Press Release

CHEVY CHASE, Md.--(BUSINESS WIRE)-- JBG SMITH (NYSE: JBGS), a leading owner and developer of high-quality, mixed-use properties in the Washington, DC market, today filed its Form 10-Q for the quarter ended September 30, 2018 and reported its financial results.

Additional information regarding our results of operations, properties and tenants can be found in our Third Quarter 2018 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com.

Third Quarter 2018 Financial Results

• Net income attributable to common shareholders was $22.8 million, or $0.19 per diluted share.
• Funds From Operations (“FFO”) attributable to common shareholders was $42.6 million, or $0.36 per diluted share.
• Core Funds From Operations (“Core FFO”) attributable to common shareholders was $51.3 million, or $0.43 per diluted share.

Nine Months Ended September 30, 2018 Financial Results

• Net income attributable to common shareholders was $39.2 million, or $0.33 per diluted share.
• FFO attributable to common shareholders was $120.0 million, or $1.01 per diluted share.
• Core FFO attributable to common shareholders was $156.5 million, or $1.32 per diluted share.

Operating Portfolio Highlights

• Annualized Net Operating Income (“NOI”) for the three months ended September 30, 2018 was $364.9 million, compared to $378.5 million for the three months ended June 30, 2018, at our share.
• The operating office portfolio was 87.1% leased and 85.4% occupied as of September 30, 2018, compared to 87.4% and 86.0% as of June 30, 2018, at our share.
• The operating multifamily portfolio was 96.1% leased and 94.3% occupied as of September 30, 2018, compared to 95.9% and 92.6% as of June 30, 2018, at our share.
• The operating other portfolio (excluding the Crystal City Marriott) was 98.8% leased and 98.6% occupied as of September 30, 2018, compared to 93.4% leased and 91.1% occupied as of June 30, 2018, at our share.
• Executed approximately 378,000 square feet of office leases at our share in the third quarter, comprising approximately 60,000 square feet of new leases, and approximately 318,000 square feet of second generation leases, which generated a 2.6% rental rate decrease on a GAAP basis and a 5.6% rental rate decrease on a cash basis.
• Executed approximately 1.0 million square feet of office leases at our share during the nine months ended September 30, 2018, comprising approximately 277,000 square feet of new leases, and approximately 742,000 square feet of second generation leases, which generated a 0.3% rental rate increase on a GAAP basis and a 6.4% rental rate decrease on a cash basis.
• Same Store Net Operating Income (“SSNOI”) decreased 0.7% to $70.0 million for the three months ended September 30, 2018, compared to $70.5 million for the three months ended September 30, 2017. SSNOI increased 4.6% to $203.1 million for the nine months ended September 30, 2018, compared to $194.2 million for the nine months ended September 30, 2017. The decrease in SSNOI for the three months ended September 30, 2018 is largely attributable to the conversion of unused tenant incentive allowances to free rent, rental abatement and anticipated tenant move-outs. The increase in SSNOI for the nine months ended September 30, 2018, is mainly driven by the burn off of rent abatements, partially offset by rent abatements given to tenants in 2018. The reported same store pool as of September 30, 2018 includes only the assets that were in service for the entirety of both periods being compared and does not include the JBG Assets acquired in our Formation Transaction. The JBG Assets will be included in reported SSNOI in the fourth quarter of 2018. Including the JBG Assets, SSNOI would have increased 0.7% and 4.9% for the three and nine months ended September 30, 2018.

Development Portfolio Highlights

Under Construction

• During the quarter ended September 30, 2018, there were seven assets under construction (three office assets and four multifamily assets), consisting of 546,133 square feet and 1,284 units, both at our share.

Near-Term Development

• As of September 30, 2018, there were no assets in near-term development.

Future Development Pipeline

• As of September 30, 2018, there were 43 future development assets consisting of 19.0 million square feet of estimated potential density at our share.

Third-Party Asset Management and Real Estate Services Business

• For the three months ended September 30, 2018, revenue from third-party real estate services, including reimbursements, was $23.8 million. Excluding reimbursements and service revenue from our interests in consolidated and unconsolidated real estate ventures, revenue from our third-party asset management and real estate services business was $14.3 million, of which $5.9 million came from property management fees, $3.6 million came from asset management fees, $1.5 million came from leasing fees, $2.3 million came from development fees, $0.6 million came from construction management fees and $0.4 million came from other service revenue.
• The general and administrative expenses allocated to the third-party asset management and real estate services business were $10.1 million for the three months ended September 30, 2018.

Balance Sheet

• We had $2.1 billion of debt ($2.6 billion including our share of debt of unconsolidated real estate ventures) as of September 30, 2018. Of the $2.6 billion of debt at our share, approximately 75% was fixed-rate, and rate caps were in place for approximately 6%.
• The weighted average interest rate of our debt at share was 4.20% as of September 30, 2018.
• At September 30, 2018, our total enterprise value was approximately $7.3 billion, comprising 137.7 million common shares and units valued at $5.1 billion and debt (net of premium / (discount) and deferred financing costs)at our share of $2.5 billion, less cash and cash equivalents of $284.0 million.
• As of September 30, 2018, we had $253.1 million of cash and cash equivalents on a GAAP basis and $284.0 million of cash and cash equivalents at our share, and $1.1 billion of capacity under our credit facility.
• Net Debt / Adjusted EBITDA at our share for the three and nine months ended September 30, 2018 was 6.7x and 6.6x and our Net Debt / Total Enterprise Value was 30.8% as of September 30, 2018.

Financing and Investing Activities

• Drew $200.0 million under the Tranche A-2 Term Loan, in accordance with the delayed draw provisions of the credit facility. We also repaid all outstanding revolving credit facility balances.
• Repaid an aggregate of $88.6 million of mortgage debt comprising the $78.0 million loan on 7200 Wisconsin Avenue and a $10.6 million partial repayment on RTC - West in exchange for modified loan terms.
• Sold Executive Tower, an office building located in Washington, DC, for $121.4 million.
• Sold our 5.0% interest in the real estate venture that owned the Investment Building, an office building located in Washington, DC, for $24.6 million.
• Filed a universal shelf registration statement, which provides us with the ability to efficiently access the public equity markets.
• In July 2018, the buyer’s deposit related to the contract to sell Commerce Executive for $115.0 million became non-refundable. The sale is expected to close in early 2019.

Subsequent to September 30, 2018:

• Sold 1233 20th Street, an office building located in Washington, DC, for $65.0 million. In connection with the sale, we repaid the related $41.9 million mortgage loan.
• Sold the out-of-service portion of Falkland Chase - North, a multifamily building located in Downtown Silver Spring, Maryland, for $3.8 million.
• Including these sales and firm contracts, our aggregate disposition and recapitalization activity is $668 million for 2018, assuming those assets subject to firm contracts close.

Dividends

In May 2018 and August 2018, we paid dividends totaling $0.45 per common share. In November 2018, our Board of Trustees declared a dividend of $0.225 per common share, an indicated annual dividend of $0.90 per common share. The dividend is payable on November 26, 2018 to common shareholders of record as of November 13, 2018.

About JBG SMITH

JBG SMITH is an S&P 400 company that owns, operates, invests in and develops assets concentrated in leading urban infill submarkets in and around Washington, DC. Our mixed-use operating portfolio comprises approximately 19 million square feet of high-quality office, multifamily and retail assets, 98% at our share of which are Metro-served. With a focus on placemaking, we drive synergies across the portfolio and create amenity-rich, walkable neighborhoods. JBG SMITH’s future development pipeline includes 19.0 million square feet of potential development density at our share. For additional information on JBG SMITH, please visit www.jbgsmith.com.

Forward Looking Statements

Certain statements contained herein may constitute “forward-looking statements” as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Consequently, the future results of JBG SMITH Properties (“JBG SMITH” or the “Company”) may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximate”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “would”, “may” or similar expressions in this earnings release. We also note the following forward-looking statements: our anticipated dispositions, our indicated annual dividend per share and dividend yield, annualized net operating income; in the case of our construction and near-term development assets, estimated square feet, estimated number of units and in the case of our future development assets, estimated potential development density. 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. These factors include, among others: adverse economic conditions in the Washington, DC metropolitan area, the timing of and costs associated with development and property improvements, financing commitments, and general competitive factors. For further discussion of factors that could materially affect the outcome of our forward-looking statements and other risks and uncertainties, see “Risk Factors” and the Cautionary Statement Concerning Forward-Looking Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and other periodic reports the Company files with the Securities and Exchange Commission. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements. 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 after the date hereof.

Pro Rata Information

We present certain financial information and metrics in this release “at JBG SMITH Share,” which refers to our ownership percentage of consolidated and unconsolidated assets in real estate ventures (collectively, “real estate ventures”) as applied to these financial measures and metrics. Financial information “at JBG SMITH Share” is calculated on an asset-by-asset basis by applying our percentage economic interest to each applicable line item of that asset’s financial information. “At JBG SMITH Share” information, which we also refer to as being “at share,” “our pro rata share” or “our share,” is not, and is not intended to be, a presentation in accordance with GAAP. Given that a substantial portion of our assets are held through real estate ventures, we believe this form of presentation, which presents our economic interests in the partially owned entities, provides investors valuable information regarding a significant component of our portfolio, its composition, performance and capitalization.

We do not control the unconsolidated real estate ventures and do not have a legal claim to our co-venturers’ share of assets, liabilities, revenue and expenses. The operating agreements of the unconsolidated real estate ventures generally allow each co-venturer to receive cash distributions to the extent there is available cash from operations. The amount of cash each investor receives is based upon specific provisions of each operating agreement and varies depending on certain factors including the amount of capital contributed by each investor and whether any investors are entitled to preferential distributions.

With respect to any such third-party arrangement, we would not be in a position to exercise sole decision-making authority regarding the property, real estate venture or other entity, and may, under certain circumstances, be exposed to economic risks not present were a third-party not involved. We and our respective co-venturers may each have the right to trigger a buy-sell or forced sale arrangement, which could cause us to sell our interest, or acquire our co-venturers’ interests, or to sell the underlying asset, either on unfavorable terms or at a time when we otherwise would not have initiated such a transaction. Our real estate ventures may be subject to debt, and the repayment or refinancing of such debt may require equity capital calls. To the extent our co-venturers do not meet their obligations to us or our real estate ventures or they act inconsistent with the interests of the real estate venture, we may be adversely affected. Because of these limitations, the non-GAAP “at JBG SMITH Share” financial information should not be considered in isolation or as a substitute for our financial statements as reported under GAAP.

Non-GAAP Financial Measures

This release includes non-GAAP financial measures. For these measures, we have provided an explanation of how these non-GAAP measures are calculated and why JBG SMITH’s management believes that the presentation of these measures provides useful information to investors regarding JBG SMITH’s financial condition and results of operations. Reconciliations of certain non-GAAP measures to the most directly comparable GAAP financial measure are included in this earnings release. Our presentation of non-GAAP financial measures may not be comparable to similar non-GAAP measures used by other companies. In addition to "at share" financial information, the following non-GAAP measures are included in this release:

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), EBITDA for Real Estate ("EBITDAre") and Adjusted EBITDA

Management uses EBITDA and EBITDAre, non-GAAP financial measures, as supplemental operating performance measures and believes they help investors and lenders meaningfully evaluate and compare our operating performance from period-to-period by removing from our operating results the impact of our capital structure (primarily interest charges from our consolidated outstanding debt and the impact of our interest rate swaps) and certain non-cash expenses (primarily depreciation and amortization on our assets). EBITDAre is computed in accordance with the definition established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines EBITDAre as GAAP net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization expenses, gains on sales of depreciated real estate and impairment losses of depreciable real estate, including our share of such adjustments of unconsolidated real estate ventures. These supplemental measures may help investors and lenders understand our ability to incur and service debt and to make capital expenditures. EBITDA and EBITDAre are not substitutes for net income (loss) (computed in accordance with GAAP) and may not be comparable to similarly titled measures used by other companies.

“Adjusted EBITDA,” a non-GAAP financial measure, represents EBITDAre adjusted for items we believe are not representative of ongoing operating results, such as non-recurring transaction and other costs, gain (loss) on the extinguishment of debt, gain on sale of non-operating real estate, distributions in excess of our net investment in consolidated real estate ventures, gain on the bargain purchase of a business and share-based compensation expense related to the Formation Transaction. We believe that adjusting such items not considered part of our comparable operations, provides a meaningful measure to evaluate and compare our performance from period-to-period.

Because EBITDA, EBITDAre and Adjusted EBITDA have limitations as analytical tools, we use EBITDA, EBITDAre and Adjusted EBITDA to supplement GAAP financial measures. Additionally, we believe that users of these measures should consider EBITDA, EBITDAre and Adjusted EBITDA in conjunction with net income (loss) and other GAAP measures in understanding our operating results.

Funds from Operations ("FFO"), Core FFO and Funds Available for Distribution (“FAD")

FFO is a non-GAAP financial measure computed in accordance with the definition established by NAREIT. NAREIT defines FFO as “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of, or impairment charges related to, depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.”

"Core FFO" represents FFO adjusted to exclude items (net of tax) which we believe are not representative of ongoing operating results, such as transaction and other costs, gains (or losses) on extinguishment of debt, gain on the bargain purchase of a business, gain on sale of non-operating real estate, distributions in excess of our net investment in consolidated real estate ventures, share-based compensation expense related to the Formation Transaction, amortization of the management contracts intangible and the mark-to-market of interest rate swaps.

"FAD" is a non-GAAP financial measure and represents FFO less recurring tenant improvements, leasing commissions and other capital expenditures, net deferred rent activity, third-party lease liability assumption payments, recurring share-based compensation expense, accretion of acquired below-market leases, net of amortization of acquired above-market leases, amortization of debt issuance costs and other non-cash income and charges. FAD is presented solely as a supplemental disclosure that management believes provides useful information as it relates to our ability to fund dividends.

We believe FFO, Core FFO and FAD are meaningful non-GAAP financial measures useful in comparing our levered operating performance from period-to-period and as compared to similar real estate companies because these non-GAAP measures exclude real estate depreciation and amortization expense and other non-comparable income and expenses, which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. FFO, Core FFO and FAD do not represent cash generated from operating activities and are 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, Core FFO and FAD may not be comparable to similarly titled measures used by other companies.

Net Operating Income ("NOI") and Annualized NOI

“NOI” is a non-GAAP financial measure management uses to measure the operating performance of our assets and consists of property-related revenue (which includes base rent, tenant reimbursements and other operating revenue, net of free rent and payments associated with assumed lease liabilities) less operating expenses and ground rent, if applicable. 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 amortization of acquired above-market leases and below-market ground lease intangibles. Annualized NOI, for all assets except Crystal City Marriott, represents NOI for the three months ended September 30, 2018 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing twelve-month NOI as of September 30, 2018. Management believes Annualized NOI provides useful information in understanding JBG SMITH’s financial performance over a 12-month period, however, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized NOI. Actual NOI for any 12-month period will depend on a number of factors beyond our ability to control or predict, including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay rent by one or more of our tenants and the destruction of one or more of our assets due to terrorist attack, natural disaster or other casualty, among others. We do not undertake any obligation to update our calculation to reflect events or circumstances occurring after the date of this earnings release. There can be no assurance that the annualized NOI shown will reflect JBG SMITH’s actual results of operations over any 12-month period.

Management uses each of these measures as supplemental performance measures for its assets and believes they provide useful information to investors because they reflect 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.

However, because NOI excludes depreciation and amortization and captures neither the changes in the value of our assets that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our assets, all of which have real economic effect and could materially impact the financial performance of our assets, the utility of this measure of the operating performance of our assets is limited. Moreover, our method of calculating NOI may differ from other real estate companies and, accordingly, may not be comparable. NOI should be considered only as a supplement to net operating income (loss) (computed in accordance with GAAP) as a measure of the operating performance of our assets.

Same Store and Non-Same Store

“Same store” refers to the pool of assets that were in service for the entirety of both periods being compared, except for assets for which significant redevelopment, renovation, or repositioning occurred during either of the periods being compared. No JBG Assets are included in the same store pool.

“Non-same store” refers to all operating assets excluded from the same store pool.

Definitions

GAAP

"GAAP" refers to accounting principles generally accepted in the United States of America.

Formation Transaction

"Formation Transaction" refers collectively to the spin-off on July 17, 2017 of substantially all of the assets and liabilities of Vornado’s Washington, DC segment, which operated as Vornado / Charles E. Smith, and the acquisition of the management business and certain assets and liabilities of The JBG Companies.

JBG Assets

"JBG Assets" refers to the management business and certain assets and liabilities of The JBG Companies acquired on July 18, 2017 by JBG SMITH.

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JBG SMITH
Jaime Marcus, 240-333-3643
SVP, Investor Relations
jmarcus@jbgsmith.com

Source: JBG SMITH