JBG SMITH Announces Second 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 June 30, 2019 and reported its financial results.

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

Second Quarter 2019 Financial Results

• Net loss attributable to common shareholders was $3.0 million, or $0.03 per diluted share.
• Funds From Operations (“FFO”) attributable to common shareholders was $39.4 million, or $0.30 per diluted share.
• Core Funds From Operations (“Core FFO”) attributable to common shareholders was $54.5 million, or $0.41 per diluted share.

Six Months Ended June 30, 2019 Financial Results

• Net income attributable to common shareholders was $21.8 million, or $0.16 per diluted share.
• FFO attributable to common shareholders was $74.6 million, or $0.59 per diluted share.
• Core FFO attributable to common shareholders was $98.7 million, or $0.78 per diluted share.

Operating Portfolio Highlights

• Annualized Net Operating Income (“NOI”) for the three months ended June 30, 2019 was $322.0 million, compared to $321.6 million for the three months ended March 31, 2019, at our share.
• The operating commercial portfolio was 90.3% leased and 86.0% occupied as of June 30, 2019, compared to 90.2% and 85.6% as of March 31, 2019, at our share.
• The operating multifamily portfolio was 98.0% leased and 95.0% occupied as of June 30, 2019, compared to 97.0% and 94.8% as of March 31, 2019, at our share.
• Executed approximately 395,000 square feet of office leases at our share in the second quarter, comprising approximately 120,000 square feet of new leases and approximately 275,000 square feet of second generation leases, which generated a 14.9% rental rate increase on a GAAP basis and a 6.0% rental rate increase on a cash basis.
• Executed approximately 1.2 million square feet of commercial leases at our share during the six months ended June 30, 2019, comprising approximately 676,000 square feet of new leases and approximately 504,000 square feet of second generation leases, which generated a 5.1% rental rate increase on a GAAP basis and a 0.3% rental rate decrease on a cash basis. The new leases include three initial leases entered into with Amazon.com, Inc. ("Amazon") during the first quarter totaling 537,000 square feet at three of our existing office buildings in National Landing in conjunction with the creation of Amazon's additional headquarters. 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 , which it began moving into in the second quarter.
• Same Store Net Operating Income (“SSNOI”) at our share decreased 9.2% to $74.0 million for the three months ended June 30, 2019, compared to $81.5 million for the three months ended June 30, 2018. SSNOI decreased 9.7% to $147.0 million for the six months ended June 30, 2019, compared to $162.9 million for the six months ended June 30, 2018. The decrease in SSNOI for the three months ended June 30, 2019 is largely attributable to increased rental abatements, lower NOI at Crystal City Marriott, as a result of the ongoing room renovations, and an increase in assumed lease liability payments. The reported same store pools as of June 30, 2019 include only the assets that were in service for the entirety of both periods being compared.

Development Portfolio Highlights

Under Construction

• During the quarter ended June 30, 2019, there were eight assets under construction (four commercial assets and four multifamily assets), consisting of 821,099 square feet and 1,298 units, both at our share.

Near-Term Development

• As of June 30, 2019, there were no assets in near-term development.

Future Development Pipeline

• As of June 30, 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 June 30, 2019, revenue from third-party real estate services, including reimbursements, was $29.5 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 $14.6 million, of which $5.4 million came from property management fees, $3.5 million came from asset management fees, $1.1 million came from leasing fees, $2.5 million came from development fees, $0.5 million came from construction management fees and $1.6 million came from other service revenue.

Balance Sheet

• We had $1.7 billion of debt ($2.0 billion including our share of debt of unconsolidated real estate ventures) as of June 30, 2019. Of the $2.0 billion of debt at our share, approximately 88% was fixed-rate and rate caps were in place for approximately 67% of our floating rate debt.
• The weighted average interest rate of our debt at share was 4.27% as of June 30, 2019.
• At June 30, 2019, our total enterprise value was approximately $7.6 billion, comprising 149.3 million common shares and units valued at $5.9 billion and debt (net of premium / (discount) and deferred financing costs) at our share of $2.0 billion, less cash and cash equivalents at our share of $289.6 million.
• As of June 30, 2019, we had $280.3 million of cash and cash equivalents on a GAAP basis ($289.6 million of cash and cash equivalents at our share), $1.1 billion of capacity under our credit facility, and an unencumbered multifamily borrowing base of $750.0 million, including our Under Construction multifamily assets.
• Net Debt to Annualized Adjusted EBITDA at our share for the three and six months ended June 30, 2019 was 5.2x and 5.5x and our Net Debt / Total Enterprise Value was 22.2% as of June 30, 2019. Net Debt to Annualized Adjusted EBITDA for the three and six months ended June 30, 2019 includes the $472.8 million of net proceeds from the underwritten public offering completed in April 2019.

Financing and Investing Activities

• 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 offering expenses, of $472.8 million. We intend to use the net proceeds to fund development opportunities and for general corporate purposes.
• Repaid mortgage debt totaling approximately $475.1 million.
• Amended our credit facility to extend the delayed draw period of our Tranche A-1 Term Loan to July 2020 and reduce the interest rate of the Tranche A-2 Term Loan 40 basis points to LIBOR plus 1.15% effective as of July 17, 2019.

Subsequent to June 30, 2019:

• Closed on the sale of 1600 K Street, an 83,000 square foot commercial asset located in Washington DC, for $43.0 million.

Dividends

In August 2019, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on August 26, 2019 to shareholders of record on August 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 portfolio currently comprises 20.6 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 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”, the “Company”, "we", "us", "our" or similar terms) 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, projected 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.

We are reiterating the assumptions in our estimated NOI bridge and the potential estimated NAV impact from Amazon in National Landing, which can be found in our Spring 2019 Investor Day presentation on our website at http://investors.jbgsmith.com/presentations.

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 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 unconsolidated 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 unconsolidated 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 June 30, 2019 multiplied by four. Due to seasonality in the hospitality business, annualized NOI for Crystal City Marriott represents the trailing 12-month NOI as of June 30, 2019. Management believes Annualized NOI provides useful information in understanding our 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 our 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 NOI as a 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		June 30, 2019				December 31, 2018
ASSETS
Real estate, at cost:
Land and improvements		$	1,227,558			$	1,371,874
Buildings and improvements		3,717,356				3,722,930
Construction in progress, including land		859,717				697,930
		5,804,631				5,792,734
Less accumulated depreciation		(1,093,665		)		(1,051,875		)
Real estate, net		4,710,966				4,740,859
Cash and cash equivalents		280,349				260,553
Restricted cash		16,429				138,979
Tenant and other receivables, net		51,787				46,568
Deferred rent receivable, net		162,641				143,473
Investments in unconsolidated real estate ventures		319,756				322,878
Other assets, net		296,916				264,994
Assets held for sale		168,431				78,981
TOTAL ASSETS		$	6,007,275			$	5,997,285
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgages payable, net		$	1,360,467			$	1,838,381
Unsecured term loans, net		296,952				297,129
Accounts payable and accrued expenses		140,132				130,960
Other liabilities, net		192,638				181,606
Liabilities related to assets held for sale		—				3,717
Total liabilities		1,990,189				2,451,793
Commitments and contingencies
Redeemable noncontrolling interests		574,228				558,140
Total equity		3,442,858				2,987,352
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY		$	6,007,275			$	5,997,285

_______________

Note: For complete financial statements, please refer to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
in thousands, except per share data		Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
REVENUE
Property rentals		$	122,326			$	126,591			$	241,739			$	257,819
Third-party real estate services, including reimbursements		29,487				24,160				57,178				48,490
Other income		8,804				8,696				16,899				16,175
Total revenue		160,617				159,447				315,816				322,484
EXPENSES
Depreciation and amortization		45,995				48,117				94,714				97,277
Property operating		32,113				34,464				64,287				69,622
Real estate taxes		18,266				17,509				35,501				37,119
General and administrative:
Corporate and other		11,559				8,603				23,873				17,017
Third-party real estate services		28,710				21,189				56,776				43,798
Share-based compensation related to Formation Transaction and special equity awards		9,523				9,097				20,654				18,525
Transaction and other costs		2,974				3,787				7,869				8,008
Total expenses		149,140				142,766				303,674				291,366
OTHER INCOME (EXPENSE)
Income (loss) from unconsolidated real estate ventures, net		(1,810		)		3,836				1,791				1,934
Interest and other income, net		2,052				513				3,003				1,086
Interest expense		(13,107		)		(18,027		)		(30,281		)		(37,284		)
Gain on sale of real estate		—				33,396				39,033				33,851
Loss on extinguishment of debt		(1,889		)		(4,457		)		(1,889		)		(4,457		)
Reduction of gain on bargain purchase		—				(7,606		)		—				(7,606		)
Total other income (expense)		(14,754		)		7,655				11,657				(12,476		)
INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT		(3,277		)		24,336				23,799				18,642
Income tax (expense) benefit		(51		)		(313		)		1,121				595
NET INCOME (LOSS)		(3,328		)		24,023				24,920				19,237
Net (income) loss attributable to redeemable noncontrolling interests		288				(3,574		)		(3,099		)		(2,980		)
Net loss attributable to noncontrolling interests		—				125				—				127
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(3,040	)		$	20,574			$	21,821			$	16,384
EARNINGS (LOSS) PER COMMON SHARE:
Basic		$	(0.03	)		$	0.17			$	0.16			$	0.14
Diluted		$	(0.03	)		$	0.17			$	0.16			$	0.14
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING :
Basic		131,754				117,955				127,189				117,955
Diluted		131,754				117,955				127,189				117,955

___________________

Note: For complete financial statements, please refer to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

EBITDA, EBITDAre AND ADJUSTED EBITDA (NON-GAAP)
(Unaudited)
dollars in thousands		Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
EBITDA, EBITDAre and Adjusted EBITDA
Net income (loss)		$	(3,328	)		$	24,023			$	24,920			$	19,237
Depreciation and amortization expense		45,995				48,117				94,714				97,277
Interest expense (1)		13,107				18,027				30,281				37,284
Income tax (expense) benefit		51				313				(1,121		)		(595		)
Unconsolidated real estate ventures allocated share of above adjustments		10,357				10,602				18,163				20,777
Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures		(4		)		129				(5		)		129
EBITDA (2)		$	66,178			$	101,211			$	166,952			$	174,109
Gain on sale of real estate		—				(33,396		)		(39,033		)		(33,851		)
Gain on sale of unconsolidated real estate assets		(335		)		—				(335		)		—
EBITDAre (2)		$	65,843			$	67,815			$	127,584			$	140,258
Transaction and other costs (3)		2,974				3,787				7,869				8,008
Loss on extinguishment of debt		1,889				4,457				1,889				4,457
Reduction of gain on bargain purchase		—				7,606				—				7,606
Share-based compensation related to Formation Transaction and special equity awards		9,523				9,097				20,654				18,525
Earnings (losses) and distributions in excess of our investment in unconsolidated real estate venture (4)		(232		)		(5,412		)		(6,673		)		(5,412		)
Unconsolidated real estate ventures allocated share of above adjustments		—				—				—				30
Allocated share of above adjustments to noncontrolling interests in consolidated real estate ventures		—				(124		)		—				(124		)
Adjusted EBITDA (2)		$	79,997			$	87,226			$	151,323			$	173,348
Net Debt to Annualized Adjusted EBITDA (5)		5.2x				6.3x				5.5x				6.3x
		June 30, 2019				June 30, 2018
Net Debt (at JBG SMITH Share)
Consolidated indebtedness (6)		$	1,653,538			$	2,033,183
Unconsolidated indebtedness (6)		312,686				440,177
Total consolidated and unconsolidated indebtedness		1,966,224				2,473,360
Less: cash and cash equivalents		289,554				276,629
Net Debt (at JBG SMITH Share)		$	1,676,670			$	2,196,731

____________________
Note: All EBITDA measures as shown above are attributable to operating partnership common units. EBITDAre for the six months ended June 30, 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 $1.5 million and $2.8 million for the three and six months ended June 30, 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 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)		Net Debt to Annualized Adjusted EBITDA for the three and six months ended June 30, 2019 includes $472.8 million of net proceeds from the underwritten public offering completed in April 2019. Adjusted EBITDA for the three months ended June 30, 2019 and 2018 is annualized by multiplying by four. Adjusted EBITDA for the six months ended June 30, 2019 and 2018 is annualized by multiplying by two.
(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 June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
FFO and Core FFO
Net income (loss) attributable to common shareholders		$	(3,040	)		$	20,574			$	21,821			$	16,384
Net income (loss) attributable to redeemable noncontrolling interests		(288		)		3,574				3,099				2,980
Net loss attributable to noncontrolling interests		—				(125		)		—				(127		)
Net income (loss)		(3,328		)		24,023				24,920				19,237
Gain on sale of real estate		—				(33,396		)		(39,033		)		(33,851		)
Gain on sale of unconsolidated real estate assets		(335		)		—				(335		)		—
Real estate depreciation and amortization		43,308				45,587				89,343				92,226
Pro rata share of real estate depreciation and amortization from unconsolidated real estate ventures		4,804				6,179				9,457				12,615
Net (income) loss attributable to noncontrolling interests in consolidated real estate ventures		(4		)		129				(5		)		131
FFO Attributable to Operating Partnership Common Units (1)		$	44,445			$	42,522			$	84,347			$	90,358
FFO attributable to redeemable noncontrolling interests		(5,014		)		(6,299		)		(9,797		)		(13,426		)
FFO attributable to common shareholders (1)		$	39,431			$	36,223			$	74,550			$	76,932
FFO attributable to the operating partnership common units		$	44,445			$	42,522			$	84,347			$	90,358
Transaction and other costs, net of tax (2)		2,847				3,394				7,473				7,530
(Gain) loss from mark-to-market on derivative instruments		524				(432		)		48				(1,551		)
Share of (gain) loss from mark-to-market on derivative instruments held by unconsolidated real estate ventures		1,153				(90		)		1,380				(432		)
Loss on extinguishment of debt, net of noncontrolling interests		1,889				4,333				1,889				4,333
Earnings (losses) and distributions in excess of our investment in unconsolidated real estate venture (3)		(232		)		(5,412		)		(6,673		)		(5,412		)
Reduction of gain on bargain purchase		—				7,606				—				7,606
Share-based compensation related to Formation Transaction and special equity awards		9,523				9,097				20,654				18,525
Amortization of management contracts intangible, net of tax		1,288				1,287				2,575				2,573
Core FFO Attributable to Operating Partnership Common Units (1)		$	61,437			$	62,305			$	111,693			$	123,530
Core FFO attributable to redeemable noncontrolling interests		(6,931		)		(9,229		)		(12,955		)		(18,266		)
Core FFO attributable to common shareholders (1)		$	54,506			$	53,076			$	98,738			$	105,264
FFO per diluted common share		$	0.30			$	0.31			$	0.59			$	0.65
Core FFO per diluted common share		$	0.41			$	0.45			$	0.78			$	0.89
Weighted average diluted shares		131,754				117,955				127,189				117,955
_______________
See footnotes under prior table.

FFO, CORE FFO AND FAD (NON-GAAP)
(Unaudited)
in thousands, except per share data		Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
FAD
Core FFO attributable to the operating partnership common units		$	61,437			$	62,305			$	111,693			$	123,530
Recurring capital expenditures and second generation tenant improvements and leasing commissions			(20,076	)			(11,057	)			(42,373	)			(17,154	)
Straight-line and other rent adjustments (4)			(8,739	)			(1,216	)			(15,547	)			(2,291	)
Share of straight-line rent from unconsolidated real estate ventures			(1,473	)			189				(1,608	)			348
Third-party lease liability assumption payments			(1,183	)			(619	)			(2,319	)			(1,091	)
Share of third party lease liability assumption payments for unconsolidated real estate ventures		—				—				—					(50	)
Share-based compensation expense			5,694				5,941				11,024				10,217
Amortization of debt issuance costs			875				1,201				1,845				2,365
Share of amortization of debt issuance costs from unconsolidated real estate ventures			69				66				117				135
Non-real estate depreciation and amortization			916				758				1,828				1,507
FAD available to the Operating Partnership Common Units (A) (5)		$	37,520			$	57,568			$	64,660			$	117,516
Distributions to common shareholders and unitholders (6) (B)		$	34,006			$	31,197			$	65,290			$	62,394
FAD Payout Ratio (B÷A) (7)			90.6	%			54.2	%			101.0	%			53.1	%
Capital Expenditures
Maintenance and recurring capital expenditures		$	7,252			$	3,989			$	12,747			$	6,672
Share of maintenance and recurring capital expenditures from unconsolidated real estate ventures			252				250				340				1,399
Second generation tenant improvements and leasing commissions			12,357				6,273				28,512				8,166
Share of second generation tenant improvements and leasing commissions from unconsolidated real estate ventures			215				545				774				917
Recurring capital expenditures and second generation tenant improvements and leasing commissions			20,076				11,057				42,373				17,154
First generation tenant improvements and leasing commissions			18,996				6,676				25,193				10,861
Share of first generation tenant improvements and leasing commissions from unconsolidated real estate ventures			419				1,391				652				2,386
Non-recurring capital expenditures			5,470				3,765				12,192				7,131
Share of non-recurring capital expenditures from unconsolidated joint ventures			30				142				30				762
Non-recurring capital expenditures			24,915				11,974				38,067				21,140
Total JBG SMITH Share of Capital Expenditures		$	44,991			$	23,031			$	80,440			$	38,294

_______________
Note: FFO attributable to operating partnership common units and FFO attributable to common shareholders for the six months ended June 30, 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 $1.5 million and $2.8 million for the three and six months ended June 30, 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 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 three and six months ended June 30, 2019.
(6)		The distribution for the six months ended June 30, 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 June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
Net income (loss) attributable to common shareholders		$	(3,040	)		$	20,574			$	21,821			$	16,384
Add:
Depreciation and amortization expense		45,995				48,117				94,714				97,277
General and administrative expense:
Corporate and other		11,559				8,603				23,873				17,017
Third-party real estate services		28,710				21,189				56,776				43,798
Share-based compensation related to Formation Transaction and special equity awards		9,523				9,097				20,654				18,525
Transaction and other costs		2,974				3,787				7,869				8,008
Interest expense		13,107				18,027				30,281				37,284
Loss on extinguishment of debt		1,889				4,457				1,889				4,457
Reduction of gain on bargain purchase		—				7,606				—				7,606
Income tax expense (benefit)		51				313				(1,121		)		(595		)
Net income (loss) attributable to redeemable noncontrolling interests		(288		)		3,574				3,099				2,980
Less:
Third-party real estate services, including reimbursements		29,487				24,160				57,178				48,490
Other income (1)		2,114				2,080				3,755				3,196
Income (loss) from unconsolidated real estate ventures, net		(1,810		)		3,836				1,791				1,934
Interest and other income, net		2,052				513				3,003				1,086
Gain on sale of real estate		—				33,396				39,033				33,851
Net loss attributable to noncontrolling interests		—				125				—				127
Consolidated NOI		78,637				81,234				155,095				164,057
NOI attributable to unconsolidated real estate ventures at our share		5,091				9,024				10,260				18,261
Non-cash rent adjustments (2)		(8,738		)		(1,237		)		(15,544		)		(2,333		)
Other adjustments (3)		3,758				3,623				7,083				7,839
Total adjustments		111				11,410				1,799				23,767
NOI		$	78,748			$	92,644			$	156,894			$	187,824
Less: out-of-service NOI loss (4)		(1,556		)		(1,456		)		(2,827		)		(2,264		)
Operating portfolio NOI		$	80,304			$	94,100			$	159,721			$	190,088
Non-same store NOI (5)		6,311				12,611				12,721				27,219
Same store NOI (6)		$	73,993			$	81,489			$	147,000			$	162,869
Change in same store NOI		(9.2		)%						(9.7		)%
Number of properties in same store pool		55								55

___________________
(1)		Excludes parking income of $6.7 million and $6.6 million for the three months ended June 30, 2019 and 2018, and $13.1 million and $13.0 million for the six months ended June 30, 2019 and 2018.
(2)		Adjustment to exclude straight-line rent, above/below market lease amortization and lease incentive amortization.
(3)		Adjustment to include other income and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue.
(4)		Includes the results for our Under Construction assets and Future Development Pipeline.
(5)		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.
(6)		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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