JBG SMITH Properties Annual Report 2020 Form 10-K (NYSE:JBGS) Published: February 25th, 2020 PDF generated by stocklight.com UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 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 incorporation or organization) (I.R.S. Employer Identification No.) 4747 Bethesda Avenue Bethesda MD 20814 Suite 200 (Zip Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (240) 333-3600 _______________________________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Shares, par value $0.01 per share JBGS New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act .Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes☐ No ☒ 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 ☒ No ☐ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐ 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 ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ 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. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒ As of February 20, 2020, JBG SMITH Properties had 134,882,302 common shares outstanding. As of June 30, 2019, the aggregate market value of common stock held by non-affiliates of the Registrant was approximately $5.1 billion based on the June 30, 2019 closing share price of $39.34 per share on the New York Stock Exchange. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates by reference information from certain portions of the registrant's definitive proxy statement for its2 020 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates. JBG SMITH PROPERTIES ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2019 TABLE OF CONTENTS Page PART I Item 1. Business 3 Item 1A. Risk Factors 10 Item 1B. Unresolved Staff Comments 34 Item 2. Properties 34 Item 3. Legal Proceedings 40 Item 4. Mine Safety Disclosures 40 PART II Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 40 Item 6. Selected Financial Data 41 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8. Financial Statements and Supplementary Data 65 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 114 Item 9A. Controls and Procedures 114 Item 9B. Other Information 116 PART III Item 10. Directors, Executive Officers and Corporate Governance 136 Item 11. Executive Compensation 136 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 136 Item 13. Certain Relationships and Related Transactions and Director Independence 136 Item 14. Principal Accounting Fees and Services 136 PART IV Item 15. Exhibits and Financial Statement Schedules 136 Item 16. Form 10-K Summary 144 Signatures 145 PART I ITEM 1. BUSINESS The Company JBG SMITH Properties ("JBG SMITH") is a real estate investment trust ("REIT") that owns, operates, invests in, and develops a dynamic portfolio of high- growth mixed-use properties in and around Washington, D.C. 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.com’s ("Amazon") new headquarters. In addition, our third-party asset management and real estate services business provides fee-based real estate services to third parties and the legacy funds (the "JBG Legacy Funds") formerly organized by The JBG Companies ("JBG"). References to "our share" refer to our ownership percentage of consolidated and unconsolidated assets in real estate ventures. As of December 31, 2019, our Operating Portfolio consists of 62 operating assets comprising 44 commercial assets totaling 12.7 million square feet (10.7 million square feet at our share) and 18 multifamily assets totaling 7,111 units (5,327 units at our share). Additionally, we have (i) seven assets under construction comprising four commercial assets totaling 943,000 square feet (821,000 square feet at our share) and three multifamily assets totaling 1,011 units (833 units at our share); and (ii) 40 future development assets totaling 21.9 million square feet (18.7 million square feet at our share) of estimated potential development density. We present combined portfolio operating data that aggregates assets that we consolidate in our financial statements and assets in which we own an interest, but do not consolidate in our financial results. For more information regarding our assets, see Item 2 "Properties." We define "square feet" or "SF" as the amount of rentable square feet of a property that can be rented to tenants, defined as (i) for commercial assets, rentable square footage defined in the current lease and for vacant space the rentable square footage defined in the previous lease for that space, (ii) for multifamily assets, management’s estimate of approximate rentable square feet, (iii) for assets under construction and near-term development assets, management’s estimate of approximate rentable square feet based on current design plans as of December 31, 2019, and (iv) for future development assets, management’s estimate of developable gross square feet based on its current business plans with respect to real estate owned or controlled as of December 31, 2019. "Metro" is the public transportation network serving the Washington, D.C. metropolitan area operated by the Washington Metropolitan Area Transit Authority, and we consider "Metro-served" to be locations, submarkets or assets that are generally within walking distance of a Metro station, defined as being within 0.5 miles of an existing or planned Metro station. "Annualized rent" is defined as (i) for commercial assets, or the retail component of a mixed-use asset, the in-place monthly base rent before free rent, plus tenant reimbursements as of December 31, 2019, multiplied by 12, with triple net leases converted to a gross basis by adding estimated tenant reimbursements to monthly base rent, and (ii) for multifamily assets, or the multifamily component of a mixed-use asset, the in-place monthly base rent before free rent as of December 31, 2019, multiplied by 12. Annualized rent excludes rent from signed but not yet commenced leases. Corporate Structure and Formation Transaction JBG SMITH was organized as a Maryland REIT on October 27, 2016 for the purpose of receiving, via the spin-off on July 17, 2017 (the "Separation"), substantially all of the assets and liabilities of Vornado Realty Trust's ("Vornado") Washington, D.C. segment, which operated as Vornado / Charles E. Smith, (the "Vornado Included Assets"). On July 18, 2017, JBG SMITH acquired the management business and certain assets and liabilities (the "JBG Assets") of JBG (the "Combination"). The Separation and the Combination are collectively referred to as the "Formation Transaction." Unless the context otherwise requires, all references to "we," "us," "our" or other similar terms refer to the Vornado Included Assets (our predecessor and accounting acquirer) for periods prior to the Separation and to JBG SMITH for periods after the Separation. Substantially all of our assets are held by, and our operations are conducted through, JBG SMITH Properties LP ("JBG SMITH LP"), our operating partnership. As of December 31, 2019, we, as its sole general partner, controlled JBG SMITH LP and owned 89.9% of its common limited partnership units ("OP Units"). Our Strategy Our mission is to own and operate a high-growth portfolio of Metro-served, urban-infill office, multifamily and retail assets concentrated in leading urban infill submarkets or with proximity to downtown Washington, D.C. and to grow this portfolio through value-added development and acquisitions. We have significant expertise in office, multifamily and retail product types, our core asset classes.