Section 1: 10-Q (10-Q) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10- Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2017 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 001 - 37994 JBG SMITH PROPERTIES ________________________________________________________________________________ (Exact name of Registrant as specified in its charter) Maryland 81-4307010 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4445 Willard Avenue, Suite 400 Chevy Chase, MD 20815 (Address of principal executive offices) (Zip Code) (240) 333 - 3600 Registrant’ s telephone number, including area code _______________________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S - T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non - accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b - 2 of the Exchange Act. Large accelerated filer o Accelerated filer o Non - accelerated filer ý Smaller reporting company o
Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b - 2 of the Exchange Act) Yes o No ý As of November 6, 2017 , JBG SMITH Properties had 117,957,107 common shares outstanding.
JBG SMITH PROPERTIES QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2017 TABLE OF CONTENTS PART I – FINANCIAL INFORMATION Item 1. Financial Statements Page Condensed Consolidated and Combined Balance Sheets (unaudited) as of September 30, 2017 and December 31, 2016 2 Condensed Consolidated and Combined Statements of Operations (unaudited) for the three and nine months ended September 30, 2017 and 2016 3 Condensed Consolidated and Combined Statement of Equity (unaudited) for the nine months ended September 30, 2017 4 Condensed Consolidated and Combined Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016 5 Notes to Condensed Consolidated and Combined Financial Statements (unaudited) 7 Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations 36 Item 3. Quantitative and Qualitative Disclosures about Market Risk 52 Item 4. Controls and Procedures 53 PART II – OTHER INFORMATION Item 1. Legal Proceedings 54 Item 1A. Risk Factors 54 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54 Item 3. Defaults Upon Senior Securities 54 Item 4. Mine Safety Disclosures 54 Item 5. Other Information 54 Item 6. Exhibits 55 Signature 57 1
PART I – FINANCIAL INFORMATION ITEM 1. Financial Statements JBG SMITH PROPERTIES Condensed Consolidated and Combined Balance Sheets September 30, 2017 and December 31, 2016 (Unaudited) (In thousands, except par value amounts) September 30, December 31, 2017 2016 ASSETS Real estate, at cost: $ Land and improvements $ 1,272,997 939,592 Buildings and improvements 3,662,853 3,064,466 Construction in progress, including land 906,680 151,333 5,842,530 4,155,391 Less accumulated depreciation (982,454 ) (930,769 ) Real estate, net 4,860,076 3,224,622 Cash and cash equivalents 367,896 29,000 Restricted cash 17,521 3,263 Tenant and other receivables, net 50,474 33,380 Deferred rent receivable, net 145,683 136,582 Investments in and advances to unconsolidated real estate ventures 284,986 45,776 Receivable from former parent — 75,062 Other assets, net 288,391 112,955 TOTAL ASSETS $ 6,015,027 $ 3,660,640 LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY Liabilities: Mortgages payable, net $ 1,977,674 $ 1,165,014 Revolving credit facility 115,751 — Unsecured term loan, net 46,389 — Payable to former parent — 283,232 Accounts payable and accrued expenses 131,627 40,923 Other liabilities, net 100,774 49,487 Total liabilities 2,372,215 1,538,656 Commitments and contingencies Redeemable noncontrolling interests 567,001 — Shareholders' equity: — — Preferred shares, $0.01 par value - 200,000 shares authorized, none issued Common shares, $0.01 par value - 500,000 shares authorized and 117,957 shares issued and outstanding at September 30, 2017 1,180 — — Additional paid-in capital 3,099,056 Accumulated deficit (28,827 ) — — Total shareholders' equity of JBG SMITH Properties 3,071,409 Former parent equity — 2,121,689 Noncontrolling interests in consolidated subsidiaries 4,402 295 Total equity 3,075,811 2,121,984 $ 6,015,027 $ 3,660,640 TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY See accompanying notes to the condensed consolidated and combined financial statements. 2
JBG SMITH PROPERTIES Condensed Consolidated and Combined Statements of Operations For the three and nine months ended September 30, 2017 and 2016 (Unaudited) (In thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 REVENUE Property rentals $ 116,458 $ 103,265 $ 316,899 $ 299,497 Tenant reimbursements 9,593 10,231 27,161 28,428 Third-party real estate services, including reimbursements 25,141 8,297 38,881 24,617 Other income 1,158 1,564 3,701 3,938 Total revenue 152,350 123,357 386,642 356,480 EXPENSES Depreciation and amortization 43,951 31,377 109,726 98,291 Property operating 29,634 27,287 77,341 75,087 Real estate taxes 17,194 14,462 47,978 43,712 General and administrative: Corporate and other 10,593 10,913 35,536 36,040 Third-party real estate services 21,178 4,779 30,362 14,272 Share -based compensation related to Formation Transaction 14,445 — 14,445 — Transaction and other costs 104,095 1,528 115,173 1,528 Total operating expenses 241,090 90,346 430,561 268,930 ) ) OPERATING (LOSS) INCOME (88,740 33,011 (43,919 87,550 (Loss) income from unconsolidated real estate ventures (1,679 ) 584 (1,365 ) (952 ) Interest and other (loss) income, net (379 ) 749 1,366 2,292 ) ) ) Interest expense (15,309 (13,028 (43,813 (38,662 ) Loss on extinguishment of debt (689 ) — (689 ) — Gain on bargain purchase 27,771 — 27,771 — ) ) (LOSS) INCOME BEFORE INCOME TAX EXPENSE (79,025 21,316 (60,649 50,228 Income tax benefit (expense) 1,034 (302 ) 317 (884 ) ) ) NET (LOSS) INCOME (77,991 21,014 (60,332 49,344 Net loss attributable to redeemable noncontrolling interests 8,160 — 2,481 — NET (LOSS) INCOME ATTRIBUTABLE TO $ (69,831 ) $ 21,014 $ (57,851 ) $ 49,344 JBG SMITH PROPERTIES (LOSS) EARNINGS PER COMMON SHARE: ) ) Basic $ (0.61 $ 0.21 $ (0.55 $ 0.49 Diluted $ (0.61 ) $ 0.21 $ (0.55 ) $ 0.49 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - basic and diluted $ 114,744 $ 100,571 $ 105,347 $ 100,571 See accompanying notes to the condensed consolidated and combined financial statements. 3
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