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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-21 · 189 added, 194 removed, 353 unchanged (52% of the section changed)

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Organization and Basis of Presentation

JBG SMITH, a Maryland REIT, owns and operates a portfolio of commercial and multifamily assets amenitized with ancillary retail.

Our portfolio reflects our 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:

Amazon's new headquarters, which is being developed by us;

JBG SMITH, a Maryland REIT, owns, operates, invests in and develops mixed-use properties in high growth and high barrier-to-entry submarkets in and around Washington, D.C., most notably National Landing.

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

metropolitan area.

Approximately 75.0% of our holdings are in the National Landing submarket in Northern Virginia, which is anchored by four key demand drivers:

Amazon's new headquarters;

Virginia Tech's under-construction $1 billion Innovation Campus;

the submarket’s proximity to the Pentagon;

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 WHI, the JBG Legacy Funds and other third parties.

and our deployment of 5G digital infrastructure.

In addition, our third-party asset management and real estate services business provides fee-based real estate services to the

JBG Legacy Funds, other third parties and the WHI Impact Pool.

Substantially all our assets are held by, and our operations are conducted through, JBG SMITH LP.

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Under the asset and liability method, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future.

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

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.

We compete with many property owners and developers.

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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 December 31, 2022, our Operating Portfolio consisted of 51 operating assets comprising 31 commercial assets totaling 9.7 million square feet (8.4 million square feet at our share), 18 multifamily assets totaling 6,756 units (6,755 units at our share) and two wholly owned land assets for which we are the ground lessor.

As of December 31, 2023, our Operating Portfolio consisted of 44 operating assets comprising 16 multifamily assets totaling 6,318 units (6,318 units at our share), 26 commercial assets totaling 8.3 million square feet (7.7 million square feet 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 17 assets in the development pipeline totaling 10.8 million square feet (8.8 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.

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.

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.

Amazon's new headquarters is located in National Landing.

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.

To that end, we saw the delivery of two Placemaking projects, Water Park and Surreal, this year.

Additionally, the digital infrastructure investments we are making, including our ownership of CBRS wireless spectrum in National Landing and our agreements with AT&T, Cisco 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 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 expect to deliver Metropolitan Park and Amazon to occupy it this summer.

As of December

31, 2023, we also have leases with Amazon totaling approximately 927,000 square feet across five office buildings in National Landing.

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

We evaluate development, acquisition, disposition, share repurchases and other investment decisions based on how they may impact

long-term NAV per share.

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

We intend to continue to opportunistically sell 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.

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

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, development projects with significant yield spreads and profit potential, and share repurchases.

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

However, curbed lending activity has significantly slowed down the pace of asset sales and we expect this reduced activity to continue into 2023.

As we look to preserve balance sheet strength and flexibility, any new development or acquisition will be largely dependent on executing additional dispositions.

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 December 31, 2022 increased by 220 basis points compared to December 31, 2021.

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 936,000 square feet of office leases during the year at our share, over 20% of which comprised new leases in National Landing.

We have 739,700 square feet of office leases expiring in 2023 with another 40,400 square feet currently in month-to-month status.

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

Current market conditions have significantly slowed down the pace of asset sales, and we expect this reduced activity to continue in 2024.

Our multifamily portfolio occupancy as of December 31, 2023 increased by 110 basis points compared to December 31, 2022.

For fourth quarter lease expirations, we increased rents by 9.7% upon renewal while achieving a 55.7% renewal rate across our portfolio.

For fourth quarter lease expirations, we increased effective rents, which represent the average change in rental rates versus expiring rental rates net of concessions, by 7.0% upon renewal while achieving a 56.0% renewal rate across our portfolio.

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.

Upon delivery of 1900 Crystal Drive, expected in the second quarter of 2024, we will no longer be able to capitalize interest, which will increase annual interest expense by approximately $17.3 million once the mortgage loan is fully drawn.

Upon delivery of 2000/2001 South Bell Street, expected in the third quarter of 2025, we will no longer be able to capitalize interest, which will increase annual interest expense by approximately $14.1 million once the mortgage loan is fully drawn.

The current weighted average interest rate on these mortgage loans is 7.2%, and while we anticipate refinancing with agency debt upon stabilization, the ultimate terms of those future refinancings are not yet known.

Our office portfolio occupancy as of December 31, 2023 decreased by 20 basis points compared to December 31, 2022.

During 2023, we executed 927,000 square feet of office leases during the year at our share, approximately 89% of which comprised leases in National Landing and 90.3% of leases (on a square footage basis) were with defense and technology tenants.

We have 1.5 million square feet of office leases in National Landing expiring in 2024 or on a month-to-month status and expect only approximately 20.0% of this space to be renewed.

As of December 31, 2023, we have leases with Amazon across five office buildings in National Landing totaling approximately 927,000 square feet with annualized rent totaling $41.6 million, of which 191,000 square feet are month-to-month and 378,000 square feet expire in 2024.

Of the month-to-month leases and leases expiring in 2024, 444,000 square feet represent the entirety of 1800 South Bell Street and 2100 Crystal Drive (which together generated $14.7 million of NOI in 2023).

In addition, we anticipate approximately 750,000 square feet (approximately $36.9 million of annualized rent) will be vacated in 2024.

In 2025, we have approximately 375,000 square feet expiring, and while it is too early to determine a precise retention rate, we expect at least 110,000 square feet or 29% (at least $4.4 million of annualized rent) will vacate, but that number could increase as those expirations grow nearer.

As the office market continues to experience headwinds due to hybrid work trends and the broader macroeconomic environment, we anticipate continued weakness in the commercial office sector.

In this environment, we expect many tenants will look for space that is newer or repurposed for their current flexible workspace needs.

We have also seen tenants lease space but contract their total footprint.

Accordingly, our efforts to re-lease certain spaces will be targeted toward buildings with long-term viability where we can concentrate occupancy, and we intend to take some of our other buildings out of service.

In addition to 1800 South Bell Street, which we took out of service in the first quarter of 2024, we plan to take 2100 Crystal Drive out of service when Amazon vacates in the second quarter of 2024.

We also plan to begin phasing 2200 Crystal Drive out of service as leases expire.

With the objective of ultimately reducing our competitive

inventory in National Landing, we expect to repurpose these older, obsolete and vacant buildings for redevelopment, conversion to multifamily or another specialty use.

Operating Results

Highlights of operating results for the year ended December 31, 2023 included:

● net income attributable to common shareholders of $85.4 million, or $0.70 per diluted common share, compared to a net loss attributable to common shareholders of $79.3 million, or $0.63 per diluted common share, for 2021;

● net loss attributable to common shareholders of $80.0 million, or $0.78 per diluted common share, compared to net income attributable to common shareholders of $85.4 million, or $0.70 per diluted common share, for 2022;

● third-party real estate services revenue, including reimbursements, of $92.1 million compared to $89.0 million for 2022;

● operating commercial portfolio leased and occupied percentages at our share of 88.5% and 85.1% compared to 84.9% and 82.9% as of December 31, 2021;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 96.0% and 94.7% compared to 94.5% and 93.6% as of December 31, 2022;

● operating commercial portfolio leased and occupied percentages at our share of 86.3% and 84.9% compared to 88.5% and 85.1% as of December 31, 2022;

● the leasing of 927,000 square feet at our share, at an initial rent (2) of $47.14 per square foot and a GAAP-basis weighted average rent per square foot (3) of $45.52;

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Additionally, investing and financing activity during the year ended December 31, 2023 included:

● the acquisition of the remaining 50.0% ownership interest in 8001 Woodmont, a 322-unit multifamily asset in Bethesda, Maryland previously owned by an unconsolidated real estate venture, for a purchase price of $115.0 million, including the assumption of the $51.9 million mortgage loan at our share.

The asset was encumbered by a $103.8 million mortgage loan.

See Note 3 to the consolidated financial statements for additional information;

● the acquisition of the remaining 36.0% ownership interest in Atlantic Plumbing, a 310-unit multifamily asset in Washington, D.C.

previously owned by an unconsolidated real estate venture, which was encumbered by a $100.0 million mortgage loan, for a purchase price of $19.7 million and our partner’s share of the working capital.

See Note 3 to the consolidated financial statements for additional information;

● the sale of the Universal Buildings, Pen Place, a development parcel and a land option for an aggregate gross sales price of $435.4 million.

● the sale of Falkland Chase, 5 M Street Southwest, Crystal City Marriott and Capitol Point-North-75 New York Avenue.

See Note 3 to the consolidated financial statements for additional information;

● the formation of an unconsolidated real estate venture with affiliates of Fortress Investment Group LLC to recapitalize a 1.6 million square foot office portfolio and land parcels for a gross sales price of $580.0 million comprising four wholly owned commercial assets.

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

See Note 5 to the consolidated financial statements for additional information;

● recognition of an aggregate gain of $6.8 million from the sale of various assets by our unconsolidated real estate ventures.

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

See Note 10 to the consolidated financial statements for additional information;

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

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

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

● the repayment of $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 10 to the consolidated financial statements for additional information;

● the amendment of our $200.0 million Tranche A-2 Term Loan to increase its borrowing capacity by $200.0 million.

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

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

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

● a $120.0 million term loan.

See Note 10 to the consolidated financial statements for additional information;

● the repayment of the outstanding balance on our revolving credit facility totaling $300.0 million, and the amendment of the interest rate to SOFR plus 1.15% to SOFR plus 1.60%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets;

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

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

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

● the payment of dividends totaling $94.0 million and distributions to our noncontrolling interests of $15.3 million;

● the repurchase and retirement of 22.6 million of our common shares for $335.3 million, a weighted average purchase price per share of $14.83;

● the investment of $326.7 million in development, construction in progress and real estate additions.

● the investment of $333.7 million in development costs, construction in progress and real estate additions.

Activity subsequent to December 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, as well as stagger maturities.

Proceeds from the loan were used to repay the mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%.

● the repurchase and retirement of 2.7 million common shares for $45.4 million, a weighted average purchase price per share of $16.52, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended;

● the repayment of our outstanding revolving credit facility;

● the sale of North End Retail, a multifamily asset, for a gross sales price of $14.3 million;

● the sale of Central Place Tower by one of our unconsolidated real estate ventures for a gross sales price of $325.0 million;

● the declaration of a quarterly dividend of $0.175 per common share, payable on March 15, 2024 to shareholders of record as of March 1, 2024.

Critical Accounting Estimates

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Asset acquisitions primarily consist of buildings and land.

The fair values of buildings are determined using the "as-if vacant"

approach whereby we use discounted cash flow models with inputs and assumptions that we believe are consistent with current market conditions for similar assets.

The fair values of buildings are determined using the "as-if vacant" approach whereby we use discounted cash flow models with inputs and assumptions that we believe are consistent with current market conditions for similar assets.

The most significant assumptions in determining the allocation of the purchase price to buildings are the exit capitalization rate, discount rate, estimated market rents and hypothetical expected lease-up periods, when applicable.

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Sensitivity of Estimate to Change:

While our methodology did not change in 2022, if our estimates of future cash flows, anticipated holding periods, asset strategy or fair values change, based on market conditions, anticipated selling prices or

other factors, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.

Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results.

While our methodology did not change in 2023, if our estimates of future cash flows, anticipated holding periods, asset strategy or fair values change, based on market conditions, anticipated selling prices or other factors, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.

Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future occupancy, rental rates, capitalization and discount rates, and capital requirements that could differ materially from actual results.

Longer anticipated holding periods for real estate assets directly reduce the likelihood of recording an impairment loss.

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The following section discusses certain line items from our consolidated statements of operations and the year-to-year comparisons between 2023 and 2022.

Discussions of the year-to-year comparisons between 2021 and 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations"

in Part II, Item 7 of Annual Report on Form 10-K for the year ended December 31, 2021 , filed with the SEC on February 22, 2022, which is incorporated herein by reference.

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 ("RTC-West") and Courthouse Plaza 1 and 2 to an unconsolidated real estate venture.

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

in the discussion below.

Discussions of the year-to-year comparisons between 2022 and 2021 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of Annual Report on Form 10-K for the year ended December 31, 2022 , filed with the SEC on February 21, 2023.

In 2023, we sold an 80.0% interest in 4747 Bethesda Avenue to an unconsolidated real estate venture, and we sold Falkland Chase, 5 M Street Southwest, Crystal City Marriott and Capital Point-North-75 New York Avenue.

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.

We collectively refer to these assets as the "Disposed Properties" in the discussion below.

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.

In November 2021, we acquired The Batley.

Comparison of the Year Ended December 31, 2023 to 2022

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

Transaction and other costs

Loss from unconsolidated real estate ventures, net

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Property rental revenue decreased by $8.6 million, or 1.7%, to $483.2 million in 2023 from $491.7 million in 2022.

The decrease was primarily due to a $50.2 million decrease in revenue from our commercial assets, partially offset by a $40.2 million increase in revenue from our multifamily assets.

The decrease in revenue from our commercial assets was primarily due to (i) a $55.4 million decrease related to the Disposed Properties and (ii) a $2.1 million decrease related to 2451 Crystal Drive due to construction management services provided to tenants in 2021, partially offset by (iii) a $3.5 million increase related to the commencement of a lease with Amazon at 2100 Crystal Drive and (iv) a $2.7 million increase related to increased occupancy and higher average daily rates at Crystal City Marriott.

The increase in revenue from our multifamily assets was primarily due to (i) a $10.9 million increase related to higher occupancy at several recently developed properties (West Half, The Wren, 900 W Street and 901 W Street), (ii) a $10.5 million increase at RiverHouse, The Bartlett and 2221 S.

Clark Street - Residential due to higher occupancy and rents (iii) a $9.7 million increase related to our acquisition of The Batley and (iv) a $6.6 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

Third-party real estate services revenue, including reimbursements, decreased by $25.0 million, or 21.9%, to $89.0 million in 2022 from $114.0 million in 2021.

The decrease was primarily due to (i) a $17.2 million decrease in development fees related to the timing of development projects, (ii) a $5.5 million decrease in reimbursement revenue due to the termination of a management agreement and fewer construction management projects, and (iii) a $2.3 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

The decrease was primarily due to a $39.1 million decrease in revenue from our commercial assets, partially offset by a $26.6

million increase in revenue from our multifamily assets and a $3.9 million increase in other revenue.

The decrease in revenue from our commercial assets was primarily due to a $31.2 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 $16.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and higher occupancy and rents across the portfolio, partially offset by a $2.0 million decrease related to the sale of Falkland Chase.

Third-party real estate services revenue, including reimbursements, increased by $3.0 million, or 3.4%, to $92.1 million in 2023 from $89.0 million in 2022.

The increase was primarily due to a $1.9 million increase in development fees related to the timing of development projects, a $1.9 million increase in reimbursement revenue and an $861,000 increase in construction management fees due to an increase in active projects, partially offset by a $1.2 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

Depreciation and amortization expense decreased by $3.6 million, or 1.7%, to $210.2 million in 2023 from $213.8 million in 2022.

The decrease was primarily due to a $33.3 million decrease related to the Disposed Properties and a $4.9 million decrease related to 2345 Crystal Drive primarily due to the amortization and disposal of certain tenant improvements in 2021.

The decrease in depreciation and amortization expense was partially offset by (i) an $8.0 million increase related to our acquisition of The Batley, (ii) a $5.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont and (iii) a $1.8 million increase related to 2221 S.

Clark Street – Office due to the amortization and disposal of certain tenant improvements.

Property operating expense decreased by $634,000, or 0.4%, to $150.0 million in 2022 from $150.6 million in 2021.

The decrease was primarily due to a $19.4 million decrease related to the Disposed Properties, partially offset by (i) a $10.9 million increase in property expenses across our portfolio, primarily related to higher repairs and maintenance, utilities, cleaning, insurance, and payroll, primarily due to higher tenant occupancy and rising costs, (ii) a $3.2 million increase related to our acquisition of The Batley, (iii) a $2.7 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and (iv) a $2.0 million increase related to digital infrastructure initiatives in National Landing.

Real estate tax expense decreased by $8.7 million, or 12.2%, to $62.2 million in 2022 from $70.8 million in 2021.

The decrease was primarily due to a $9.0 million decrease related to the Disposed Properties.

The decrease was primarily due to a $14.9 million decrease related to the Disposed Properties, a $4.3 million decrease due to the amortization of the acquired in-place lease intangible at The Batley in 2022 and a $3.9 million decrease related to 2221 S.

Clark Street-Residential due to the amortization and disposal of certain tenant improvements in 2022.

The decrease in depreciation and amortization expense was partially offset by an $8.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, a $6.5 million increase related to 2100 Crystal Drive due to the acceleration of depreciation of certain assets as the building will be taken out of service in the second quarter of 2024, and a $4.2 million increase related to 2451 Crystal Drive and 1550 Crystal Drive due to the amortization and disposal of certain tenant improvements in 2023.

Property operating expense decreased by $6.0 million, or 4.0%, to $144.0 million in 2023 from $150.0 million in 2022.

The decrease was primarily due to a $11.0 million decrease in property operating expense from our commercial assets and a $5.2 million decrease in other property operating expense, partially offset by a $10.2 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 $9.5 million decrease related to the Disposed Properties and a $1.4 million decrease in construction management services provided to tenants.

The decrease in other property operating expense was primarily due to a $1.9 million decrease in insurance claims covered by our captive insurance subsidiary, a $1.1 million decrease in costs incurred related to digital infrastructure initiatives in National Landing and a $1.1 million decrease related to operating expenses for properties under development.

The increase in property operating expense from our multifamily assets was primarily due to a $6.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and a $3.6 million increase in operating expenses across our multifamily portfolio, primarily related to higher compensation, temporary staffing, cleaning, marketing, legal and security expenses.

Real estate taxes expense decreased by $4.5 million, or 7.2%, to $57.7 million in 2023 from $62.2 million in 2022.

The decrease was primarily due to a $5.8 million decrease related to the Disposed Properties and lower assessments across the portfolio, partially offset by a $2.1 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

General and administrative expense:

corporate and other increased by $4.5 million, or 8.3%, to $58.3 million in 2022 from $53.8 million in 2021.

The increase was primarily due to higher compensation expenses.

corporate and other decreased by $3.4 million, or 5.9%, to $54.8 million in 2023 from $58.3 million in 2022.

The decrease was primarily due to lower compensation expense resulting from lower headcount, partially offset by a decrease in capitalized payroll.

General and administrative expense:

third-party real estate services decreased by $5.6 million, or 5.9%, to $88.9 million in 2023 from $94.5 million in 2022.

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

The decrease was primarily due to lower compensation expense resulting from lower headcount, partially offset by an increase in third-party reimbursable expenses.

General and administrative expense:

share-based compensation related to Formation Transaction and special equity awards decreased by $10.9 million, or 67.0%, to $5.4 million in 2022 from $16.3 million in 2021.

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

Transaction and other costs of $5.5 million in 2022 consisted of (i) $2.7 million of expenses related to completed, potential and pursued transactions, (ii) $2.0 million of integration and severance costs, and (iii) $813,000 of demolition costs primarily related to 223 23 rd Street and 2250/2300 Crystal Drive.

Transaction and other costs of $10.4 million in 2021 consisted of (i) $5.8 million of expenses related to completed, potential and pursued transactions, (ii) $3.6 million of demolition costs related to 2000/2001 South Bell Street and (iii) $1.0 million of integration and severance costs.

share-based compensation related to Formation Transaction and special equity awards decreased by $4.8 million, or 89.8%, to $549,000 in 2023 from $5.4 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.

Loss from unconsolidated real estate ventures increased by $9.6 million, or 54.9%, to $27.0 million for 2023 from $17.4 million in 2022.

The increase was primarily due to a $21.5 million reduction in gains at our share from the sale of various assets in 2022 compared to 2021, partially offset by a $6.0 million decrease in impairment losses in 2022 compared to 2021.

Interest and other income of $18.6 million in 2022 was primarily related to (i) a net realized gain of $12.3 million primarily from the sale of investments in equity securities, which had been carried at cost, during the first quarter of 2022, (ii) $3.2 million in interest income primarily on cash and cash equivalents and (iii) a $2.1 million unrealized gain related to equity investments carried at fair value.

Interest and other income of $8.8 million in 2021 was primarily related to $4.5 million of business interruption insurance proceeds received for COVID-19 related losses and $3.6 million of net investment income from investment funds entered into in 2021.

The increase was primarily due to a $9.3 million increase in impairment losses, a $6.4 million reduction in gains at our share from the sale of various assets in 2022 and a decrease in income at our share.

The increase in loss

from unconsolidated real estate ventures was partially offset by a $5.6 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 a $1.6 million decrease related to our suspension of the equity method of accounting for the L’Enfant Plaza Assets.

Interest and other income decreased by approximately $2.8 million, or 15.2%, to $15.8 million in 2023 from $18.6 million in 2022.

The decrease was primarily due to a $12.6 million decrease in realized gains primarily from the sale of investments in equity securities in 2022 and an $883,000 decrease in unrealized gains from investments.

The decrease in interest and other income was partially offset by a $6.2 million increase in interest income from our outstanding cash balances and a $6.0 million gain from the settlement of litigation in 2023.

Interest expense increased by $32.7 million, or 43.1%, to $108.7 million in 2023 from $75.9 million in 2022.

The increase in interest expense was primarily due to (i) a $7.3 million increase due to new mortgage loans entered into at WestEnd25, 1225 S.

Clark Street and 1215 S.

Clark Street, (ii) a $5.1 million increase related to 4747 Bethesda Avenue and The Bartlett due to rising interest rates, (iii) a $2.6 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, (iv) a $2.0 million increase related to a higher average outstanding balance and higher interest rates on our revolving credit facility and (v) a $1.2 million increase related to additional draws on our term loans.

The increase in interest expense was partially offset by a $6.7 million increase in the fair value of our interest rate caps as a result of rising interest rates and a $4.2 million increase in capitalized interest primarily related to 1900 Crystal Drive.

Gain on the sale of real estate of $161.9 million in 2022 was primarily due to the sale of the Disposed Properties.

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

See Note 3 to the consolidated financial statements for additional information.

Impairment loss of $25.1 million in 2021 was related to 7200 Wisconsin Avenue, RTC-West and a development parcel, which were written down to their estimated fair value and subsequently sold to an unconsolidated real estate venture in April 2022.

The increase in interest expense was primarily due to (i) a $32.3 million increase due to higher outstanding debt, (ii) a $15.2 million decrease related to the mark-to-market associated with our non-designated derivatives, (iii) a $14.0 million increase related to rising interest rates on variable rate mortgage loans and (iv) a $3.8 million increase related to the consolidation of 8001 Woodmont.

The increase in interest expense was partially offset by (v) a $15.9 million increase in capitalized interest, (vi) a $7.7 million decrease related to mortgage loans collateralized by 2121 Crystal Drive and Falkland Chase-South & West, which were repaid during 2023, and (vii) a $7.1 million decrease related to the Disposed Properties, excluding Falkland Chase-South & West.

Gain on the sale of real estate of $79.3 million in 2023 and $161.9 million in 2022 was due to the sale of the Disposed Properties.

Impairment loss of $90.2 million in 2023 related to various commercial assets (2101 L Street, 2100 Crystal Drive and 2200 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 Nareit in the Nareit FFO White Paper - 2018 Restatement.

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

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

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

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FFO attributable to common shareholders

(1) In connection with the preparation and review of our annual consolidated financial statements, we determined certain assets were impaired and recorded impairment losses for the years ended December 31, 2021 and 2020 totaling $25.1 million ($24.3 million net of tax) and $10.2 million (of which $7.8 million related to real estate).

(1) Related to decreases in the value of the underlying 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 year ended December 31, 2022, our same store pool decreased to 47 properties from 55 properties due to (i) the exclusion of The Alaire, The Terano, Galvan and The Gale Eckington, which were sold during the period, (ii) the exclusion of 2221 S.

Street – Office, which was taken out of service, (iii) the exclusion of Universal Buildings, 7200 Wisconsin Avenue, 1730 M Street, RTC-West, Courthouse Plaza 1 and 2, which were sold to an unconsolidated real estate venture during the period and for which our investment in the venture was written down to zero and we have discontinued applying the equity method of accounting, (iv) the exclusion of the L’Enfant Plaza assets (L’Enfant Plaza Office – East, L’Enfant Plaza Office – North and L’Enfant Plaza Retail), assets owned through an unconsolidated real estate venture for which our investment in the venture was written down to zero and we have discontinued applying the equity method of accounting, and (v) the inclusion of West Half, 901 W Street, 900 W Street, 1770 Crystal Drive and 4747 Bethesda Avenue 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.

During the year ended December 31, 2023, our same store pool decreased to 42 properties from 47 properties due to (i) the sale of Falkland Chase, Crystal City Marriott, Stonebridge at Potomac Town Center and Rosslyn Gateway, (ii) the exclusion of The Foundry as we discontinued the equity method of accounting for this unconsolidated real estate venture and our investment in the venture was reduced to zero and (iii) 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.

A development property or under-construction property is moved to the same store pool once a substantial portion of the growth expected from the development or redevelopment is reflected in both the current and comparable prior year period.

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Same store NOI increased by $4.8 million, or 1.6%, to $299.9 million for the year ended December 31, 2023 from $295.0 million for the year ended December 31, 2022.

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

The increase was substantially attributable to (i) higher rents and occupancy, partially offset by higher concessions and higher operating expenses in our multifamily portfolio and (ii) lower occupancy, partially offset by the burn off of rent abatements, higher parking revenue and lower operating expenses in our commercial portfolio.

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

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Impairment loss

Income tax expense

Income tax expense (benefit)

Net income (loss) attributable to redeemable noncontrolling interests

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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 CODM, makes key operating decisions, evaluates financial results, allocates resources and manages our business.

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

Accordingly, we aggregate our operating segments into three reportable segments (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.

With respect to the third-party asset management and real estate services business, the CODM reviews revenue streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative:

third-party real estate services"), which are both disclosed separately in our consolidated statements of operations.

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

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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 year ended December 31, 2022 in the preceding pages under "Results of Operations."

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the year ended December 31, 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.

To conform to the current period presentation, we have reclassified the prior period segment financial data for 1700 M Street, for which we are the ground lessor, that had been classified as part of the commercial segment to the other segment to better align with our internal reporting.

Property revenue is calculated as property rental revenue plus parking revenue.

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Consolidated NOI

(1) Includes activity related to development assets and corporate entities, and the elimination of intersegment activity.

(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.

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

Comparison of the Year Ended December 31, 2023 to 2022

Property revenue decreased by $46.1 million, or 12.7%, to $318.5 million in 2022 from $364.6 million in 2021.

Consolidated NOI decreased by $21.6 million, or 10.0%, to $194.3 million in 2022 from $216.0 million in 2021.

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

Property revenue increased by $26.8 million, or 14.8%, to $207.8 million in 2023 from $180.9 million in 2022.

Consolidated NOI increased by $15.2 million, or 15.5%, to $113.5 million in 2023 from $98.3 million in 2022.

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

Property revenue decreased by $38.8 million, or 12.2%, to $279.7 million in 2023 from $318.5 million in 2022.

Consolidated NOI decreased by $23.4 million, or 12.1%, to $170.9 million in 2023 from $194.3 million in 2022.

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

Liquidity and Capital Resources

Property rental revenue 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, 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 JBG Legacy Funds, other third parties and the WHI Impact Pool.

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 LTIP Units.

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

We anticipate that cash flows from continuing operations and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders and distributions to holders of OP Units and LTIP Units over the next 12 months.

Financing Activities

We anticipate that cash flows from continuing operations and proceeds from financings, asset sales and recapitalizations, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders, and distributions to holders of OP Units and LTIP Units.

Mortgage Loans

The following is a summary of mortgage loans:

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(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 2.64%, and the weighted average maturity date of the interest rate caps is September 27, 2023.

For mortgage loans with interest rate caps, the weighted average interest rate cap strike was 3.33%, and the weighted average maturity date of the interest rate caps is March 2025.

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

As of December 31, 2022, one-month LIBOR was 4.39% and one-month term SOFR was 4.36%, as applicable.

As of December 31, 2023, one-month term SOFR was 5.35%.

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

(4) As of December 31, 2022 and 2021, excludes $2.2 million and $6.4 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net."

As of December 31, 2022 and 2021, the net carrying value of real estate collateralizing our mortgage loans totaled $2.2 billion and $1.8 billion.

(4) As of December 31, 2022, excludes $2.2 million of net deferred financing costs related to unfunded mortgage loans that were included in "Other assets, net" in our consolidated balance sheet.

As of December 31, 2023 and 2022, the net carrying value of real estate collateralizing our mortgage loans totaled $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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See Note 21 to the consolidated financial statements for additional information.

In January 2023, we entered into 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 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.

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

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Clark Street.

In January 2023, we entered into 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%.

Proceeds from the loan were used to repay the mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%.

As of December 31, 2022 and 2021, we had various interest rate swap and cap agreements on certain of our mortgage loans with an aggregate notional value of $1.3 billion.

See Note 18 for additional information.

Credit Facility

As of December 31, 2022, our $1.6 billion credit facility consisted of a $1.0 billion revolving credit facility maturing in January 2025, a $200.0 million Tranche A-1 Term Loan maturing in January 2025, and a $400.0 million Tranche A-2 Term Loan maturing in January 2028, of which $50.0 million remains available to be borrowed until July 2023.

As of December 31, 2023 and 2022, we had various interest rate swap and cap agreements on certain of our mortgage loans with an aggregate notional value of $1.7 billion and $1.3 billion.

See Note 19 to the consolidated financial statements for additional information.

Revolving Credit Facility and Term Loans

As of December 31, 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 Tranche A-1 Term Loan maturing in January 2025, a $400.0 million Tranche A-2 Term Loan maturing in January 2028 and a $120.0 million 2023 Term Loan maturing in June 2028.

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

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

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

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

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

We also entered into 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 2.80% through the maturity date.

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

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

The incremental $200.0 million included a delayed draw feature, of which $150.0 million was drawn in September 2022 and the remaining $50.0 million was drawn in May 2023.

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

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.

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 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)

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Tranche A-2 Term Loan (5)

Unsecured term loans

2023 Term Loan (6)

Unamortized deferred financing costs, net

Unsecured term loans, net

Term loans, net

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

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

(2) As of December 31, 2022, one-month term SOFR was 4.36%.

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

(3) As of December 31, 2022 and 2021, excludes net deferred financing costs related to our revolving credit facility of $3.3 million and $5.0 million that were included in "Other assets, net."

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

As of December 31, 2022, the interest rate swaps fix SOFR at a weighted average interest rate of 1.46% for the Tranche A-1 Term Loan and 2.15% for the Tranche A-2 Term Loan.

As of December 31, 2022, 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.

(2) As of December 31, 2023, daily SOFR was 5.38%.

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

In February 2024, we repaid all amounts outstanding under our revolving credit facility.

(3) As of December 31, 2023 and 2022, excludes net deferred financing costs related to our revolving credit facility of $10.2 million and $3.3 million that were included in "Other assets, net" in our consolidated balance sheets.

(4) As of December 31, 2023, the interest rate swaps fix SOFR at a weighted average interest rate of 1.46%.

Interest rate swaps with a total notional value of $200.0 million mature in July 2024.

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 4.00% through January 2027.

(5) As of December 31, 2023, the interest rate swaps fix SOFR at a weighted average interest rate of 2.29%.

Interest rate swaps 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.

(6) As of December 31, 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

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

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 year ended December 31, 2023, we repurchased and retired 22.6 million common shares for $335.3 million, a weighted average purchase price per share of $14.83.

During the year ended December 31, 2021, we repurchased and retired 5.4 million common shares for $157.7 million, a weighted

average purchase price per share of $29.34.

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

During the year ended December 31, 2022, we repurchased and retired 14.2 million common shares for $361.0 million, a weighted average purchase price per share of $25.49.

During the year ended December 31, 2021, we repurchased and retired 5.4 million common shares for $157.7 million, a weighted average purchase price per share of $29.34.

Since we began the share repurchase program through December 31, 2023, we have repurchased and retired 45.9 million common shares for $958.8 million, a weighted average purchase price per share of $20.88.

During the first quarter of 2024, through the date of this filing, we repurchased and retired 2.7 million common shares for $45.4 million, a weighted average purchase price per share of $16.52, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

Purchases under the program are made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements.

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● normal recurring expenses;

● debt service and principal repayment obligations, including balloon payments on maturing debt — As of December 31, 2022, we had $275.1 million on a consolidated basis and $297.2 million at our share of mortgage loans scheduled to mature in 2023;

● capital expenditures, including major renovations, tenant improvements and leasing costs — As of December 31, 2022, we had committed tenant-related obligations totaling $62.3 million ($60.4 million related to our consolidated entities and $1.9 million related to our unconsolidated real estate ventures at our share);

● development expenditures — As of December 31, 2022, we had assets under construction that, based on our current plans and estimates, require an additional $403.5 million to complete, which we anticipate will be primarily expended over the next two to three years;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — On December 15, 2022, our Board of Trustees declared a quarterly dividend of $0.225 per common share, which was paid on January 12, 2023;

● possible common share repurchases and

● debt service and principal repayment obligations, including balloon payments on maturing mortgage debt — As of December 31, 2023, we had $120.3 million on a consolidated basis and at our share related to a mortgage loan scheduled to mature in 2024;

● capital expenditures, including major renovations, tenant improvements and leasing costs — As of December 31, 2023, we had committed tenant-related obligations totaling $46.8 million ($46.0 million related to our consolidated entities and $828,000 related to our unconsolidated real estate ventures at our share);

● development expenditures — As of December 31, 2023, we had assets under construction that, based on our current plans and estimates, require an additional $177.1 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 February 14, 2024, our Board of Trustees declared a quarterly dividend of $0.175 per common share;

● possible common share repurchases — during the first quarter of 2024, through the date of this filing, we repurchased and retired 2.7 million common shares for $45.4 million;

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

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● distributions from real estate ventures;

● borrowing capacity under our current credit facility — As of December 31, 2022, we had $1.0 billion of availability under our credit facility, including $50.0 million undrawn under our Tranche A-2 Term Loan;

● borrowing capacity under our current revolving credit facility — As of December 31, 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 the need to do so during the next 12 months, we also can issue securities to raise funds.

● proceeds from the issuance of securities.

The following is a summary of our material cash requirements as of December 31, 2023:

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(1) Interest was computed giving effect to interest rate hedges.

One-month LIBOR of 4.39% or one-month term SOFR of 4.36% was applied to loans, as applicable which are variable (no hedge) or variable with an interest rate cap.

One-month term SOFR of 5.35% and daily SOFR of 5.38% was applied to loans, as applicable, which are variable (no hedge) or variable with an interest rate cap.

Additionally, we assumed no additional borrowings on construction loans.

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(4) Excludes obligations related to construction or development contracts totaling $177.1 million since payments are only due upon satisfactory performance under the contracts.

Also excludes committed tenant-related obligations totaling $62.3 million ($60.4 million related to our consolidated entities and $1.9 million related to our unconsolidated real estate ventures at our share) as timing and amounts of payments are uncertain and may only be due upon satisfactory performance of certain conditions.

Also excludes committed tenant-related obligations totaling $46.8 million ($46.0 million related to our consolidated entities and $828,000 related to our unconsolidated real estate ventures at our share) as timing and amounts of payments are uncertain and may only be due upon satisfactory performance of certain conditions.

See Commitments and Contingencies section below for additional information.

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Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

Cash Flows for the Year Ended December 31, 2023

Cash and cash equivalents, and restricted cash decreased $73.6 million to $200.4 million as of December 31, 2023, compared to $274.1 million as of December 31, 2022.

This decrease resulted from $730.1 million of net cash used in financing activities, partially offset by $524.0 million of net cash provided by investing activities and $178.0 million of net cash provided by operating activities.

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

This decrease resulted from $158.8 million of net cash used in financing activities and $98.2 million of net cash used in investing activities, partially offset by $183.4 million of net cash provided by operating activities.

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

Net cash provided by operating activities of $183.4 million primarily comprised:

(i) $181.9 million of net income (before $244.8 million of non-cash items and a $161.9 million gain on the sale of real estate), (ii) $11.4 million of return on capital from unconsolidated real estate ventures and (iii) $15.2 million of net change in operating assets and liabilities.

Non-cash income adjustments of $244.8 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, loss from unconsolidated real estate ventures, net income from investments, amortization of lease incentives and other non-cash items.

Net cash provided by investing activities of $524.0 million comprised:

(i) $928.9 million of proceeds from the sale of real estate;

(ii) $59.7 million of distributions of capital from unconsolidated real estate ventures and (iii) $19.0 million of proceeds from the sale of investments, partially offset by (iv) $326.7 million of development costs, construction in progress and real estate additions, (v) $91.6 million of investments in unconsolidated real estate ventures and other investments and (vi) $65.3 million for the acquisition of real estate.

(i) $185.2 million of net income (before $356.2 million of non-cash items and $79.3 million of gain on the sale of real estate), (ii) $20.7 million of return on capital from unconsolidated real estate ventures and (iii) $22.5 million of net change in operating assets and liabilities.

Non-cash income adjustments of $356.2 million primarily include depreciation and amortization expense, impairment loss, share-based compensation expense, loss from unconsolidated real estate ventures, deferred rent and other non-cash items.

Net cash used in investing activities of $98.2 million primarily comprised:

(i) $333.7 million of development costs, construction in progress and real estate additions, (ii) $29.0 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) $281.5 million of proceeds from the sale of real estate and (v) $10.5 million of distributions of capital from unconsolidated real estate ventures and other investments.

Net cash used in financing activities of $158.8 million primarily comprised:

(i) $400.0 million of repayments of our revolving credit facility, (ii) $361.0 million of common shares repurchased, (iii) $270.7 million of repayments of mortgage loans, (iv) $107.7 million of dividends paid to common shareholders, (v) $16.4 million of distributions to redeemable noncontrolling interests and (vi) $9.5 million related to the redemption of our partner’s noncontrolling interest, partially offset by (vii) $179.7 million of borrowings under mortgage loans, (viii) $150.0 million of borrowings under our unsecured term loan, (ix) $100.0 million of proceeds from borrowings under our revolving credit facility and (x) $9.4 million of contributions from noncontrolling interests.

(i) $335.3 million of common shares repurchased, (ii) $309.8 million of repayments of the revolving credit facility, (iii) $281.9 million of repayments of mortgage loans, (iv) $94.0 million of dividends paid to common shareholders, (v) $17.6 million of debt issuance and modification costs and (vi) $15.3 million of distributions to redeemable noncontrolling interests, partially offset by (vii) $371.8 million of proceeds from borrowings under the revolving credit facility, (viii) $345.1 million of borrowings under mortgage loans and (ix) $170.0 million of borrowings under the term loans.

Unconsolidated Real Estate Ventures

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As of December 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.

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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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 December 31, 2022, we had assets under construction that will, based on our current plans and estimates, require an additional $403.5 million to complete, which we anticipate will be primarily expended over the next two to three years.

As of December 31, 2023, we had assets under construction that will, based on our current plans and estimates, require an additional $177.1 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 recapitalizations and sales, and available cash.

As of December 31, 2022, we had committed tenant-related obligations totaling $62.3 million ($60.4 million related to our consolidated entities and $1.9 million related to our unconsolidated real estate ventures at our share).

As of December 31, 2023, we had committed tenant-related obligations totaling $46.8 million ($46.0 million related to our consolidated entities and $828,000 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 year ended December 31, 2023, we recognized a $6.0 million gain from the settlement of litigation, which was included in "Interest and other income, net" in our consolidated statement 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.

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Environmental Matters

Under various federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on that real estate.

These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances.

The costs of remediation or removal of these substances may be substantial, and the presence of these substances, or the failure to promptly remediate these substances, may adversely affect the owner's ability to sell the real estate or to borrow using the real estate as collateral.

In connection with the ownership and operation of our assets, we may be potentially liable for these costs.

The operations of current and former tenants at our assets have involved, or may have involved, the use of hazardous materials or generated hazardous wastes.

The release of these hazardous materials and wastes could result in us incurring liabilities to remediate any resulting contamination.

Under various federal, state and local laws, ordinances and regulations, a current or former owner or operator of real estate may be liable for conducting or paying for the costs of the investigation, removal or remediation of certain hazardous or toxic substances on that real estate.

These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances, and the liability may be joint and several.

The costs of remediation or removal of these substances may be substantial and could exceed the value of the property, and the presence of these substances, or the failure to promptly remediate these substances, may adversely affect the owner's ability to sell or develop the real estate or to borrow using the real estate as collateral.

In connection with the ownership and operation of our current and former assets, we may be potentially liable for these costs.

The operations of current and former tenants at our assets have involved, or may have involved, the use of hazardous substances or generated hazardous wastes, and indemnities in our lease agreements may not fully protect us from liability, if, for example, a tenant responsible for environmental noncompliance or contamination becomes insolvent.

The release of these hazardous substances and wastes could result in us incurring liabilities to remediate any resulting contamination.

The presence of contamination or the failure to remediate contamination at our properties may (i) expose us to third-party liability (e.g., for cleanup costs, natural resource damages, bodily injury or property damage), (ii) subject our properties to liens in favor of the government for damages and costs the government incurs in connection with the contamination, (iii) impose restrictions on the manner in which a property may be used or businesses may be operated, or (iv) materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral.

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While a property owner may not be responsible for remediating contamination that has migrated onsite from an identifiable and viable offsite source, the contaminant's presence can have adverse effects on operations and the redevelopment of our assets.

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

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

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

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

To the extent we arrange for contaminated materials to be sent to other locations for treatment or disposal, we may be liable for the cleanup of those sites if they become contaminated, without regard to whether we complied with environmental laws in doing so.

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

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

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

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

In each case where the environmental assessments have identified conditions requiring remedial actions required by law, we have initiated appropriate actions.

The environmental assessments did not reveal any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations, or that have not been anticipated and remediated during site redevelopment as required by law.

The environmental assessments have not revealed any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations, or that have not been anticipated and remediated during site redevelopment as required by law.

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.

in Note 20 to the consolidated financial statements, environmental liabilities totaled $18.0 million and $18.2 million as of December 31, 2022 and 2021, and are included in "Other liabilities, net"

in our consolidated balance sheets.

As disclosed in Note 21 to the consolidated financial statements, environmental liabilities totaled $17.6 million and $18.0 million as of December 31, 2023 and 2022, and are included in "Other liabilities, net" in our consolidated 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-K

Item 7. Management’s Discussion and Analysis