JBG SMITH Announces First Quarter 2019 Results

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 March 31, 2019 and reported its financial results.

Additional information regarding our results of operations, properties and tenants can be found in our First Quarter 2019 Investor Package, which is posted in the Investor Relations section of our website at www.jbgsmith.com.

First Quarter 2019 Financial Results

• Net income attributable to common shareholders was $24.9 million, or $0.20 per diluted share.
• Funds From Operations (“FFO”) attributable to common shareholders was $35.1 million, or $0.28 per diluted share.
• Core Funds From Operations (“Core FFO”) attributable to common shareholders was $44.2 million, or $0.36 per diluted share.

Operating Portfolio Highlights

• Annualized Net Operating Income (“NOI”) for the three months ended March 31, 2019 was $321.6 million, compared to $341.8 million for the three months ended December 31, 2018, at our share. The decrease in NOI is primarily attributable to lost income from disposed assets and increased rental abatements.
• The operating commercial portfolio was 90.2% leased and 85.6% occupied as of March 31, 2019, compared to 89.6% and 85.5% as of December 31, 2018, at our share.
• The operating multifamily portfolio was 97.0% leased and 94.8% occupied as of March 31, 2019, compared to 95.7% and 93.9% as of December 31, 2018, at our share.
• Executed approximately 785,000 square feet of office leases at our share in the first quarter, comprising approximately 555,000 square feet of new leases, and approximately 230,000 square feet of second generation leases, which generated a 3.9% rental rate decrease on a GAAP basis and a 6.8% rental rate decrease on a cash basis. The new leases primarily resulted from Amazon.com, Inc. ("Amazon") executing three initial leases during the quarter totaling 537,000 square feet at three of our existing office buildings in National Landing. The leases encompass approximately 88,000 square feet at 241 18th Street South, approximately 191,000 square feet at 1800 South Bell Street, and approximately 258,000 square feet at 1770 Crystal Drive. We expect Amazon to begin moving into 241 18th Street South and 1800 South Bell in 2019 and 1770 Crystal Drive by the end of 2020. Also, in April 2019, we executed an agreement with Amazon to lease an additional approximately 48,000 square feet of office space at 2345 Crystal Drive in National Landing in conjunction with the creation of Amazon's additional headquarters.
• Same Store Net Operating Income (“SSNOI”) decreased 10.1% to $73.6 million for the three months ended March 31, 2019, compared to $81.9 million for the three months ended March 31, 2018. The decrease in SSNOI for the three months ended March 31, 2019 is largely attributable to rental abatements and lower base rent. The reported same store pool as of March 31, 2019 includes only the assets that were in service for the entirety of both periods being compared.

Development Portfolio Highlights

Under Construction

• During the quarter ended March 31, 2019, there were nine assets under construction (five commercial assets and four multifamily assets), consisting of 926,530 square feet and 1,298 units, both at our share.

Near-Term Development

• As of March 31, 2019, there were no assets in near-term development.

Future Development Pipeline

• As of March 31, 2019, there were 40 future development assets consisting of 18.7 million square feet of estimated potential density at our share, including the 4.1 million square feet held for sale to Amazon.

Third-Party Asset Management and Real Estate Services Business

• For the three months ended March 31, 2019, revenue from third-party real estate services, including reimbursements, was $27.7 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 $13.8 million, of which $5.1 million came from property management fees, $3.4 million came from asset management fees, $2.2 million came from leasing fees, $1.6 million came from development fees, $0.6 million came from construction management fees and $0.8 million came from other service revenue.
• The general and administrative expenses allocated to the third-party asset management and real estate services business were $12.5 million for the three months ended March 31, 2019.

Balance Sheet

• We had $2.1 billion of debt ($2.4 billion including our share of debt of unconsolidated real estate ventures) as of March 31, 2019. Of the $2.4 billion of debt at our share, approximately 68% was fixed-rate, and rate caps were in place for approximately 2%.
• The weighted average interest rate of our debt at share was 4.28% as of March 31, 2019.
• At March 31, 2019, our total enterprise value was approximately $7.7 billion, comprising 137.8 million common shares and units valued at $5.7 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.4 billion, less cash and cash equivalents at our share of $405.6 million.
• As of March 31, 2019, we had $395.6 million of cash and cash equivalents on a GAAP basis and $405.6 million of cash and cash equivalents at our share, and $1.1 billion of capacity under our credit facility.
• Net Debt to Annualized Adjusted EBITDA at our share for the three months ended March 31, 2019 was 7.1x and our Net Debt / Total Enterprise Value was 26.3% as of March 31, 2019. Pro forma Net Debt to Annualized Adjusted EBITDA at our share would have been 5.4x for the three months ended March 31, 2019, including the $472.3 million of net proceeds from the underwritten public offering completed in April 2019.

Financing and Investing Activities

• Sold Commerce Executive/Commerce Metro Land, an operating commercial/future development asset located in Reston, Virginia, for $115.0 million. The sale also included approximately 894,000 square feet of estimated potential development density.
• Executed purchase and sale agreements with Amazon for two of our National Landing Future Development assets, Pen Place and Mets 6, 7 and 8, which will serve as the initial phase of new construction associated with Amazon's additional headquarters. Subject to customary closing conditions, Amazon is expected to pay $293.9 million for the sites, or $72.00 per square foot based on their combined estimated potential development density of up to approximately 4.1 million square feet. We expect to close on the Mets land sale as early as 2019 and on Pen Place as early as 2020.
• Executed a contract to purchase a stabilized multifamily asset located in Washington, DC, which we intend to use as a replacement property in a 1031 like-kind exchange for the expected proceeds from the sale of the Mets 6, 7 and 8 land parcels to Amazon.
• Redeemed 1.7 million common limited partnership units ("OP Units") for an equivalent number of our common shares.

Subsequent to March 31, 2019:

• Closed an underwritten public offering of 11.5 million common shares (including 1.5 million common shares related to the exercise of the underwriters' option to cover overallotments) at $42.00 per share, which generated net proceeds, after deducting the underwriting discounts and commissions and other estimated offering expenses, of approximately $472.3 million. We intend to use the net proceeds to fund development opportunities and for general corporate purposes.
• Repaid mortgage debt totaling approximately $293.6 million at The Bartlett and Fort Totten Square.

Dividends

In May 2019, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on May 24, 2019 to shareholders of record on May 13, 2019.

About JBG SMITH

JBG SMITH is an S&P 400 company that owns, operates, invests in and develops a dynamic portfolio of high-quality mixed-use properties in and around Washington, DC. Through an intense focus on placemaking, JBG SMITH cultivates vibrant, amenity-rich, walkable neighborhoods throughout the Capital region, including National Landing where it now serves as the exclusive developer for Amazon’s new headquarters. JBG SMITH’s operating portfolio currently comprises approximately 18 million square feet of high-quality office, multifamily and retail assets, 98% at our share of which are Metro-served. It also maintains a robust future pipeline encompassing approximately 18.7 million square feet of mixed-use development opportunities. For more 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”, "hypothetical", "potential", “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. Expected key Amazon transaction terms and timeframes for closing, planned infrastructure improvements related to Amazon's additional headquarters; the economic impacts of Amazon's additional headquarters on the DC region and National Landing; our development plans related to Amazon's additional headquarters; the expected accretion to our net asset value ("NAV") as a result of the Amazon transaction and our future NAV growth rate; in the case of our Amazon lease transaction and our new development opportunities in National Landing, the total square feet to be leased to Amazon and the expected net effective rent, estimated square feet, estimated number of units, the estimated construction start and occupancy dates, estimated incremental investment, targeted NOI yield; and in the case of our future development opportunities, 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, 2018 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 real estate and impairment losses of 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 transaction and other costs, gain (loss) on the extinguishment of debt, distributions in excess of our investment in consolidated real estate ventures, gain on the bargain purchase of a business, lease liability adjustments and share-based compensation expense related to the Formation Transaction and special equity awards. 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 in the NAREIT FFO White Paper - 2018 Restatement issued in 2018. NAREIT defines FFO as “net income (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity."

"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, distributions in excess of our investment in consolidated real estate ventures, share-based compensation expense related to the Formation Transaction and special equity awards, lease liability adjustments, amortization of the management contracts intangible and the mark-to-market of derivative instruments.

"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 March 31, 2019 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing twelve-month NOI as of March 31, 2019. 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.

“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.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
in thousands				March 31, 2019					December 31, 2018
ASSETS
Real estate, at cost:
Land and improvements				$	1,227,255				$	1,371,874
Buildings and improvements				3,717,906					3,722,930
Construction in progress, including land				751,730					697,930
				5,696,891					5,792,734
Less accumulated depreciation				(1,075,309		)			(1,051,875		)
Real estate, net				4,621,582					4,740,859
Cash and cash equivalents				395,584					260,553
Restricted cash				17,877					138,979
Tenant and other receivables, net				49,979					46,568
Deferred rent receivable, net				152,323					143,473
Investments in and advances to unconsolidated real estate ventures				321,366					322,878
Other assets, net				297,525					264,994
Assets held for sale				168,458					78,981
TOTAL ASSETS				$	6,024,694				$	5,997,285
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgages payable, net				$	1,835,842				$	1,838,381
Unsecured term loans, net				297,277					297,129
Accounts payable and accrued expenses				134,776					130,960
Other liabilities, net				174,434					181,606
Liabilities related to assets held for sale				486					3,717
Total liabilities				2,442,815					2,451,793
Commitments and contingencies
Redeemable noncontrolling interests				584,763					558,140
Total equity				2,997,116					2,987,352
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY				$	6,024,694				$	5,997,285

_______________

Note: For complete financial statements, please refer to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
in thousands, except per share data				Three Months Ended March 31,
				2019					2018
REVENUE
Property rentals				$	119,413				$	131,228
Third-party real estate services, including reimbursements				27,691					24,330
Other income				8,095					7,479
Total revenue				155,199					163,037
EXPENSES
Depreciation and amortization				48,719					49,160
Property operating				32,174					35,158
Real estate taxes				17,235					19,610
General and administrative:
Corporate and other				12,314					8,414
Third-party real estate services				28,066					22,609
Share-based compensation related to Formation Transaction and special equity awards				11,131					9,428
Transaction and other costs				4,895					4,221
Total expenses				154,534					148,600
OTHER INCOME (EXPENSE)
Income (loss) from unconsolidated real estate ventures, net				3,601					(1,902		)
Interest and other income, net				951					573
Interest expense				(17,174		)			(19,257		)
Gain on sale of real estate				39,033					455
Total other income (expense)				26,411					(20,131		)
INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE)				27,076					(5,694		)
Income tax benefit				1,172					908
NET INCOME (LOSS)				28,248					(4,786		)
Net (income) loss attributable to redeemable noncontrolling interests				(3,387		)			594
Net loss attributable to noncontrolling interests				—					2
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS				$	24,861				$	(4,190	)
EARNINGS (LOSS) PER COMMON SHARE:
Basic				$	0.20				$	(0.04	)
Diluted				$	0.20				$	(0.04	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING :
Basic				122,573					117,955
Diluted				123,423					117,955

___________________

Note: For complete financial statements, please refer to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

EBITDA, EBITDAre AND ADJUSTED EBITDA (NON-GAAP)
(Unaudited)
dollars in thousands				Three Months Ended March 31,
				2019					2018
EBITDA, EBITDAre and Adjusted EBITDA
Net income (loss)				$	28,248				$	(4,786	)
Depreciation and amortization expense				48,719					49,160
Interest expense (1)				17,174					19,257
Income tax benefit				(1,172		)			(908		)
Unconsolidated real estate ventures allocated share of above adjustments				7,806					10,175
Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures				(1		)			—
EBITDA (2)				$	100,774				$	72,898
Gain on sale of real estate				(39,033		)			(455		)
EBITDAre (2)				$	61,741				$	72,443
Transaction and other costs (3)				4,895					4,221
Share-based compensation related to Formation Transaction and special equity awards				11,131					9,428
Net distributions in excess of our investment in unconsolidated real estate venture (4)				(6,441		)			—
Unconsolidated real estate ventures allocated share of above adjustments				—					30
Adjusted EBITDA (2)				$	71,326				$	86,122
Net Debt to Annualized Adjusted EBITDA (5)				7.1x					6.9x
				March 31, 2019					March 31, 2018
Net Debt (at JBG SMITH Share)
Consolidated indebtedness (6)				$	2,128,803				$	2,185,461
Unconsolidated indebtedness (6)				303,397					419,476
Total consolidated and unconsolidated indebtedness				2,432,200					2,604,937
Less: cash and cash equivalents				405,646					238,519
Net Debt (at JBG SMITH Share)				$	2,026,554				$	2,366,418

____________________
Note: EBITDAre for the three months ended March 31, 2018 was restated in compliance with the definition established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement issued in 2018.
(1)			Interest expense includes the amortization of deferred financing costs and the ineffective portion of any interest rate swaps or caps, net of capitalized interest.
(2)			Due to our adoption of the new accounting standard for leases, beginning in 2019, we no longer capitalize internal leasing costs and expense these costs as incurred (such costs were $1.3 million for the three months ended March 31, 2018).
(3)			Includes fees and expenses incurred in connection with the Formation Transaction (including transition services provided by our former parent, integration costs and severance costs), demolition costs and costs related to other completed, potential and pursued transactions.
(4)			As of June 30, 2018, we suspended the equity method of accounting for our investment in the real estate venture that owns 1101 17th Street as our investment had been reduced to zero and we did not have an obligation to provide further financial support to the venture. All subsequent net distributions from the venture have been recognized as income, which will continue until our share of unrecorded earnings and contributions exceed the cumulative excess distributions previously recognized.
(5)			Pro forma Net Debt to Annualized Adjusted EBITDA would have been 5.4x for the three months ended March 31, 2019, including the $472.3 million of net proceeds from the underwritten public offering completed in April 2019.
(6)			Net of premium/discount and deferred financing costs.

FFO, CORE FFO AND FAD (NON-GAAP)
(Unaudited)
in thousands, except per share data				Three Months Ended March 31,
				2019					2018
FFO and Core FFO
Net income (loss) attributable to common shareholders				$	24,861				$	(4,190	)
Net income (loss) attributable to redeemable noncontrolling interests				3,387					(594		)
Net loss attributable to noncontrolling interests				—					(2		)
Net income (loss)				28,248					(4,786		)
Gain on sale of real estate				(39,033		)			(455		)
Real estate depreciation and amortization				46,035					46,639
Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures				4,653					6,436
Net (income) loss attributable to noncontrolling interests in consolidated real estate ventures				(1		)			2
FFO Attributable to Operating Partnership Common Units (1)				$	39,902				$	47,836
FFO attributable to redeemable noncontrolling interests				(4,783		)			(7,127		)
FFO attributable to common shareholders (1)				$	35,119				$	40,709
FFO attributable to the operating partnership common units				$	39,902				$	47,836
Transaction and other costs, net of tax (2)				4,626					4,136
Mark-to-market on derivative instruments				(476		)			(1,119		)
Share of gain from mark-to-market on derivative instruments held by unconsolidated real estate ventures				227					(342		)
Net distributions in excess of our investment in unconsolidated real estate venture (3)				(6,441		)			—
Share-based compensation related to Formation Transaction and special equity awards				11,131					9,428
Amortization of management contracts intangible, net of tax				1,287					1,286
Core FFO Attributable to Operating Partnership Common Units (1)				$	50,256				$	61,225
Core FFO attributable to redeemable noncontrolling interests				(6,024		)			(9,037		)
Core FFO attributable to common shareholders (1)				$	44,232				$	52,188
FFO per diluted common share				$	0.28				$	0.35
Core FFO per diluted common share				$	0.36				$	0.44
Weighted average diluted shares				123,423					117,955

See footnotes under the following table.

FFO, CORE FFO AND FAD (NON-GAAP)
(Unaudited)
in thousands, except per share data				Three Months Ended March 31,
				2019					2018
FAD
Core FFO attributable to the operating partnership common units				$	50,256				$	61,225
Recurring capital expenditures and second generation tenant improvements and leasing commissions				(22,297		)			(6,097		)
Straight-line and other rent adjustments (4)				(6,808		)			(1,075		)
Share of straight-line rent from unconsolidated real estate ventures				(135		)			159
Third-party lease liability assumption payments				(1,136		)			(472		)
Share of third party lease liability assumption payments for unconsolidated real estate ventures				—					(50		)
Share-based compensation expense				5,330					4,276
Amortization of debt issuance costs				970					1,164
Share of amortization of debt issuance costs from unconsolidated real estate ventures				48					69
Non-real estate depreciation and amortization				912					749
FAD available to the Operating Partnership Common Units (A) (5)				$	27,140				$	59,948
Distributions to common shareholders and unitholders (6) (B)				$	31,284				$	31,423
FAD Payout Ratio (B÷A) (7)				115.3		%			52.4		%

Capital Expenditures
Maintenance and recurring capital expenditures				$	5,495				$	2,683
Share of maintenance and recurring capital expenditures from unconsolidated real estate ventures				88					1,149
Second generation tenant improvements and leasing commissions				16,155					1,893
Share of second generation tenant improvements and leasing commissions from unconsolidated real estate ventures				559					372
Recurring capital expenditures and second generation tenant improvements and leasing commissions				22,297					6,097
First generation tenant improvements and leasing commissions				6,197					4,185
Share of first generation tenant improvements and leasing commissions from unconsolidated real estate ventures				233					995
Non-recurring capital expenditures				6,722					3,366
Share of non-recurring capital expenditures from unconsolidated joint ventures				—					620
Non-recurring capital expenditures				13,152					9,166
Total JBG SMITH Share of Capital Expenditures				$	35,449				$	15,263

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Note: FFO attributable to operating partnership common units and FFO attributable to common shareholders for the three months ended March 31, 2018 were restated in compliance with the definition established by NAREIT in the NAREIT FFO White Paper - 2018 Restatement issued in 2018.
(1)			Due to our adoption of the new accounting standard for leases, beginning in 2019, we no longer capitalize internal leasing costs and expense these costs as incurred (such costs were $1.3 million for the three months ended March 31, 2018).
(2)			Includes fees and expenses incurred in connection with the Formation Transaction (including transition services provided by our former parent, integration costs, and severance costs), demolition costs and costs related to other completed, potential and pursued transactions.
(3)			As of June 30, 2018, we suspended the equity method of accounting for our investment in the real estate venture that owns 1101 17th Street as our investment had been reduced to zero and we did not have an obligation to provide further financial support to the venture. All subsequent net distributions from the venture have been recognized as income, which will continue until our share of unrecorded earnings and contributions exceed the cumulative excess distributions previously recognized.
(4)			Includes straight-line rent, above/below market lease amortization and lease incentive amortization.
(5)			The decline in FAD available to the Operating Partnership Common Units was attributable to a significant increase in second generation tenant improvements and leasing commissions from the early renewal of several leases during the quarter.
(6)			The distribution for the three months ended March 31, 2019 excludes a special dividend of $0.10 per common share that was paid in January 2019.
(7)			The FAD payout ratio on a quarterly basis is not necessarily indicative of an amount for the full year due to fluctuation in timing of capital expenditures, the commencement of new leases and the seasonality of our operations.

NOI RECONCILIATIONS (NON-GAAP)
(Unaudited)
dollars in thousands				Three Months Ended March 31,
				2019					2018
Net income (loss) attributable to common shareholders				$	24,861				$	(4,190	)
Add:
Depreciation and amortization expense				48,719					49,160
General and administrative expense:
Corporate and other				12,314					8,414
Third-party real estate services				28,066					22,609
Share-based compensation related to Formation Transaction and special equity awards				11,131					9,428
Transaction and other costs				4,895					4,221
Interest expense				17,174					19,257
Income tax benefit				(1,172		)			(908		)
Net income (loss) attributable to redeemable noncontrolling interests				3,387					(594		)
Less:
Third-party real estate services, including reimbursements				27,691					24,330
Other income (excluding parking income of $6,455 and $6,363 in 2019 and 2018)				1,640					1,116
Income (loss) from unconsolidated real estate ventures, net				3,601					(1,902		)
Interest and other income, net				951					573
Gain on sale of real estate				39,033					455
Net loss attributable to noncontrolling interests				—					2
Consolidated NOI				76,459					82,823
Proportionate NOI attributable to unconsolidated real estate ventures				5,386					9,207
Non-cash rent adjustments (1)				(6,808		)			(1,096		)
Other adjustments (2)				3,353					4,252
Total adjustments				1,931					12,363
NOI				$	78,390				$	95,186
Less: out-of-service NOI loss (3)				(1,271		)			(834		)
Operating portfolio NOI				$	79,661				$	96,020
Non-same store NOI (4)				6,088					14,147
Same store NOI (5)				$	73,573				$	81,873
Growth in same store NOI				(10.1		)%
Number of properties in same store pool				56

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(1)			Adjustment to exclude straight-line rent, above/below market lease amortization and lease incentive amortization.
(2)			Adjustment to include other income and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue.
(3)			Includes the results for our Under Construction assets and Future Development Pipeline.
(4)			Includes the results for properties that were not owned, operated and in service for the entirety of both periods being compared and properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared. The decrease in non-same store NOI is primarily attributable to lost income from disposed assets.
(5)			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.

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