What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-11-07 · 187 added, 302 removed, 255 unchanged (66% of the section changed)

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Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements.

You can find many of these statements by looking for words such as "approximates,"

"believes,"

"expects,"

"anticipates,"

"estimates,"

"intends,"

"plans,"

"would,"

"may"

or other similar expressions in this Quarterly Report on Form 10-Q.

You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10-Q.

Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict.

For further discussion of factors that could materially affect the outcome of our forward-looking statements, see "Risk Factors"

in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on February 21, 2023 ("Annual Report") and "Management's Discussion and Analysis of Financial Condition and Results of Operations"

in this Quarterly Report on Form 10-Q and our Annual Report.

For further discussion of factors that could materially affect the outcome of our forward-looking statements, see "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 20, 2024 ("Annual Report") and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q and our Annual Report.

For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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Organization and Basis of Presentation

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

JBG SMITH Properties ("JBG SMITH"), a Maryland real estate investment trust ("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 two-thirds of our holdings are in the National Landing submarket in Northern Virginia, which is anchored by four key demand drivers:

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

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

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

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 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.

JBG SMITH is referred to as "we,"

"us,"

"our"

or other similar terms.

References to "our share"

refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures, but exclude our:

(i) 10.0% subordinated interest in one commercial building, (ii) 33.5% subordinated interest in four commercial buildings and (iii) 49.0% interest in three commercial buildings (the "L'Enfant Plaza Assets"), as well as the associated non-recourse mortgage loans, held through unconsolidated real estate ventures;

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 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.

JBG SMITH is referred to herein as "we," "us," "our" or other similar terms.

References to "our share" refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures, but exclude our:

(i) 10.0% subordinated interest in one commercial building, (ii) 33.5% subordinated interest in four commercial buildings (the "Fortress Assets"), (iii) 49.0% interest in three commercial buildings (the "L'Enfant Plaza Assets") and (iv) 9.9% interest in The Foundry, as well as the associated non-recourse mortgage loans, held through unconsolidated real estate ventures;

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

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

On July 18, 2017, we acquired the management business, and certain assets and liabilities of JBG (the "Combination").

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 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.

On July 18, 2017, we acquired the management business, and certain assets and liabilities of JBG (the "Combination").

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

References to our financial statements refer to our unaudited condensed consolidated financial statements as of March 31, 2024 and December 31, 2023, and for the three months ended March 31, 2024 and 2023.

References to our balance sheets refer to our condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

to our statements of operations refer to our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023.

Actual results could differ from these estimates.

We have elected to be taxed as a real estate investment trust ("REIT") under sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").

We have elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").

Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders.

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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 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.

As of March 31, 2024, our Operating Portfolio consisted of 41 operating assets comprising 15 multifamily assets totaling 6,318 units (6,318 units at our share), 24 commercial assets totaling 7.5 million square feet (7.2 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 18 assets in the development pipeline totaling 11.3 million square feet (9.3 million square feet at our share) of estimated potential development density.

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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.

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.

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.

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

To that end, we saw the delivery of two placemaking projects, Water Park and Surreal in 2023.

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, Cisco and Federated Wireless, are advancing our efforts to make National Landing among the first 5G-operable submarkets in the nation.

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

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

Successful execution of our capital allocation strategy enables us to source capital at NAV from the disposition of assets generating low cash yields and invest those proceeds in 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.

Curbed lending activity, however, has significantly slowed down the pace of asset sales, and we expect this reduced activity to continue for the rest of 2023.

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 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.

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 March 31, 2024 of 94.3% decreased by 40 basis points compared to December 31, 2023.

First quarter lease expirations increased effective rents, which represent the average change in rental rates versus expiring rental rates net of concessions, by 9.4% upon renewal while achieving a 52.4% renewal rate across our portfolio.

We continue to advance our two under-construction multifamily assets in National Landing, 1900 Crystal Drive (The Grace and Reva) and 2000/2001 South Bell Street, totaling 1,583 units.

1900 Crystal Drive began leasing in January 2024 with move-ins commencing in February 2024 and expected delivery of all remaining units in the second quarter of 2024.

2000/2001 South Bell Street is expected to deliver in the third quarter of 2025.

We expect that interest expense will increase as we deliver our under-construction assets and cease capitalization of interest on those assets.

Our office portfolio occupancy as of March 31, 2024 of 83.1% decreased by 180 basis points as compared to December 31, 2023.

As the office market continues to experience headwinds due to hybrid work trends and tenants seeking to repurpose space for flexibility, 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 are also phasing 2200 Crystal Drive out of service as leases expire.

With the objective of ultimately reducing our competitive office inventory in National Landing, we expect to repurpose these older, obsolete and under-leased buildings for redevelopment, conversion to multifamily, hospitality or another specialty use.

We continue to advance the design and entitlement of our 11.3 million square feet (9.3 million square feet at our share) of estimated potential development density in our development pipeline and will look to source joint venture capital as a means of funding these developments as market conditions permit.

Operating Results

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.

Key highlights for the three months ended March 31, 2024 included:

● net loss attributable to common shareholders of $32.3 million, or $0.36 per diluted common share, for the three months ended March 31, 2024 compared to net income attributable to common shareholders of $21.2 million, or $0.19 per diluted common share, for the three months ended March 31, 2023;

● third-party real estate services revenue, including reimbursements, of $17.9 million and $22.8 million for the three months ended March 31, 2024 and 2023;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 95.9% and 94.3% as of March 31, 2024 compared to 96.0% and 94.7% as of December 31, 2023, and 95.0% and 92.9% as of March 31, 2023;

● operating commercial portfolio leased and occupied percentages at our share of 84.6% and 83.1% as of March 31, 2024 compared to 86.3% and 84.9% as of December 31, 2023, and 87.6% and 85.2% as of March 31, 2023;

● the leasing of 99,000 square feet at our share, at an initial rent (2) of $45.68 per square foot and a GAAP-basis weighted average rent per square foot (3) of $45.38 for the three months ended March 31, 2024;

● an increase in same store (4) NOI of 6.5% to $75.7 million for the three months ended March 31, 2024 compared to $71.1 million for the three months ended March 31, 2023.

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 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.

See Note 7 to the financial statements for additional information;

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

● net borrowings of $92.0 million under our revolving credit facility;

● the amendment of our revolving credit facility.

Additionally, investing and financing activity during the three months ended March 31, 2024 included:

● the sale of North End Retail.

See Note 3 to the financial statements for additional information;

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

● a $120.0 million term loan.

● the sale of Central Place Tower by one of our unconsolidated real estate ventures.

See Note 4 to the financial statements for additional information;

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

● the payment of dividends totaling $16.1 million and distributions to redeemable noncontrolling interests of $2.9 million;

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

● the repurchase and retirement of 3.0 million of our common shares for $49.4 million, a weighted average purchase price per share of $16.50;

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

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 December 1, 2023 to shareholders of record as of November 17, 2023.

● the investment of $48.0 million in development costs, construction in progress and real estate additions.

Activity subsequent to March 31, 2024 included:

● the declaration of a quarterly dividend of $0.175 per common share, payable on May 24, 2024 to shareholders of record as of May 10, 2024.

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 nine months ended September 30, 2023.

There have been no significant changes to our policies during the three months ended March 31, 2024.

Recent Accounting Pronouncements

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Results of Operations

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.

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.

Comparison of the Three 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 three months ended September 30, 2023 compared to the same period in 2022:

Three Months Ended September 30,

(Dollars in thousands)

Property rental revenue

Third-party real estate services revenue, including reimbursements

Depreciation and amortization expense

Property operating expense

Real estate taxes expense

General and administrative expense:

Corporate and other

Third-party real estate services

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

Loss from unconsolidated real estate ventures, net

Interest and other income, net

Interest expense

Impairment loss

_____________

* 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 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 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 $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 $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,

During the three months ended March 31, 2024, we sold North End Retail.

In 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, 5 M Street Southwest, Crystal City Marriott and Capital Point-North-75 New York Avenue.

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

Comparison of the Three Months Ended March 31, 2024 to 2023

The following summarizes certain line items from our statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the three months ended March 31, 2024 compared to the same period in 2023:

Three Months Ended March 31,

(Dollars in thousands)

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

Loss from unconsolidated real estate ventures, net

Interest and other income, net

Income from unconsolidated real estate ventures, net

Interest expense

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Property rental revenue decreased by approximately $1.4 million, or 1.1%, to $122.6 million in 2024 from $124.0 million in 2023.

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 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 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.

The decrease was primarily due to a $14.3 million decrease in revenue from our commercial assets, partially offset by $10.3 million in lease termination revenue, a $1.5 million increase in revenue from our multifamily assets and a $1.1 million increase in other revenue.

The decrease in revenue from our commercial assets was primarily due to a $3.8 million decrease related to the Disposed Properties, a $2.1 million decrease related to 1800 South Bell Street, which was taken out of service during the first quarter of 2024, and lower occupancy and rents across the portfolio.

The increase in revenue from our multifamily assets was primarily due to higher occupancy and rents across the portfolio and continued lease up of 8001 Woodmont, partially offset by a $2.6 million decrease related to the Disposed Properties.

Third-party real estate services revenue, including reimbursements, decreased by approximately $4.9 million, or 21.6%, to $17.9 million in 2024 from $22.8 million in 2023.

The decrease was primarily due to a $2.0 million decrease in reimbursement revenue, a $1.7 million decrease in development fees related to the timing of development projects and a $681,000 decrease in property management fees.

Depreciation and amortization expense increased by approximately $3.4 million, or 6.4%, to $56.9 million in 2024 from $53.4 million in 2023.

The increase was primarily due to (i) a $7.7 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, (ii) a $2.3 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, and (iii) a $1.7 million increase related to various National Landing assets primarily due to placing Water Park and Surreal into service and the acceleration of depreciation of certain assets.

The increase in depreciation and amortization expense was partially offset by (iv) a $3.3 million decrease related to 8001 Woodmont due to the amortization of acquired in-place lease intangibles in 2023, (v) a $3.0 million decrease related to the Disposed Properties and (vi) a $2.2 million decrease related to 1800 South Bell Street, which was taken out of service during the first quarter of 2024.

Property operating expense decreased by approximately $333,000, or 0.9%, to $35.3 million in 2024 from $35.6 million in 2023.

The decrease was primarily due to a $2.3 million decrease in property operating expense from our commercial assets and a $49,000 decrease in property operating expense from our multifamily assets, partially offset by a $2.0 million increase in other property operating expense.

The decrease in property operating expense from our commercial assets was primarily due to a $1.3 million decrease related to the Disposed Properties, a $699,000 decrease in construction management services provided to tenants and a $329,000 decrease related to 1800 South Bell Street, which was taken out of service during the

first quarter of 2024.

The increase in other property operating expense was primarily due to a $1.3 million increase in insurance claims covered by our captive insurance subsidiary.

Real estate taxes expense decreased by approximately $1.4 million, or 9.4%, to $13.8 million in 2024 from $15.2 million in 2023.

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.

The decrease was primarily due to a $1.1 million decrease related to the Disposed Properties.

General and administrative expense:

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

corporate and other decreased by approximately $1.2 million, or 7.1%, to $15.0 million in 2024 from $16.1 million in 2023.

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

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third-party real estate services decreased by approximately $1.5 million, or 6.3%, to $22.3 million in 2024 from $23.8 million in 2023.

The decrease was primarily due to lower compensation expenses.

The decrease was primarily due to lower third-party reimbursable expenses.

General and administrative expense:

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.

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 $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.

share-based compensation related to Formation Transaction and special equity awards decreased by approximately $351,000, or 100.0%, to $0 in 2024 from $351,000 in 2023.

The decrease was due to certain awards fully vesting in 2023.

Income from unconsolidated real estate ventures increased by approximately $542,000, or 125.2%, to $975,000 in 2024 from $433,000 in 2023.

The increase was primarily due to a $480,000 gain at our share from the sale of Central Place Tower in 2024.

Interest expense increased by approximately $3.3 million, or 12.4%, to $30.2 million in 2024 from $26.8 million in 2023.

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.

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.

The increase in interest expense was primarily due to (i) a $6.8 million increase due to higher outstanding debt, (ii) a $3.1 million increase related to rising interest rates on variable rate mortgage loans and (iii) a $550,000 decrease in capitalized interest as we began placing 1900 Crystal Drive into service during the first quarter of 2024.

The increase in interest expense was partially offset by (iv) a $2.7 million decrease related to the increase in mark-to-market associated with our non-designated derivatives, (v) a $2.7 million decrease related to mortgage loans collateralized by 800 North Glebe Road, 2121 Crystal Drive and Falkland Chase-South & West, which were repaid during 2023 and (vi) a $2.1 million decrease related to the Disposed Properties, excluding Falkland Chase-South & West.

Gain on the sale of real estate of $197,000 in 2024 was primarily due to the recognition of previously recorded contingent liabilities, which were relieved in connection with the sale of Central Place Tower by one of our unconsolidated real estate ventures, partially offset by the loss on the sale of North End Retail.

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

Impairment loss of $17.2 million in 2024 is related to a development parcel, which was written down to its estimated fair value.

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 as compared to similar real estate companies because FFO excludes real estate depreciation and amortization expense, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions and other non-comparable income and expenses.

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

FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should

not be considered as an alternative to net income (loss) (computed in accordance with GAAP), as a performance measure or cash flow as a liquidity measure.

FFO may not be comparable to similarly titled measures used by other companies.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

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Net income (loss) attributable to redeemable noncontrolling interests

Net income (loss) attributable to noncontrolling interests

Net 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

FFO attributable to noncontrolling interests

FFO attributable to common limited partnership units ("OP Units")

FFO attributable to redeemable noncontrolling interests

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 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.

During the three months ended March 31, 2024, our same store pool decreased to 41 properties from 42 properties due to (i) the sale of North End Retail and Central Place Tower, (ii) the exclusion of 1800 South Bell Street, which was taken out of service, and (iii) the inclusion of 8001 Woodmont and 1831/1861 Wiehle 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.

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.

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.

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 $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.

Same store NOI increased $4.6 million, or 6.5%, to $75.7 million for the three months ended March 31, 2024 from $71.1 million for the same period in 2023.

The increase was substantially attributable to (i) higher rents and occupancy, partially offset by higher operating expenses in our multifamily portfolio and (ii) burn off of rent abatements and lower bad debt, real estate taxes and operating expenses, partially offset by lower occupancy 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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands)

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Interest expense

Loss on the extinguishment of debt

Impairment loss

Income tax expense

Income tax benefit

Net income (loss) attributable to redeemable noncontrolling interests

Net income (loss) attributable to noncontrolling interests

Net loss attributable to noncontrolling interests

Third-party real estate services, including reimbursements revenue

Other revenue

Loss from unconsolidated real estate ventures, net

Income from unconsolidated real estate ventures, net

Interest and other income, net

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therefore, each of our individual properties is a separate operating segment.

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

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

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 statements of operations.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(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 nine months ended September 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 months ended March 31, 2024 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 nine months ended September 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 months ended March 31, 2024 and 2023.

The following is a summary of NOI by segment:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

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

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 and lower occupancy and rents across the portfolio.

Comparison of the Three Months Ended March 31, 2024 to 2023

Property revenue increased by $1.5 million, or 3.0%, to $51.6 million in 2024 from $50.1 million in 2023.

Consolidated NOI increased by $1.2 million, or 4.4%, to $28.3 million in 2024 from $27.1 million in 2023.

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 increases in property revenue and consolidated NOI were primarily due to higher occupancy and rents across the portfolio, partially offset by the Disposed Properties.

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

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

Property revenue decreased by $14.9 million, or 19.6%, to $61.2 million in 2024 from $76.1 million in 2023.

Consolidated NOI decreased by $11.0 million, or 23.0%, to $36.7 million in 2024 from $47.7 million in 2023.

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.

Consolidated NOI increased by $12.5 million, or 17.6%, to $83.5 million in 2023 from $71.0 million in 2022.

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

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

The decreases in property revenue and consolidated NOI were primarily due to the Disposed Properties, 1800 South Bell Street being taken out of service during the first quarter of 2024, and lower occupancy and rents across the portfolio.

Liquidity and Capital Resources

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

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

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").

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

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

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Interest Rate (1)

September 30, 2023

March 31, 2024

December 31, 2023

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Mortgage loans, net

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

(1) Weighted average effective interest rate as of March 31, 2024.

(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 3.16%, and the weighted average maturity date of the interest rate caps is December 2024.

For mortgage loans with interest rate caps, the weighted average interest rate cap strike was 3.41%, and the weighted average maturity date of the interest rate caps was April 2025.

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

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

As of March 31, 2024, one-month term Secured Overnight Financing Rate ("SOFR") was 5.33%.

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

(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 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.

As of March 31, 2024 and December 31, 2023, 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 17 to the 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.

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.

As of March 31, 2024 and December 31, 2023, we had various interest rate swap and cap agreements on certain mortgage loans with an aggregate notional value of $1.6 billion and $1.7 billion.

See Note 15 to the financial statements for additional information.

Revolving Credit Facility and Term Loans

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 have the right to extend the maturity date beyond June 2027 via two six-month extension options.

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

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

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

As of March 31, 2024 and 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 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.

The revolving credit facility has two six-month extension options, and the Tranche A-1 Term Loan has two one-year extension options.

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

Interest Rate (1)

September 30, 2023

March 31, 2024

December 31, 2023

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Term loans, net

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

(1) Effective interest rate as of March 31, 2024.

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

(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 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.

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

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

(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.

(2) As of March 31, 2024, daily SOFR was 5.34%.

As of March 31, 2024 and December 31, 2023, letters of credit with an aggregate face amount of $467,000 were outstanding under our revolving credit facility.

(3) As of March 31, 2024 and December 31, 2023, excludes $9.5 million and $10.2 million of net deferred financing costs related to our revolving credit facility that were included in "Other assets, net" in our balance sheets.

(4) As of March 31, 2024 and 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 March 31, 2024 and 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 March 31, 2024 and 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

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 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.

Our Board of Trustees has authorized the repurchase of up to $1.5 billion of our outstanding common shares.

During the three months ended March 31, 2024, we repurchased and retired 3.0 million common shares for $49.4 million, a weighted average purchase price per share of $16.50.

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

Since we began the share repurchase program through March 31, 2024, we have repurchased and retired 48.9 million common shares for $1.0 billion, a weighted average purchase price per share of $20.61.

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 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;

● debt service and principal repayment obligations, including balloon payments on maturing mortgage loans — As of March 31, 2024, we had $120.9 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 March 31, 2024, we had committed tenant-related obligations totaling $33.4 million ($33.3 million related to our consolidated entities and $113,000 related to our unconsolidated real estate ventures at our share);

● development expenditures — As of March 31, 2024, we had assets under construction that, based on our current plans and estimates, require an additional $134.4 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 April 25, 2024, our Board of Trustees declared a quarterly dividend of $0.175 per common share;

● possible common share repurchases;

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

● cash and cash equivalents — As of March 31, 2024, we had cash and cash equivalents of $220.5 million ;

● cash flows from operations;

● distributions from real estate ventures;

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

● borrowing capacity under our revolving credit facility — As of March 31, 2024, we had $749.5 million of availability under our revolving credit facility;

● proceeds from financings, asset sales and recapitalizations;

● 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."

During the three months ended March 31, 2024, 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."

Summary of Cash Flows

The following summary discussion of our cash flows is based on our statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows:

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

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 $2.6 billion and $2.5 billion as of September 30, 2023 and December 31, 2022.

Net cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Cash Flows for the Three Months Ended March 31, 2024

Cash and cash equivalents, and restricted cash increased $59.8 million to $260.3 million as of March 31, 2024, compared to $200.4 million as of December 31, 2023.

This increase resulted from $123.6 million of net cash provided by investing activities and $37.0 million of net cash provided by operating activities, partially offset by $100.8 million of net cash used in financing activities.

Our outstanding debt was $2.6 billion as of March 31, 2024 and December 31, 2023.

Net cash provided by operating activities of $37.0 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 $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.

(i) $38.2 million of net income (before $80.6 million of non-cash items and a $197,000 gain on the sale of real estate), (ii) $1.2 million of return on capital from unconsolidated real estate ventures and (iii) $2.3 million of net change in operating assets and liabilities.

Non-cash income adjustments of $80.6 million primarily include depreciation and amortization expense, impairment loss, share-based compensation expense, deferred rent and amortization of lease incentives.

Net cash provided by investing activities of $123.6 million primarily comprised:

(i) $160.3 million of distributions of capital from unconsolidated real estate ventures and other investments primarily related to the sale of Central Place Tower by one of our unconsolidated real estate ventures, and (ii) $12.4 million of proceeds from the sale of real estate, partially offset by (iii) $48.0 million of development costs, construction in progress and real estate additions, and (iv) $2.5 million of investments in unconsolidated real estate ventures and other investments.

Net cash used in financing activities of $100.8 million primarily comprised:

(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.

(i) $92.0 million of repayments on the revolving credit facility, (ii) $49.4 million of common shares repurchased, (iii) $16.1 million of dividends paid to common shareholders and (iv) $2.9 million of distributions to our redeemable noncontrolling interests, partially offset by (v) $31.6 million of borrowings under mortgage loans and (vi) $30.0 million of borrowings under the revolving credit facility.

Unconsolidated Real Estate Ventures

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From time to time, we may have off-balance-sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.

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

As of March 31, 2024, we had investments in unconsolidated real estate ventures totaling $104.8 million.

For these investments, we exercise significant influence over but do not control these entities and, therefore, account for these investments using the equity method of accounting.

For a more complete description of our real estate ventures, see Note 4 to the financial statements.

From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to unconsolidated real estate ventures, to (i) guarantee portions of the principal, interest and other amounts in connection with borrowings, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with borrowings, or (iii) provide guarantees to lenders and other third parties for the completion of development projects.

connection with borrowings, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with borrowings, or (iii) provide guarantees to lenders and other third parties for the completion of development projects.

We customarily have agreements with our outside venture partners whereby the partners agree to reimburse the real estate venture or us for their share of any payments made under certain of these guarantees.

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 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.

As of March 31, 2024, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $58.7 million.

As of March 31, 2024, we had no debt principal payment guarantees related to our unconsolidated real estate ventures.

Commitments and Contingencies

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Construction Commitments

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.

As of March 31, 2024, we had assets under construction that, based on our current plans and estimates, require an additional $134.4 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 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).

As of March 31, 2024, we had committed tenant-related obligations totaling $33.4 million ($33.3 million related to our consolidated entities and $113,000 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 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 September 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.

nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (iii) provide guarantees to lenders, tenants and other third parties for the completion of development projects.

As of March 31, 2024, 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.

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.

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.

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $17.6 million as of March 31, 2024 and December 31, 2023, 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