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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-30 · 197 added, 208 removed, 302 unchanged (57% of the section changed)

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You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by

the cautionary statements contained or referred to in this section.

We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Organization and Basis of Presentation

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.

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., most notably National Landing.

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

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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;

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

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

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

References to our financial statements refer to our unaudited condensed consolidated financial statements as of June 30, 2024 and December 31, 2023, and for the three and six months ended June 30, 2024 and 2023.

References to our balance sheets refer to our condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023.

References to our statements of operations refer to our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023.

References to our financial statements refer to our unaudited condensed consolidated financial statements as of September 30, 2024 and December 31, 2023, and for the three and nine months ended September 30, 2024 and 2023.

References to our balance sheets refer to our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

References to our statements of operations refer to our condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023.

References to our statements of cash flows refer to our condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023.

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.

Actual results could differ from these estimates.

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

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").

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 June 30, 2024, our Operating Portfolio consisted of 40 operating assets comprising 15 multifamily assets totaling 6,318 units (6,318 units at our share), 23 commercial assets totaling 7.2 million square feet (6.9 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 totaling 1,583 units (1,583 units at our share) and 18 assets in the development pipeline totaling 11.4 million square feet (9.3 million square feet at our share) of estimated potential development density.

As of September 30, 2024, our Operating Portfolio consisted of 41 operating assets comprising 16 multifamily assets totaling 6,781 units (6,781 units at our share), 23 commercial assets totaling 7.2 million square feet (6.9 million square feet at our share) and two wholly owned land assets for which we are the ground lessor.

Additionally, we have one under-construction multifamily asset with 775 units (775 units at our share) and 18 assets in the development pipeline totaling 11.4 million square feet (9.3 million square feet at our share) of estimated potential development density.

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

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

In the second quarter of 2024, we delivered 1900 Crystal Drive (The Grace and Reva) with 808 units and approximately 39,000 square feet of retail space.

In the second quarter of 2024, we delivered The Grace and Reva, formerly known collectively as 1900 Crystal Drive, with 808 units and approximately 38,000 square feet of retail space.

Additionally, the digital infrastructure investments we are making are advancing our efforts to make National Landing among the first 5G-operable submarkets in the nation.

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

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.

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 June 30, 2024 of 94.3% was consistent compared to March 31, 2024.

During the second quarter of 2024, we increased effective rents, which represent the average change in rental rates versus expiring rental rates net of concessions, by 4.6% blended across new and renewal leases and 8.6% upon renewal while achieving a 50.9% 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 (Valen and The Zoe), totaling 1,583 units.

1900 Crystal Drive began leasing in January 2024 with move-ins commencing in February 2024 and delivery of all remaining units in the second quarter of 2024, with 38.5% leased as of June 30, 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 June 30, 2024 of 80.6% decreased by 250 basis points as compared to March 31, 2024.

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.

While current market conditions have significantly slowed down the pace of asset sales, we anticipate redeploying the proceeds from any sales will not only help fund our planned growth but will also further advance the strategic shift of our portfolio to majority multifamily.

Our in-service multifamily portfolio, which refers to operating assets that are at or above 90% leased or have been operating and collecting rent for more than 12 months as of September 30, 2024, was 95.7% occupied as of September 30, 2024, an increase of 140 basis points as compared to June 30, 2024.

During the third quarter of 2024, we increased effective rents, which represent the average change in rental rates versus expiring rental rates net of concessions, by 4.5% for new leases and 6.1% upon renewal while achieving a 60.0% renewal rate across our portfolio.

Our recently delivered assets, The Grace and Reva, began leasing in January 2024 with move-ins commencing in February 2024 and delivery of all remaining units in the second quarter of 2024, with 64.7% and 56.8% leased as of September 30, 2024.

We continue to advance our under-construction multifamily asset in National Landing, 2000/2001 South Bell Street (Valen and The Zoe), with 775 units

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 capitalizing interest on those assets.

Our office portfolio occupancy as of September 30, 2024 of 79.1% decreased by 150 basis points as compared to June 30, 2024.

Although the office market continues to experience headwinds with companies continuing to challenge their space needs, we have seen some favorable trends in leasing activity and companies asking employees to return to the office.

We anticipate approximately 475,000 square feet (approximately $21.5 million of annualized rent) will be vacated in National Landing, of which approximately two thirds will occur in the fourth quarter of 2024 and the remainder in the first half of 2025.

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 took 2100 Crystal Drive out of service when Amazon vacated 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 anticipate approximately 485,000 square feet (approximately $22 million of annualized rent) in National Landing will be vacated in the second half of 2024 and in 2025, but that number could change as those expirations grow nearer.

We continue to advance the design and entitlement of our 11.4 million square feet (9.3 million square feet at our share) of estimated potential development density in our development pipeline and intend to 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 six months ended June 30, 2024 included:

● net loss attributable to common shareholders of $24.4 million, or $0.27 per diluted common share, for the three months ended June 30, 2024 compared to $10.5 million, or $0.10 per diluted common share, for the three months ended June 30, 2023.

Net loss attributable to common shareholders of $56.6 million, or $0.63 per diluted common share, for the six months ended June 30, 2024 compared to net income attributable to common shareholders of $10.6 million, or $0.09 per diluted common share, for the six months ended June 30, 2023;

● third-party real estate services revenue, including reimbursements, of $17.4 million and $35.3 million for the three and six months ended June 30, 2024, and $22.9 million and $45.6 million for the three and six months ended June 30, 2023;

● operating multifamily portfolio leased and occupied percentages (1) at our share of 96.9% and 94.3% as of June 30, 2024 compared to 95.9% and 94.3% as of March 31, 2024, and 96.8% and 93.7% as of June 30, 2023;

● operating commercial portfolio leased and occupied percentages at our share of 82.3% and 80.6% as of June 30, 2024 compared to 84.6% and 83.1% as of March 31, 2024, and 86.3% and 84.0% as of June 30, 2023;

● the leasing of 248,000 square feet at our share, at an initial rent (2) of $46.61 per square foot and a GAAP-basis weighted average rent per square foot (3) of $47.34 for the three months ended June 30, 2024, and the leasing of 347,000 square feet at our share, at an initial rent (2) of $46.34 per square foot and a GAAP-basis weighted average rent per square foot (3) of $46.78 for the six months ended June 30, 2024;

● an increase in same store (4) NOI of 3.2% to $71.4 million for the three months ended June 30, 2024 compared to $69.1 million for the three months ended June 30, 2023, and an increase in same store (4) NOI of 5.2% to $145.1 million for the six months ended June 30, 2024 compared to $137.9 million for the six months ended June 30, 2023.

Key highlights for the three and nine months ended September 30, 2024 included:

● net loss attributable to common shareholders of $27.0 million, or $0.32 per diluted common share, for the three months ended September 30, 2024 compared to $58.0 million, or $0.58 per diluted common share, for the three months ended September 30, 2023.

Net loss attributable to common shareholders of $83.6 million, or $0.95 per diluted common share, for the nine months ended September 30, 2024 compared to $47.4 million, or $0.45 per diluted common share, for the nine months ended September 30, 2023;

● third-party real estate services revenue, including reimbursements, of $17.1 million and $52.3 million for the three and nine months ended September 30, 2024, and $23.9 million and $69.6 million for the three and nine months ended September 30, 2023;

● in-service operating multifamily portfolio leased and occupied percentages (1) at our share of 97.0% and 95.7% as of September 30, 2024 as compared to 96.9% and 94.3% as of June 30, 2024, and 96.9% and 95.6% as of September 30, 2023 ;

● operating commercial portfolio leased and occupied percentages at our share of 80.7% and 79.1% as of September 30, 2024 compared to 82.3% and 80.6% as of June 30, 2024, and 85.6% and 84.4% as of September 30, 2023;

● the leasing of 150,000 square feet at our share, at an initial rent (2) of $47.12 per square foot and a GAAP-basis weighted average rent per square foot (3) of $47.50 for the three months ended September 30, 2024, and the leasing of 496,000 square feet at our share, at an initial rent (2) of $46.53 per square foot and a GAAP-basis weighted average rent per square foot (3) of $46.95 for the nine months ended September 30, 2024;

● an increase in same store (4) NOI of 0.5% to $68.6 million for the three months ended September 30, 2024 compared to $68.3 million for the three months ended September 30, 2023, and an increase in same store (4) NOI of 4.2% to $211.6 million for the nine months ended September 30, 2024 compared to $203.1 million for the nine months ended September 30, 2023.

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

(2) Represents the cash basis weighted average starting rent per square foot at our share, which excludes free rent and fixed escalations .

(3) Represents the weighted average rent per square foot recognized over the term of the respective leases, including the effect of free rent and fixed escalations.

(2) Represents the cash basis weighted average starting rent per square foot at our share, which excludes free rent, fixed escalations and percentage rent .

(3) Represents the weighted average rent per square foot recognized over the term of the respective leases, including the effect of free rent and fixed escalations, but excluding the effect of percentage rent.

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

Additionally, investing and financing activity during the six months ended June 30, 2024 included:

● the sale of North End Retail.

Additionally, investing and financing activity during the nine months ended September 30, 2024 included:

● the sale of North End Retail and Fort Totten Square.

See Note 3 to the financial statements for additional information;

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See Note 4 to the financial statements for additional information;

● net repayment of $22.0 million under our revolving credit facility;

● the net borrowing of $28.0 million under our revolving credit facility;

● the repayment of the $83.3 million mortgage loan collateralized by 201 12th Street S., 200 12th Street S., and 251 18th Street S.;

● the one-year extension of the maturity date of the Tranche A-1 Term Loan to January 2026;

● the payment of dividends totaling $47.2 million and distributions to redeemable noncontrolling interests of $8.7 million;

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● the investment of $172.1 million in development costs, construction in progress and real estate additions.

Activity subsequent to June 30, 2024 included:

● the declaration of a quarterly dividend of $0.175 per common share, payable on August 21, 2024 to shareholders of record as of August 7, 2024;

● the repurchase and retirement of 897,531 common shares for $14.0 million, a weighted average purchase price per share of $15.55, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended;

● a contract to sell a multifamily asset located in Washington D.C.

for $86.8 million that went firm on July 29, 2024.

Subject to customary closing conditions, we anticipate that this transaction will close in 2024;

however, we can make no assurances as to when or if the transaction will close.

Activity subsequent to September 30, 2024 included:

● the declaration of a quarterly dividend of $0.175 per common share, payable on November 22, 2024 to shareholders of record as of November 7, 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 six months ended June 30, 2024.

There have been no significant changes to our policies during the nine months ended September 30, 2024.

Recent Accounting Pronouncements

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Results of Operations

During the six months ended June 30, 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.

During the nine months ended September 30, 2024, we sold North End Retail and Fort Totten Square.

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 and Falkland Chase-North ("Falkland Chase"), 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 June 30, 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 June 30, 2024 compared to the same period in 2023:

Three Months Ended June 30,

Additionally, during the first quarter of 2024, we began leasing The Grace and Reva.

Comparison of the Three Months Ended September 30, 2024 to 2023

Three Months Ended September 30,

(Dollars in thousands)

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Third-party real estate services

Income (loss) from unconsolidated real estate ventures, net

Interest expense

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

Impairment loss

Property rental revenue decreased by approximately $6.9 million, or 5.8%, to $113.3 million in 2024 from $120.3 million in 2023.

The decrease was primarily due to an $8.7 million decrease in revenue from our commercial assets and a $910,000 decrease in other revenue, partially offset by a $781,000 increase in revenue from our multifamily assets and $738,000 in lease termination revenue.

The decrease in revenue from our commercial assets was primarily due to a $3.8 million decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, a $2.3 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 $1.2 million increase related to 1900 Crystal Drive, which we began

leasing during the first quarter of 2024, and higher occupancy and rents across the portfolio, partially offset by a $2.8 million decrease related to the Disposed Properties.

The decrease was primarily due to a $9.8 million decrease in revenue from our commercial assets, partially offset by a $2.2 million increase in revenue from our multifamily assets and a $697,000 increase in other revenue.

The decrease in revenue from our commercial assets was primarily due to a $4.6 million decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, a $1.8 million decrease related to the Disposed Properties and lower occupancy across the portfolio.

The increase in revenue from our multifamily assets was primarily due to a $3.6 million increase related to The Grace and Reva, and higher rents and lower concessions across the portfolio, partially offset by a $2.7 million decrease related to the Disposed Properties.

Third-party real estate services revenue, including reimbursements, decreased by approximately $6.9 million, or 28.7%, to $17.1 million in 2024 from $23.9 million in 2023.

The decrease was primarily due to a $2.3 million decrease in development fees related to the timing of development projects, a $1.8 million decrease in reimbursement revenue and a $1.0 million decrease in property management fees.

Depreciation and amortization expense increased by approximately $2.1 million, or 4.2%, to $51.3 million in 2024 from $49.2 million in 2023.

The increase was primarily due to (i) a $4.2 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, (ii) a $1.5 million increase related to 2100 Crystal Drive due to the acceleration of depreciation of certain assets as the building was taken out of service in the second quarter of 2024 and (iii) a $514,000 increase related to Crystal City Shops at 2100 due to the acceleration of depreciation.

The increase in depreciation and amortization expense was partially offset by (iv) a $2.2 million decrease related to 1800 South Bell Street, which was taken out of service during the first quarter of 2024, (v) a $1.5 million decrease related to the Disposed Properties and (vi) a $1.1 million decrease related to 2451 Crystal Drive due to the disposal of certain tenant-related assets in 2023.

Property operating expense increased by approximately $342,000, or 1.0%, to $36.3 million in 2024 from $35.9 million in 2023.

The increase was primarily due to a $519,000 increase in property operating expense from our multifamily assets and a $522,000 increase in other property operating expense, partially offset by a $699,000 decrease in property operating expense from our commercial assets.

The increase in property operating expense from our multifamily assets was primarily due to a $1.0 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, and higher operating expenses due to higher occupancy across the portfolio, partially offset by a $914,000 decrease related to the Disposed Properties.

The increase in other property operating expense was primarily due to a $646,000 increase in insurance claims covered by our captive insurance subsidiary.

The decrease in property operating expense from our commercial assets was primarily due to an $836,000 decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, a $525,000 decrease related to the Disposed Properties and lower operating expenses due to lower occupancy across the portfolio, partially offset by a $557,000 increase in expenses incurred in connection with construction management services provided to tenants.

Real estate taxes expense decreased by approximately $25,000, or 0.2%, to $14.4 million in 2024.

The decrease was primarily due to a $546,000 decrease related to the Disposed Properties and lower assessments across the portfolio, partially offset by an $841,000 increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024.

The decrease was primarily due to a $4.0 million decrease in development fees related to the timing of development projects, a $2.3 million decrease in reimbursement revenue and an $845,000 decrease in property management fees.

Depreciation and amortization expense decreased by approximately $215,000, or 0.4%, to $50.1 million in 2024 from $50.3 million in 2023.

The decrease was primarily due to (i) a $2.2 million decrease related to 1800 South Bell Street, which was taken out of service during the first quarter of 2024, (ii) a $1.6 million decrease related to the Disposed Properties and (iii) a $1.6 million decrease related to 800 North Glebe Road and 2011 Crystal Drive due to the disposal of assets for tenant terminations in the first quarter of 2024.

The decrease in depreciation and amortization expense was partially offset by (iv) a $4.6 million increase related to The Grace and Reva.

Property operating expense increased by approximately $1.7 million, or 4.4%, to $39.3 million in 2024 from $37.6 million in 2023.

The increase was primarily due to a $1.1 million increase in property operating expense from our multifamily assets and a $907,000 increase in other property operating expense, partially offset by a $308,000 decrease in property operating expense from our commercial assets.

The increase in property operating expense from our multifamily assets was primarily due to a $1.8 million increase related to The Grace and Reva and higher operating expenses due to higher compensation expenses across the portfolio, partially offset by a $966,000 decrease related to the Disposed Properties.

The increase in other property operating expense was primarily due to a $1.2 million increase in insurance claims covered by our captive insurance subsidiary.

The decrease in property operating expense from our commercial assets was primarily due to a $711,000 decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, a $642,000 decrease related to the Disposed Properties and lower operating expenses due to lower occupancy across the portfolio, partially offset by a $1.1 million increase in expenses related to 1550 Crystal Drive due to the phasing in of Water Park.

Real estate taxes expense decreased by approximately $2.6 million, or 18.0%, to $11.8 million in 2024 from $14.4 million in 2023.

The decrease was primarily due to (i) a $1.6 million real estate tax refund as a result of successful appeals related to 2101 L Street, (ii) a $570,000 decrease related to the Disposed Properties and (iii) lower assessments across the portfolio, partially offset by (iv) an $836,000 increase related to The Grace and Reva.

General and administrative expense:

corporate and other increased by approximately $1.9 million, or 12.6%, to $17.0 million in 2024 from $15.1 million in 2023.

The increase was primarily due to higher compensation expenses and a decrease in capitalized payroll.

corporate and other increased by approximately $635,000, or 5.6%, to $11.9 million in 2024 from $11.2 million in 2023.

The increase was primarily due to higher compensation expenses, partially offset by an increase in capitalized payroll.

General and administrative expense:

third-party real estate services decreased by approximately $5.3 million, or 24.8%, to $16.1 million in 2024 from $21.4 million in 2023.

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

Loss from unconsolidated real estate ventures increased by approximately $736,000, or 144.3%, to $226,000 in 2024 from income of $510,000 in 2023 due to a decrease in income at our share primarily related to disposition activity.

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

Interest expense increased by approximately $7.4 million, or 26.4%, to $35.3 million in 2024 from $27.9 million in 2023.

The increase in interest expense was primarily due to (i) a $5.5 million increase due to higher outstanding debt, (ii) a $2.9 million increase related to rising interest rates on variable rate mortgage loans and (iii) a $2.9 million decrease in capitalized interest as we placed 1900 Crystal Drive into service.

The increase in interest expense was partially offset by (iv) a $2.9 million decrease related to the increase in mark-to-market associated with our non-designated derivatives and a decrease resulting from the expiration of certain derivatives and (v) a $2.1 million decrease related to mortgage loans collateralized by 800 North Glebe Road and Falkland Chase-South & West, which were repaid during 2023.

Comparison of the Six Months Ended June 30, 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 six months ended June 30, 2024 compared to the same period in 2023:

Six Months Ended June 30,

The increase in interest expense was primarily due to (i) a $5.1 million net increase due to higher outstanding debt, (ii) a $3.3 million decrease in capitalized interest as we placed The Grace and Reva into service and (iii) an $823,000 increase related to rising interest rates on variable rate mortgage loans.

The increase in interest expense was partially offset by (iv) a $1.7 million decrease related to the mark-to-market associated with our non-designated derivatives primarily due to their maturity.

Loss on the sale of real estate of $5.4 million in 2024 was due to the sale of Fort Totten Square.

Gain on the sale of real estate of $906,000 in 2023 was primarily due to the sale of Falkland Chase.

Impairment loss of $59.3 million in 2023 was 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, 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 nine months ended September 30, 2024 compared to the same period in 2023:

Nine Months Ended September 30,

(Dollars in thousands)

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Third-party real estate services

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

Income from unconsolidated real estate ventures, net

Interest expense

Gain on the sale of real estate, net

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

Impairment loss

* Not meaningful.

Property rental revenue decreased by approximately $16.4 million, or 4.5%, to $348.5 million in 2024 from $364.9 million in 2023.

The decrease was primarily due to a $23.0 million decrease in revenue from our commercial assets, partially offset by $11.1 million in lease termination revenue, a $2.3 million increase in revenue from our multifamily assets and a $163,000 increase in other revenue.

The decrease in revenue from our commercial assets was primarily due to a $6.6 million decrease related to the Disposed Properties, a $6.2 million decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, and lower occupancy and rents across the portfolio.

The increase in revenue from our multifamily assets was primarily due to a $1.3 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, and higher occupancy and rents across the portfolio, partially offset by a $5.4 million decrease related to the Disposed Properties.

The decrease was primarily due to a $32.8 million decrease in revenue from our commercial assets, partially offset by an $11.9 million increase in other revenue and a $4.5 million increase in revenue from our multifamily assets.

The decrease in revenue from our commercial assets was primarily due to a $10.7 million decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, an $8.4 million decrease related to the Disposed Properties and lower occupancy across the portfolio.

The increase in other revenue was primarily due to $10.4 million in lease termination revenue.

The increase in revenue from our multifamily assets was primarily due to a $4.9 million increase related to The Grace and Reva, and higher rents and lower concessions across the portfolio, partially offset by an $8.1 million decrease related to the Disposed Properties.

Third-party real estate services revenue, including reimbursements, decreased by approximately $17.3 million, or 24.8%, to $52.3 million in 2024 from $69.6 million in 2023.

The decrease was primarily due to a $4.1 million decrease in development fees related to the timing of development projects, a $3.7 million decrease in reimbursement revenue and a $1.7 million decrease in property management fees.

The decrease was primarily due to an $8.1 million decrease in development fees related to the timing of development projects, a $6.0 million decrease in reimbursement revenue and a $2.6 million decrease in property management fees.

Depreciation and amortization expense increased by approximately $5.3 million, or 3.5%, to $158.2 million in 2024 from $152.9 million in 2023.

The increase was primarily due to (i) a $7.5 million increase related to 2100 Crystal Drive due to the acceleration of depreciation of certain assets as the building was taken out of service in the second quarter of 2024, (ii) a $6.5 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, (iii) a $2.2 million increase related to Crystal City Shops at 2100 due to the acceleration of depreciation and (iv) a $2.0 million increase related to various National Landing assets primarily due to placing Water Park and Surreal into service.

The increase in depreciation and amortization expense was partially offset by (v) a $4.9 million decrease related to the Disposed Properties, (vi) a $4.3 million decrease related to 1800 South Bell Street, which was taken out of service during the first quarter of 2024, (vii) a $3.4 million decrease related to 8001 Woodmont due to the amortization of acquired in-place lease intangibles in 2023 and (viii) a $1.0 million decrease related to 2451 Crystal Drive due to the disposal of certain tenant-related assets in 2023.

Property operating expense increased by approximately $9,000 to $71.5 million in 2024.

The increase was primarily due to a $2.5 million increase in other property operating expense and a $470,000 increase in property operating expense from our multifamily assets, partially offset by a $3.0 million decrease in property operating expense from our commercial assets.

The increase in other property operating expense was primarily due to a $1.8 million increase in insurance claims covered

by our captive insurance subsidiary.

The increase in property operating expense from our multifamily assets was primarily due to a $2.0 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, and higher operating expenses due to higher occupancy across the portfolio, partially offset by a $1.6 million decrease related to the Disposed Properties.

The decrease in property operating expense from our commercial assets was primarily due to a $1.9 million decrease related to the Disposed Properties, a $1.2 million decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, and lower operating expenses due to lower occupancy across the portfolio.

The increase was primarily due to (i) an $11.1 million increase related to The Grace and Reva, (ii) a $6.9 million increase related to 2100 Crystal Drive due to the acceleration of depreciation of certain assets as the building was taken out of service in the second quarter of 2024, (iii) a $2.7 million increase related to various National Landing assets primarily due to placing Water Park and Surreal into service and (iv) a $2.1 million increase related to Crystal City Shops at 2100 due to the acceleration of depreciation.

The increase in depreciation and amortization expense was partially offset by (v) a $6.5 million decrease related to the Disposed Properties, (vi) a $6.5 million decrease related to 1800 South Bell Street, which was taken out of service during the first quarter of 2024 and (vii) a $3.3 million decrease related to 8001 Woodmont due to the amortization of acquired in-place lease intangibles in 2023.

Property operating expense increased by approximately $1.7 million, or 1.5%, to $110.8 million in 2024 to $109.1 million in 2023.

The increase was primarily due to a $3.4 million increase in other property operating expense and a $1.5 million increase in property operating expense from our multifamily assets, partially offset by a $3.3 million decrease in property operating expense from our commercial assets.

The increase in other property operating expense was primarily due to a $3.0 million increase in insurance claims covered by our captive insurance subsidiary.

The increase in property operating expense from our multifamily assets was primarily due to a $3.8 million increase related to The Grace and Reva, and higher operating expenses due to higher compensation expenses across the portfolio, partially offset by a $2.3 million decrease related to the Disposed Properties.

The decrease in property operating expense from our commercial assets was primarily due to a $2.5 million decrease related to the Disposed Properties, a $1.9 million decrease related to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, and lower operating expenses due to lower repair and maintenance expenses and marketing expenses across the portfolio, partially offset by a $2.4 million increase in expenses related to 1550 Crystal Drive due to the phasing in of Water Park.

Real estate taxes expense decreased by approximately $4.1 million, or 9.2%, to $40.0 million in 2024 from $44.1 million in 2023.

The decrease was primarily due to a $1.6 million decrease related to the Disposed Properties and lower assessments across the portfolio, partially offset by a $1.4 million increase related to 1900 Crystal Drive, which we began leasing during the first quarter of 2024.

The decrease was primarily due to (i) a $2.3 million decrease related to the Disposed Properties, (ii) a $1.6 million real estate tax refund as a result of successful appeals related to 2101 L Street and (iii) lower assessments across the portfolio, partially offset by (iv) a $2.2 million increase related to The Grace and Reva.

General and administrative expense:

corporate and other increased by approximately $758,000, or 2.4%, to $32.0 million in 2024 from $31.2 million in 2023.

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

corporate and other increased by approximately $1.4 million, or 3.3%, to $43.9 million in 2024 from $42.5 million in 2023.

The increase was primarily due to a decrease in capitalized payroll and higher compensation expenses.

General and administrative expense:

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

General and administrative expense:

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 decreased by approximately $194,000, or 20.6%, to $749,000 in 2024 from $943,000 in 2023.

The decrease was due to a decrease in income at our share primarily related to disposition activity, partially offset by a $480,000 gain at our share from the sale of Central Place Tower in 2024.

Interest expense increased by approximately $16.8 million, or 20.9%, to $97.4 million in 2024 from $80.6 million in 2023.

The increase in interest expense was primarily due to (i) a $11.9 million increase due to higher outstanding debt, (ii) a $5.9 million increase related to rising interest rates on variable rate mortgage loans and (iii) a $3.4 million decrease in capitalized interest as we placed 1900 Crystal Drive into service.

The increase in interest expense was partially offset by (iv) a $5.6 million decrease resulting from the expiration of certain non-designated derivatives, (v) a $4.8 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 $286,000 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.

The increase in interest expense was primarily due to (i) a $17.0 million net increase due to higher outstanding debt, (ii) a $6.8 million increase related to rising interest rates on variable rate mortgage loans and (iii) a $6.7 million decrease in capitalized interest as we placed The Grace and Reva into service.

The increase in interest expense was partially offset by (iv) a $7.3 million decrease related to the mark-to-market associated with our non-designated derivatives primarily due to their maturity, (v) a $4.9 million decrease related to mortgage loans collateralized by 800 North Glebe Road, 2121 Crystal Drive, Falkland Chase, 201 12 th Street S., 200 12 th Street S.

and 251 18 th Street S., which were repaid during 2023 and 2024, and (vi) a $2.1 million decrease related to the Disposed Properties, excluding Falkland Chase.

Loss on the sale of real estate of $5.1 million in 2024 was primarily due to the sale of North End Retail and Fort Totten Square, partially offset by 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.

Gain on the sale of real estate of $41.6 million in 2023 was primarily due to the sale of 4747 Bethesda Avenue and Falkland Chase.

Impairment loss of $18.2 million in 2024 was related to two development parcels, which were written down to their estimated fair value.

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

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

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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 June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Net income (loss) attributable to common shareholders

Net income (loss) attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

Net income (loss)

Gain on the sale of real estate, net of tax

Net loss attributable to common shareholders

Net loss attributable to redeemable noncontrolling interests

Net income (loss) attributable to noncontrolling interests

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

Gain on the sale of unconsolidated real estate assets

Real estate depreciation and amortization

Real estate impairment loss

Impairment related to unconsolidated real estate ventures (1)

Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures

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FFO attributable to common shareholders

(1) Related to decreases in the value of the underlying real estate assets.

NOI and Same Store NOI

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NOI also excludes deferred rent, related party management fees, interest expense, and certain other non-cash adjustments, including the accretion of acquired below-market leases and the amortization of acquired above-market leases and below-market ground lease intangibles.

Management uses NOI as a supplemental performance measure of our assets and believes it provides useful information to investors because it reflects only those revenue and expense items that are incurred at the asset level, excluding non-cash items.

Management uses NOI as a supplemental performance measure of our assets and believes it provides useful information to investors because it reflects only those revenue and expense

items that are incurred at the asset level, excluding non-cash items.

In addition, NOI is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets.

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Information provided on a same store basis includes the results of properties that are owned, operated and in-service for the entirety of both periods being compared, which excludes disposed properties or properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

During the three months ended June 30, 2024, our same store pool decreased to 40 properties from 41 properties due to the exclusion of 2100 Crystal Drive, which was taken out of service.

During the six months ended June 30, 2024, our same store pool decreased to 40

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 and 2100 Crystal Drive, which were 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.

During the three months ended September 30, 2024, our same store pool decreased to 39 properties from 40 properties due to the sale of Fort Totten Square.

During the nine months ended September 30, 2024, our same store pool decreased to 39 properties from 42 properties due to (i) the sale of North End Retail, Fort Totten Square and Central Place Tower, (ii) the exclusion of 1800 South Bell Street and 2100 Crystal Drive, which were 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.

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Acquisitions are moved into the same store pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment.

Same store NOI increased $2.2 million, or 3.2%, to $71.4 million for the three months ended June 30, 2024 from $69.1 million for the same period in 2023.

The increase for the three months ended June 30, 2024 was substantially attributable to (i) higher rents and occupancy and lower concessions, partially offset by higher operating expenses in our multifamily portfolio, and (ii) lower real estate taxes and operating expenses, partially offset by lower occupancy in our commercial portfolio.

Same store NOI increased $7.2 million, or 5.2%, to $145.1 million for the six months ended June 30, 2024 from $137.9 million for the same period in 2023.

The increase for the six months ended June 30, 2024 was substantially attributable to (i) higher rents and occupancy and lower concessions, partially offset by higher operating expenses in our multifamily portfolio, and (ii) burn off of rent abatements, lower real estate taxes and non-reimbursable 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 June 30,

Six Months Ended June 30,

Same store NOI increased $331,000, or 0.5%, to $68.6 million for the three months ended September 30, 2024 from $68.3 million for the same period in 2023.

The increase for the three months ended September 30, 2024 was substantially attributable to (i) higher rents and occupancy and lower concessions, partially offset by higher operating expenses in our multifamily portfolio, and (ii) lower occupancy and recovery revenue in our commercial portfolio, partially offset by lower real estate taxes.

Same store NOI increased $8.5 million, or 4.2%, to $211.6 million for the nine months ended September 30, 2024 from $203.1 million for the same period in 2023.

The increase for the nine months ended September 30, 2024 was substantially attributable to (i) higher rents and occupancy and lower concessions, partially offset by higher operating expenses in our multifamily portfolio, and (ii) lower real estate taxes and non-reimbursable operating expenses, partially offset by lower occupancy in our commercial portfolio.

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

Net income (loss) attributable to common shareholders

Net income (loss) attributable to redeemable noncontrolling interests

Net loss attributable to noncontrolling interests

Net income (loss)

Net loss attributable to common shareholders

Net loss attributable to redeemable noncontrolling interests

Net income (loss) attributable to noncontrolling interests

Depreciation and amortization expense

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Interest expense

Loss on the extinguishment of debt

(Gain) loss on the extinguishment of debt

Impairment loss

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Interest and other income, net

Gain on the sale of real estate, net

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

Consolidated NOI

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the three and six months ended June 30, 2024 in the preceding pages under "Results of Operations."

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the three and nine months ended September 30, 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 six months ended June 30, 2024 and 2023.

See Note 16 to the financial statements for the reconciliation of net loss attributable to common shareholders to consolidated NOI for the three and nine months ended September 30, 2024 and 2023.

The following is a summary of NOI by segment:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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

Comparison of the Three Months Ended June 30, 2024 to 2023

Property revenue increased by $684,000, or 1.3%, to $53.4 million in 2024 from $52.7 million in 2023.

Consolidated NOI decreased by $506,000, or 1.8%, to $28.2 million in 2024 from $28.7 million in 2023.

The increase in property revenue was primarily due to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, and higher occupancy and rents across the portfolio, partially offset by a decrease related to the Disposed Properties.

The decrease in consolidated NOI was due to an increase in property operating expenses primarily related to 1900 Crystal Drive, partially offset by a decrease in property operating expenses related to the Disposed Properties and an increase in property revenue.

Comparison of the Three Months Ended September 30, 2024 to 2023

Property revenue increased by $2.2 million, or 4.1%, to $54.9 million in 2024 from $52.7 million in 2023.

Consolidated NOI increased by $835,000, or 3.0%, to $28.6 million in 2024 from $27.7 million in 2023.

The increases in property revenue and consolidated NOI were primarily due to The Grace and Reva, which we began leasing during the first quarter of 2024, and higher rents and lower concessions across the portfolio, partially offset by a decrease related to the Disposed Properties.

Property revenue decreased by $10.4 million, or 15.3%, to $57.8 million in 2024 from $68.3 million in 2023.

Consolidated NOI decreased by $6.6 million, or 16.1%, to $34.5 million in 2024 from $41.2 million in 2023.

The decreases in property revenue and consolidated NOI were primarily due to 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, the Disposed Properties, and lower occupancy and rents across the portfolio.

Comparison of the Six Months Ended June 30, 2024 to 2023

Comparison of the Nine Months Ended September 30, 2024 to 2023

Property revenue increased by $4.4 million, or 2.8%, to $159.9 million in 2024 from $155.6 million in 2023.

Consolidated NOI increased by $687,000, or 1.2%, to $56.5 million in 2024 from $55.8 million in 2023.

The increases in property revenue and consolidated NOI were primarily due to 1900 Crystal Drive, which we began leasing during the first quarter of 2024, and higher occupancy and rents across the portfolio, partially offset by a decrease related to the Disposed Properties.

Consolidated NOI increased by $1.5 million, or 1.8%, to $85.0 million in 2024 from $83.5 million in 2023.

Property revenue decreased by $34.5 million, or 16.2%, to $178.5 million in 2024 from $213.1 million in 2023.

Consolidated NOI decreased by $25.4 million, or 19.3%, to $105.8 million in 2024 from $131.2 million in 2023.

The decreases in property revenue and consolidated NOI were primarily due to the Disposed Properties, 1800 South Bell Street and 2100 Crystal Drive, which were taken out of service during 2024, and lower occupancy and rents across the portfolio.

Liquidity and Capital Resources

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Interest Rate (1)

June 30, 2024

September 30, 2024

December 31, 2023

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Mortgage loans, net

(1) Weighted average effective interest rate as of June 30, 2024.

(1) Weighted average effective interest rate as of September 30, 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 3.52%, and the weighted average maturity date of the interest rate caps was June 2025.

In July 2024, a new interest rate cap was executed that extended the weighted average maturity date of the interest rate caps to October 2025.

For mortgage loans with interest rate caps, the weighted average interest rate cap strike was 3.56%, and the weighted average maturity date of the interest rate caps is in the fourth quarter of 2025.

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

As of June 30, 2024, one-month term Secured Overnight Financing Rate ("SOFR") was 5.34%.

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

As of June 30, 2024 and December 31, 2023, the net carrying value of real estate collateralizing our mortgage loans totaled $2.2 billion.

As of September 30, 2024, one-month term Secured Overnight Financing Rate ("SOFR") was 4.85%.

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

As of September 30, 2024 and December 31, 2023, the net carrying value of real estate collateralizing our mortgage loans totaled $2.1 billion and $2.2 billion.

Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and, in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity.

Certain mortgage loans are recourse to us.

See Note 17 to the financial statements for additional information.

As of June 30, 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.

In September 2024, we repaid the $83.3 million mortgage loan collateralized by 201 12th Street S., 200 12th Street S., and 251 18th Street S.

As of September 30, 2024 and December 31, 2023, we had various interest rate swap and cap agreements on certain mortgage loans with an aggregate notional value of $1.7 billion.

See Note 15 to the financial statements for additional information.

Revolving Credit Facility and Term Loans

As of June 30, 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.

As of September 30, 2024, 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 2026, as extended in September 2024, 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 one remaining one-year extension option.

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

Interest Rate (1)

June 30, 2024

September 30, 2024

December 31, 2023

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Term loans, net

(1) Effective interest rate as of June 30, 2024.

(1) Effective interest rate as of September 30, 2024.

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

(2) As of June 30, 2024, daily SOFR was 5.33%.

As of June 30, 2024 and December 31, 2023, letters of credit with an aggregate face amount of $15.7 million and $467,000 were outstanding under our revolving credit facility.

(3) As of June 30, 2024 and December 31, 2023, excludes $8.7 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 June 30, 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 matured in July 2024.

We have two forward-starting interest rate swaps that became effective in July 2024 with a total notional value of $200.0 million, which effectively fix SOFR at a weighted average interest rate of 4.00% through January 2027.

(5) As of June 30, 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 matured in July 2024 and with a total notional value of $200.0 million will mature in January 2028.

(6) As of June 30, 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.

(2) As of September 30, 2024, daily SOFR was 4.96%.

As of September 30, 2024 and December 31, 2023, letters of credit with an aggregate face amount of $15.7 million and $467,000 were outstanding under our revolving credit facility.

(3) As of September 30, 2024 and December 31, 2023, excludes $8.0 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 September 30, 2024, the interest rate swaps fixed SOFR at a weighted average interest rate of 4.00% through the extended maturity date of January 2027.

(5) As of September 30, 2024, the interest rate swaps fixed SOFR at a weighted average interest rate of 2.81% through the maturity date.

(6) As of September 30, 2024, the interest rate swap fixed SOFR at an interest rate of 4.01% through the maturity date.

Common Shares Repurchased

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

During the three and six months ended June 30, 2024, we repurchased and retired 4.7 million and 7.7 million common shares for $68.7 million and $118.1 million, a weighted average purchase price per share of $14.62 and $15.35.

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

Since we began the share repurchase program through June 30, 2024, we have repurchased and retired 53.6 million common shares for $1.1 billion, a weighted average purchase price per share of $20.09.

During July 2024, through the date of this filing, we repurchased and retired 897,531 common shares for $14.0 million, a weighted average purchase price per share of $15.55, pursuant to a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

During the three and nine months ended September 30, 2024, we repurchased and retired 3.1 million and 10.8 million common shares for $50.2 million and $168.3 million, a weighted average purchase price per share of $16.23 and $15.61.

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.

Since we began the share repurchase program through September 30, 2024, we have repurchased and retired 56.6 million common shares for $1.1 billion, a weighted average purchase price per share of $19.88.

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

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● normal recurring expenses;

● debt service and principal repayment obligations, including balloon payments on maturing mortgage loans — As of June 30, 2024, we had a $120.9 million mortgage loan scheduled to mature in August 2024.

In 2025, we have maturities

totaling $424.0 million ($391.0 million related to our consolidated entities and $33.0 million related to an unconsolidated real estate venture at our share), after adjusting for by-right extension options;

● capital expenditures, including major renovations, tenant improvements and leasing costs — As of June 30, 2024, we had committed tenant-related obligations totaling $44.4 million ($44.3 million related to our consolidated entities and $144,000 related to our unconsolidated real estate ventures at our share);

● development expenditures — As of June 30, 2024, we had assets under construction that, based on our current plans and estimates, require an additional $98.5 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 July 24, 2024, our Board of Trustees declared a quarterly dividend of $0.175 per common share;

● possible common share repurchases — during July 2024, through the date of this filing, we repurchased and retired 897,531 common shares for $14.0 million;

● debt service and principal repayment obligations, including balloon payments on maturing mortgage loans — As of September 30, 2024, we had a $120.9 million non-recourse mortgage loan scheduled to mature in November 2024.

In 2025, we have maturities totaling $340.7 million ($307.7 million related to our consolidated entities and $33.0 million related to an unconsolidated real estate venture at our share);

● capital expenditures, including major renovations, tenant improvements and leasing costs — As of September 30, 2024, we had committed tenant-related obligations totaling $43.3 million ($43.2 million related to our consolidated entities and $126,000 related to our unconsolidated real estate ventures at our share);

● development expenditures — As of September 30, 2024, we had an asset under construction that, based on our current plans and estimates, requires an additional $51.1 million to complete, which we anticipate will be primarily expended over the next year;

● dividends to shareholders and distributions to holders of OP Units and LTIP Units — On October 24, 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 June 30, 2024, we had cash and cash equivalents of $163.5 million ;

● cash and cash equivalents — As of September 30, 2024, we had cash and cash equivalents of $137.0 million ;

● cash flows from operations;

● distributions from real estate ventures;

● borrowing capacity under our revolving credit facility — As of June 30, 2024, we had $694.3 million of availability under our revolving credit facility;

● borrowing capacity under our revolving credit facility — As of September 30, 2024, we had $644.3 million of availability under our revolving credit facility;

● proceeds from financings, asset sales and recapitalizations;

● proceeds from the issuance of securities.

During the six months ended June 30, 2024, there were no significant changes to the material cash requirements information presented in Item 7 of Part II of our Annual Report.

During the nine months ended September 30, 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."

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

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Net cash used in financing activities

Cash Flows for the Six Months Ended June 30, 2024

Cash and cash equivalents, and restricted cash increased $5.5 million to $205.9 million as of June 30, 2024, compared to $200.4 million as of December 31, 2023.

This increase resulted from $62.0 million of net cash provided by investing activities and $60.8 million of net cash provided by operating activities, partially offset by $117.3 million of net cash used in financing activities.

Our outstanding debt was $2.6 billion as of June 30, 2024 and December 31, 2023.

Cash Flows for the Nine Months Ended September 30, 2024

Cash and cash equivalents, and restricted cash decreased $30.3 million to $170.1 million as of September 30, 2024, compared to $200.4 million as of December 31, 2023.

This decrease resulted from $199.9 million of net cash used in financing activities, partially offset by $87.2 million of net cash provided by operating activities and $82.4 million of net cash provided by investing activities.

Our outstanding debt was $2.6 billion as of September 30, 2024 and December 31, 2023.

Net cash provided by operating activities of $87.2 million comprised:

(i) $70.8 million of net income (before $146.7 million of non-cash items and a $286,000 gain on the sale of real estate), (ii) $1.7 million of return on capital from unconsolidated real estate ventures and (iii) $11.7 million of net change in operating assets and liabilities.

(i) $99.3 million of net income (before $201.2 million of non-cash items and a $5.1 million loss on the sale of real estate), (ii) $1.7 million of return on capital from unconsolidated real estate ventures and (iii) $13.8 million of net change in operating assets and liabilities.

Non-cash income adjustments of $201.2 million primarily include depreciation and amortization expense, share-based compensation expense, impairment loss, deferred rent and amortization of lease incentives.

Net cash provided by investing activities of $82.4 million primarily comprised:

(i) $163.9 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) $113.4 million of development costs, construction in progress and real estate additions, and (iv) $3.8 million of investments in unconsolidated real estate ventures and other investments.

(i) $163.9 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) $97.0 million of proceeds from the sale of real estate, partially offset by (iii) $172.1 million of development costs, construction in progress and real estate additions.

Net cash used in financing activities of $199.9 million primarily comprised:

(i) $195.0 million of repayments on the revolving credit facility, (ii) $116.4 million of common shares repurchased, (iii) $32.2 million of dividends paid to common shareholders, (iv) $26.6 million paid for the acquisition of noncontrolling interests and (v) $5.8 million of distributions to our redeemable noncontrolling interests, partially offset by (vi) $173.0 million of borrowings under the revolving credit facility and (vii) $89.6 million of borrowings under mortgage loans.

(i) $195.0 million of repayments on the revolving credit facility, (ii) $168.4 million of common shares repurchased, (iii) $85.7 million of repayments of mortgage loans, (iv) $47.2 million of dividends paid to common shareholders, (v) $26.6 million paid for the acquisition of

noncontrolling interests and (vi) $8.7 million of distributions to our redeemable noncontrolling interests, partially offset by (vii) $223.0 million of borrowings under the revolving credit facility and (viii) $112.6 million of borrowings under mortgage loans.

Unconsolidated Real Estate Ventures

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

As of June 30, 2024, we had investments in unconsolidated real estate ventures totaling $101.0 million.

As of September 30, 2024, we had investments in unconsolidated real estate ventures totaling $100.7 million.

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

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

As of June 30, 2024, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $58.0 million.

As of June 30, 2024, we had no debt principal payment guarantees related to our unconsolidated real estate ventures.

As of September 30, 2024, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $57.4 million.

As of September 30, 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 June 30, 2024, we had assets under construction that, based on our current plans and estimates, require an additional $98.5 million to complete, which we anticipate will be primarily expended over the next two years.

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

As of June 30, 2024, we had committed tenant-related obligations totaling $44.4 million ($44.3 million related to our consolidated entities and $144,000 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.

There are various legal actions against us in the ordinary course of business.

As of September 30, 2024, we had an asset under construction that, based on our current plans and estimates, requires an additional $51.1 million to complete, which we anticipate will be primarily expended over the next year.

These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds.

Legal Proceedings

In November 2023, the District of Columbia filed a lawsuit in the Superior Court of the District of Columbia alleging violations of its antitrust laws by RealPage, Inc., a seller of revenue management software products, and a number of large apartment community owners and operators, including JBG Associates, L.L.C., one of our subsidiaries.

The lawsuit alleges collusion among the defendants to illegally fix and inflate the pricing of multifamily rents and seeks monetary damages, attorneys’ fees and costs, and injunctive relief.

We believe there are defenses, both factual and legal, to the allegations in this proceeding, and we plan to vigorously defend the litigation.

At this stage in the proceeding, it is not possible to predict any outcome or estimate the amount of loss, if any, which could be associated with any adverse decision.

While we do not believe that these proceedings will have a material adverse effect on our financial condition, we cannot give assurance that the proceedings will not have a material effect on our results of operations or cash flows in the event of a negative outcome.

There are various other legal actions against us in the ordinary course of business.

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.

With respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (i) guarantee portions of the principal, interest and other amounts, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (iii) provide guarantees to lenders, tenants and other third parties for the completion of development projects.

As of June 30, 2024, the aggregate amount of debt principal payment guarantees was $8.3 million for our consolidated entities.

As of September 30, 2024, we had committed tenant-related obligations totaling $43.3 million ($43.2 million related to our consolidated entities and $126,000 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.

With respect to borrowings of our consolidated entities, we may 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, 2024, we had no debt principal payment guarantees related to our consolidated real estate assets.

In connection with the Formation Transaction, we have an agreement with Vornado regarding tax matters (the "Tax Matters Agreement") that provides special rules that allocate tax liabilities if the distribution of JBG SMITH shares by Vornado, together with certain related transactions, is determined not to be tax-free.

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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.

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.

In addition, our assets are exposed to the risk of contamination originating from other sources.

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.

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 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.

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Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in significant cost to us.

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $17.5 million and $17.6 million as of June 30, 2024 and December 31, 2023, and are included in "Other liabilities, net" in our balance sheets.

As disclosed in Note 17 to the financial statements, environmental liabilities totaled $17.5 million and $17.6 million as of September 30, 2024 and December 31, 2023, and are included in "Other liabilities, net" in our balance sheets.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis