ended September 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

Loss from unconsolidated real estate ventures, net

Interest and other income, 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.

Impairment loss

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* Not meaningful.

Property rental revenue increased by approximately $483,000, or 0.4%, to $120.3 million in 2023 from $119.8 million in 2022.

The increase was primarily due to a $6.8 million increase in revenue from our multifamily assets and a $978,000 increase in other revenue, partially offset by a $7.3 million decrease in revenue from our commercial assets.

The increase in revenue from our multifamily assets was primarily due to a $4.3 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancy and rents across the portfolio.

The decrease in revenue from our commercial assets was primarily due to a $3.9 million decrease related to the Disposed Properties, and lower occupancy and rents across the portfolio.

Third-party real estate services revenue, including reimbursements, increased by approximately $2.1 million, or 9.6%, to $23.9 million in 2023 from $21.8 million in 2022.

The increase was primarily due to a $2.9 million increase in development fees related to the timing of development projects, partially offset by a $677,000 decrease in leasing fees.

Depreciation and amortization expense increased by approximately $209,000, or 0.4%, to $50.3 million in 2023 from $50.1 million in 2022.

The increase was primarily due to a $2.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $908,000 increase due to the accelerated amortization of certain tenant improvements at 800 North Glebe Road.

The increase in depreciation and amortization expense was partially offset by a $2.2 million decrease related to the Disposed Properties.

Property operating expense increased by approximately $1.2 million, or 3.3%, to $37.6 million in 2023 from $36.4 million in 2022.

The increase was primarily due to a $3.3 million increase in property operating expense from our multifamily assets, partially offset by a $1.3 million decrease in property operating expense from our commercial assets and a $778,000 decrease in other property operating expense.

The increase in property operating expense from our multifamily assets was primarily due to a $2.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $1.1 million increase in property operating expenses across our multifamily portfolio, primarily related to higher compensation, cleaning, marketing and turnover expenses.

The decrease in property operating expense from our commercial assets was primarily due to a $1.1 million decrease related to the Disposed Properties.

Real estate taxes expense decreased by approximately $325,000, or 2.2%, to $14.4 million in 2023 from $14.7 million in 2022.

The decrease was primarily due to a $561,000 decrease related to the Disposed Properties and lower assessments across the portfolio, partially offset by a $592,000 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.

corporate and other decreased by approximately $826,000, or 6.8%, to $11.2 million in 2023 from $12.1 million in 2022.

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

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.

third-party real estate services increased by approximately $175,000, or 0.8%, to $21.4 million in 2023 from $21.2 million in 2022.

The increase was primarily due to higher 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.

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $502,000, or 91.6%, to $46,000 in 2023 from $548,000 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 the reversal of previously recognized expense due to forfeitures.

Loss from unconsolidated real estate ventures decreased by approximately $11.6 million, or 83.7%, to $2.3 million in 2023 from $13.9 million in 2022.

The decrease was primarily due to (i) a $12.1 million decrease in impairment losses, (ii) a $1.6 million decrease in loss related to the consolidation of Atlantic Plumbing and 8001 Woodmont as these assets were not yet stabilized and incurring losses, and (iii) a $641,000 gain at our share on the sale of Stonebridge at Potomac Town Center, partially offset by (iv) a decrease in income at our share.

Interest and other income increased by approximately $6.8 million, or 690.0%, to $7.8 million in 2023 from $984,000 in 2022.

The increase was primarily due to a $6.0 million gain from the settlement of litigation in 2023 and a $1.4 million increase in interest income from our outstanding cash balances.

Interest expense increased by approximately $10.0 million, or 55.6%, to $27.9 million in 2023 from $17.9 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,

The increase in interest expense was primarily due to (i) a $10.2 million increase due to higher outstanding debt, (ii) a $4.8 million decrease related to the mark-to-market associated with our ineffective interest rate caps, (iii) a $2.8 million increase related to rising interest rates on variable rate mortgage loans and (iv) a $1.2 million increase related to the consolidation of 8001 Woodmont.

The increase in interest expense was partially offset by (v) a $4.3 million increase in capitalized interest, (vi) a $2.2 million decrease related to mortgage loans collateralized by 2121 Crystal Drive and Falkland Chase-South & West, which were repaid during 2023, and (vii) a $1.7 million decrease related to the Disposed Properties, excluding Falkland Chase-South & West.

Impairment loss of $59.3 million in 2023 related to 2101 L Street, 2100 Crystal Drive and a development parcel, which were written down to their estimated fair value.

Comparison of the Nine Months Ended September 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 nine months ended September 30, 2023 compared to the same period in 2022:

Nine Months Ended September 30,

(Dollars in thousands)

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

Income from unconsolidated real estate ventures, net

Loss from unconsolidated real estate ventures, net

Interest and other income, net

1 unchanged sentence

Gain on the sale of real estate, net

Impairment loss

_____________

* Not meaningful.

Property rental revenue decreased by approximately $3.5 million, or 1.0%, to $364.9 million in 2023 from $368.4 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 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.

The decrease was primarily due to a $30.6 million decrease in revenue from our commercial assets, partially offset by a $24.1 million increase in revenue from our multifamily assets and a $2.9 million increase in other revenue.

The decrease in revenue from our commercial assets was primarily due to a $28.2 million decrease related to the Disposed Properties, and lower occupancy and rents across the portfolio.

The increase in revenue from our multifamily assets was primarily due to a $15.7 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancy and rents across the portfolio.

Third-party real estate services revenue, including reimbursements, increased by approximately $1.6 million, or 2.4%, to $69.6 million in 2023 from $68.0 million in 2022.

The increase was primarily due to a $1.9 million increase in development fees related to the timing of development projects and a $1.2 million increase in reimbursement revenue, partially offset by a $1.3 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

Depreciation and amortization expense decreased by approximately $4.7 million, or 3.0%, to $152.9 million in 2023 from $157.6 million in 2022.

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.

The decrease was primarily due to an $11.9 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 an $11.3 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

Property operating expense decreased by approximately $3.4 million, or 3.0%, to $109.1 million in 2023 from $112.5 million in 2022.

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 $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.

The decrease was primarily due to a $9.5 million decrease in property operating expense from our commercial assets and a $4.4 million decrease in other property operating expense, partially offset by a $10.5 million increase in property operating expense from our multifamily assets.

The decrease in property operating expense from our commercial assets was primarily due to a $9.3 million decrease related to the Disposed Properties.

The decrease in other property operating expense was primarily due to a $1.1 million decrease in costs incurred related to digital infrastructure initiatives in National Landing and a $1.1 million decrease in insurance claims covered by our captive insurance subsidiary.

The increase in property operating expense from our multifamily assets was primarily due to a $7.4 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $2.7 million increase in property operating expenses across our multifamily portfolio, primarily related to higher compensation, cleaning, marketing and turnover expenses.

Real estate taxes expense decreased by approximately $3.8 million, or 8.0%, to $44.1 million in 2023 from $47.9 million in 2022.

The decrease was primarily due to a $4.8 million decrease related to the Disposed Properties and lower assessments across the portfolio, partially offset by a $2.0 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

General and administrative expense:

corporate and other increased by approximately $619,000, or 2.0%, to $31.2 million in 2023 from $30.6 million in 2022.

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

corporate and other decreased by approximately $207,000, or 0.5%, to $42.5 million in 2023 from $42.7 million in 2022.

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

General and administrative expense:

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share-based compensation related to Formation Transaction and special equity awards decreased by approximately $4.0 million, or 90.9%, to $397,000 in 2023 from $4.4 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 (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.

Loss from unconsolidated real estate ventures decreased by approximately $11.5 million, or 89.7%, to $1.3 million in 2023 from $12.8 million in 2022.

The decrease was primarily due to (i) a $12.1 million decrease in impairment losses, (ii) a $5.5 million decrease in loss related to the consolidation of Atlantic Plumbing and 8001 Woodmont as these assets were not yet stabilized and incurring losses, (iii) a $1.8 million loss on the extinguishment of debt related to a property that was sold in 2022 and (iv) a $1.1 million decrease related to our suspension of the equity method of accounting for the L’Enfant Plaza Assets as they were incurring losses, partially offset by (v) a $5.5 million reduction in gains at our share from the sale of various assets and (vi) a decrease in income at our share.

Interest and other income decreased by approximately $2.8 million, or 16.4%, to $14.1 million in 2023 from $16.9 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.

The decrease was primarily due to a $13.8 million decrease in realized gains primarily from the sale of investments in equity securities in 2022.

The decrease in interest and other income was partially offset by a $6.0 million gain from the settlement of litigation in 2023 and a $6.0 million increase in interest income from our outstanding cash balances.

Interest expense increased by approximately $30.3 million, or 60.4%, to $80.6 million in 2023 from $50.3 million in 2022.

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.

The increase in interest expense was primarily due to (i) a $22.8 million increase due to higher outstanding debt, (ii) a $15.9 million decrease related to the mark-to-market associated with our ineffective interest rate caps, (iii) a $10.8 million increase related to rising interest rates on variable rate mortgage loans and (iv) a $3.7 million increase related to the consolidation of 8001 Woodmont.

The increase in interest expense was partially offset by (v) an $11.9 million increase in capitalized interest, (vi) a $5.4 million decrease related to mortgage loans collateralized by 2121 Crystal Drive and Falkland Chase-South & West, which were repaid during 2023, and (vii) a $4.8 million decrease related to the Disposed Properties, excluding Falkland Chase-South & West.

Gain on the sale of real estate of $41.6 million in 2023 and $158.6 million in 2022 was due to the sale of the Disposed Properties.

Impairment loss of $59.3 million in 2023 related to 2101 L Street, 2100 Crystal Drive and a development parcel, which were written down to their estimated fair value.

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 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

Real estate impairment loss

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

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.

During the three months ended September 30, 2023, our same store pool decreased to 48 properties from 50 properties due to the sale of Falkland Chase-South & West/North and Stonebridge at Potomac Town Center, and the inclusion of 1831/1861 Wiehle Avenue as it was in service for the entity of the comparable periods.

During the nine months ended September 30, 2023, our same store pool decreased to 46 properties from 47 properties due to the sale of Falkland Chase-South & West/North and Stonebridge at Potomac Town Center, and 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 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.

Same store NOI increased $2.7 million, or 3.7%, to $76.9 million for the three months ended September 30, 2023 from $74.1 million for the same period in 2022.

Same store NOI increased $1.1 million, or 0.5%, to $225.9 million for the nine months ended September 30, 2023 from $224.8 million for the same period in 2022.

The increase for the three months ended September 30, 2023 was substantially attributable to (i) higher occupancy and rents, partially offset by higher concessions and higher operating expenses, in our multifamily portfolio and (ii) higher vacancy, partially offset by the burn off of free rent and an increase in parking revenue in our commercial portfolio.

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

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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Loss on the extinguishment of debt

Impairment loss

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

Other revenue

Income (loss) from unconsolidated real estate ventures, net

Loss from unconsolidated real estate ventures, net

Interest and other income, 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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(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 and six months ended June 30, 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 nine months ended September 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 and six months ended June 30, 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 nine months ended September 30, 2023 and 2022.

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

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

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

Property revenue decreased by $6.9 million, or 9.1%, to $68.3 million in 2023 from $75.1 million in 2022.

Consolidated NOI decreased by $5.2 million, or 11.2%, to $41.2 million in 2023 from $46.4 million in 2022.

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.

The decreases in property revenue and consolidated NOI were primarily due to the Disposed Properties and lower occupancy and rents across the portfolio.

Property revenue increased by $6.8 million, or 14.9%, to $52.7 million in 2023 from $45.9 million in 2022.

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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

Comparison of the Nine Months Ended September 30, 2023 to 2022

Property revenue decreased by $29.8 million, or 12.3%, to $213.1 million in 2023 from $242.8 million in 2022.

Consolidated NOI decreased by $16.3 million, or 11.1%, to $131.2 million in 2023 from $147.5 million in 2022.

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

The decreases in property revenue and consolidated NOI were primarily due to the Disposed Properties and lower occupancy and rents across the portfolio.

Property revenue increased by $24.3 million, or 18.5%, to $155.6 million in 2023 from $131.3 million in 2022.

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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)

June 30, 2023

September 30, 2023

December 31, 2022

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Mortgage loans, net

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

(1) Weighted average effective interest rate as of September 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 was 2.42%, and the weighted average maturity date of the interest rate caps is August 2023.

For mortgage loans with interest rate caps, the weighted average interest rate cap strike was 3.16%, and the weighted average maturity date of the interest rate caps is December 2024.

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

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%.

As of September 30, 2023, one-month term Secured Overnight Financing Rate ("SOFR") was 5.32%.

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

(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"

(4) As of September 30, 2023 and December 31, 2022, excludes $1.8 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 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.

As of September 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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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.

As of September 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 $1.6 billion and $1.3 billion.

See Note 15 to the financial statements for additional information.

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.

As of September 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 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.

We have the option to increase the $750.0 million revolving credit facility or add term loans up to $500.0 million, and we 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.

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Interest Rate (1)

June 30, 2023

September 30, 2023

December 31, 2022

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Term loans, net

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

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

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

(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"

(2) As of September 30, 2023, daily SOFR was 5.31%.

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

In October 2023, we drew an additional $50.0 million under the revolving credit facility.

(3) As of September 30, 2023 and December 31, 2022, excludes $10.9 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 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.

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

As of September 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.

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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.

(5) As of September 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.

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 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.

During the three and nine months ended September 30, 2023, we repurchased and retired 7.9 million and 18.4 million common shares for $120.8 million and $276.7

million, a weighted average purchase price per share of $15.24 and $14.98.

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.

Since we began the share repurchase program through September 30, 2023, we have repurchased and retired 41.7 million common shares for $900.2 million, a weighted average purchase price per share of $21.54.

During the fourth quarter of 2023, through the date of this filing, we repurchased and retired 2.0 million common shares for $28.0 million, a weighted average purchase price per share of $13.85, 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 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;

● debt service and principal repayment obligations, including balloon payments on maturing mortgage loans — as of September 30, 2023, we had $121.3 million on a consolidated basis and $135.1 million at our share scheduled to mature through 2024;

● capital expenditures, including major renovations, tenant improvements and leasing costs — as of September 30, 2023, we had committed tenant-related obligations totaling $47.7 million ($46.3 million related to our consolidated entities and $1.4 million related to our unconsolidated real estate ventures at our share);

● development expenditures — as of September 30, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $230.5 million to complete, which we anticipate will be primarily expended over the next two years;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — on October 31, 2023, our Board of Trustees declared a quarterly dividend of $0.225 per common share;

● possible common share repurchases — during the fourth quarter of 2023, through the date of this filing, we repurchased and retired 2.0 million common shares for $28.0 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 June 30, 2023, we had cash and cash equivalents of $156.6 million ;

● cash and cash equivalents — as of September 30, 2023, we had cash and cash equivalents of $130.5 million ;

● cash flows from operations;

● distributions from real estate ventures;

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

● borrowing capacity under our revolving credit facility — as of September 30, 2023, we had $657.5 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 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.

● proceeds from the issuance of securities.

During the nine months ended September 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:

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, 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.

Cash Flows for the Nine Months Ended September 30, 2023

Cash and cash equivalents, and restricted cash decreased $105.3 million to $168.8 million as of September 30, 2023, compared to $274.1 million as of December 31, 2022.

This decrease resulted from $123.2 million of net cash used in investing activities and $96.9 million of net cash used in financing activities, partially offset by $114.9 million of net cash provided by operating activities.

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

Our outstanding debt was $2.6 billion and $2.5 billion as of September 30, 2023 and December 31, 2022.

Net cash provided by operating activities of $114.9 million comprised:

(i) $137.1 million of net income (before $232.7 million of non-cash items and a $41.6 million gain on the sale of real estate), (ii) $12.6 million of return on capital from unconsolidated real estate ventures and (iii) $34.8 million of net change in operating assets and liabilities.

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 $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.

Non-cash income adjustments of $232.7 million primarily include depreciation and amortization expense, impairment loss, share-based compensation expense, deferred rent and other non-cash items.

Net cash used in investing activities of $123.2 million primarily comprised:

(i) $241.3 million of development costs, construction in progress and real estate additions, (ii) $24.3 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 2020 acquisition of a development parcel, partially offset by (iv) $162.1 million of proceeds from the sale of real estate.

Net cash used in financing activities of $96.9 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.

(i) $280.1 million of repayments of mortgage loans, (ii) $273.9 million of common shares repurchased, (iii) $155.0 million of repayments on the revolving credit facility, (iv) $72.5 million of dividends paid to common shareholders, (v) $17.6 million of debt issuance and modification costs, and (vi) $11.6 million of distributions to our redeemable noncontrolling interests, partially offset by (vii) $287.6 million of borrowings under mortgage loans, (viii) $247.0 million of borrowings under the revolving credit facility and (ix) $170.0 million of borrowings under term loans.

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, 2023, we had investments in unconsolidated real estate ventures totaling $309.2 million.

As of September 30, 2023, we had investments in unconsolidated real estate ventures totaling $296.4 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.

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.

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, 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.

As of September 30, 2023, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $63.0 million.

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

Commitments and Contingencies

We maintain general liability insurance with limits of $150.0 million per occurrence and in the aggregate, and property and rental value insurance coverage with limits of $1.0 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties.

We also maintain coverage, through our wholly owned captive insurance subsidiary, for a portion of the first loss on the above limits and for both terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence.

We also maintain coverage, through our wholly owned captive insurance subsidiary, for a portion of the first loss on the above limits and for both conventional terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence.

These policies are partially reinsured by third-party insurance providers.

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Construction Commitments

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.

As of September 30, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $230.5 million to complete, which we anticipate will be primarily expended over the next two years.

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

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).

As of September 30, 2023, we had committed tenant-related obligations totaling $47.7 million ($46.3 million related to our consolidated entities and $1.4 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.

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

During the three months ended September 30, 2023, we recognized a $6.0 million gain from the settlement of litigation, which was included in "Interest and other income, net"

in our statements of operations.

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

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 June 30, 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 September 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