JBG SMITH Properties (JBGS) FY 2022 MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to provide material information relevant to our financial condition and results of operations, including cash flows, and should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Organization and Basis of Presentation

JBG SMITH, a Maryland REIT, owns and operates a portfolio of commercial and multifamily assets amenitized with ancillary retail. Our portfolio reflects our longstanding strategy of owning and operating assets within Metro-served submarkets in the Washington, D.C. metropolitan area with high barriers to entry and vibrant urban amenities. Approximately two-thirds of our portfolio is in National Landing, which is anchored by four key demand drivers: Amazon's new headquarters, which is being developed by us; Virginia Tech's under-construction $1 billion Innovation Campus; the submarket’s proximity to the Pentagon; and our deployment of next-generation public and private 5G digital infrastructure. In addition, our third-party asset management and real estate services business provides fee-based real estate services to the WHI, the JBG Legacy Funds and other third parties. Substantially all our assets are held by, and our operations are conducted through, JBG SMITH LP.

We were organized for the purpose of receiving, via the spin-off on July 17, 2017, substantially all the assets and liabilities of Vornado's Washington, D.C. segment. On July 18, 2017, we acquired the management business and certain assets and liabilities of JBG.

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We have elected to be taxed as a REIT under sections 856-860 of the Code. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We currently adhere and intend to continue to adhere to these requirements and to maintain our REIT status in future periods.

As a REIT, we can reduce our taxable income by distributing all or a portion of such taxable income to shareholders. Future distributions will be declared and paid at the discretion of the Board of Trustees and will depend upon cash generated by operating activities, our financial condition, capital requirements, annual dividend requirements under the REIT provisions of the Code, and such other factors as our Board of Trustees deems relevant.

We also participate in the activities conducted by our subsidiary entities that have elected to be treated as TRSs under the Code. As such, we are subject to federal, state, and local taxes on the income from these activities. Income taxes attributable to our TRSs are accounted for under the asset and liability method. Under the asset and liability method, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future.

We aggregate our operating segments into three reportable segments (commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.

We compete with many property owners and developers. Our success depends upon, among other factors, trends affecting national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and legislation, population trends, zoning laws, and our ability to lease, sublease or sell our assets at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

Overview

As of December 31, 2022, our Operating Portfolio consisted of 51 operating assets comprising 31 commercial assets totaling 9.7 million square feet (8.4 million square feet at our share), 18 multifamily assets totaling 6,756 units (6,755 units at our share) and two wholly owned land assets for which we are the ground lessor. Additionally, we have two under-construction multifamily assets with 1,583 units (1,583 units at our share) and 20 assets in the development pipeline totaling 12.5 million square feet (9.7 million square feet at our share) of estimated potential development density.

We continue to implement our comprehensive plan to reposition our holdings in National Landing in Northern Virginia by executing a broad array of Placemaking strategies. Our Placemaking includes the delivery of new multifamily and office developments, locally sourced amenity retail, and thoughtful improvements to the streetscape, sidewalks, parks and other outdoor gathering spaces. In keeping with our dedication to Placemaking, each new project is intended to contribute to authentic and distinct neighborhoods by creating a vibrant street environment with robust retail offerings and other amenities, including improved public spaces. Additionally, the cutting-edge digital infrastructure investments we are making, including our ownership of Citizens Broadband Radio Service wireless spectrum in National Landing and our agreements with AT&T and Federated Wireless, are advancing our efforts to make National Landing among the first 5G-operable submarkets in the nation.

Amazon's new headquarters is located in National Landing. We currently have leases with Amazon totaling 1.0 million square feet across six office buildings in National Landing. We sold Amazon two of our National Landing development sites, Metropolitan Park and Pen Place. We are the developer, property manager and retail leasing agent for Amazon's new headquarters at National Landing. We are currently constructing two new office buildings for Amazon on Metropolitan Park, totaling 2.1 million square feet, inclusive of approximately 50,000 square feet of street-level retail with new shops and restaurants. We expect to deliver Metropolitan Park and Amazon to occupy it this summer.

Outlook

A fundamental component of our strategy to maximize long-term NAV per share is active capital allocation. We evaluate development, acquisition, disposition, share repurchases and other investment decisions based on how they may impact

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long-term NAV per share. We intend to continue to opportunistically sell or recapitalize assets as well as land sites where a ground lease or joint venture execution may represent the most attractive path to maximizing value. Successful execution of our capital allocation strategy enables us to source capital at NAV from the disposition of assets generating low cash yields and invest those proceeds in new acquisitions with higher cash yields and growth, as well as in development projects with significant yield spreads and profit potential. We view this strategy as a key tool to source capital. Consequently, at any given time, we expect to be in various stages of discussions and negotiations with potential buyers, real estate venture partners, ground lessors, and other counterparties with respect to sales, joint ventures, and/or ground leases for certain of our assets, including portfolios thereof. These discussions and negotiations may or may not lead to definitive documentation or closed transactions. We anticipate redeploying the proceeds from these sales will not only help fund our planned growth, but will also further advance the strategic shift of our portfolio to majority multifamily. However, curbed lending activity has significantly slowed down the pace of asset sales and we expect this reduced activity to continue into 2023. As we look to preserve balance sheet strength and flexibility, any new development or acquisition will be largely dependent on executing additional dispositions. In the meantime, we continue to advance our two under-construction multifamily assets in National Landing, 1900 Crystal Drive and 2000/2001 South Bell Street, totaling 1,583 units.

Our office portfolio occupancy as of December 31, 2022 increased by 220 basis points compared to December 31, 2021. Although new leasing has been slow to recover and will likely continue to lag due to delayed return-to-the office plans and decision-making related to future office utilization, we were able to execute 936,000 square feet of office leases during the year at our share, over 20% of which comprised new leases in National Landing. We have 739,700 square feet of office leases expiring in 2023 with another 40,400 square feet currently in month-to-month status. Our ability to renew or re-lease this space will impact our occupancy in 2023.

Our multifamily portfolio occupancy as of December 31, 2022 increased by 180 basis points compared to December 31, 2021. For fourth quarter lease expirations, we increased rents by 9.7% upon renewal while achieving a 55.7% renewal rate across our portfolio.

Operating Results

Highlights of operating results for the year ended December 31, 2022 included:

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Additionally, investing and financing activity during the year ended December 31, 2022 included:

Activity subsequent to December 31, 2022 included:

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Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that in certain circumstances may significantly impact our financial results. These estimates are prepared using management's best judgment, after considering past and current events and economic conditions. In addition, certain information relied upon by management in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third-party experts. Actual results could differ from these estimates. We consider an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.

Our significant accounting policies are fully described in Note 2 to the consolidated financial statements; however, the most critical accounting estimates, which involve the use of judgments as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:

Asset Acquisitions

Description: We account for asset acquisitions, which includes the consolidation of previously unconsolidated real estate ventures, at cost, including transaction costs, plus the fair value of any assumed debt. We estimate the fair values of acquired assets and liabilities assumed based on our evaluation of information and estimates available at the date of acquisition. Based on these estimates, we allocate the purchase price, including all transaction costs related to the acquisition and any contingent consideration, to the identified assets acquired and liabilities assumed based on their relative fair value.

Judgments and Uncertainties: Asset acquisitions primarily consist of buildings and land. The fair values of buildings are determined using the "as-if vacant" approach whereby we use discounted cash flow models with inputs and assumptions that we believe are consistent with current market conditions for similar assets. The most significant assumptions in determining the allocation of the purchase price to buildings are the exit capitalization rate, discount rate, estimated market rents and hypothetical expected lease-up periods, when applicable. We assess the fair value of land based on market comparisons and development projects using an income approach of cost plus a margin.

Sensitivity of Estimate to Change: While our methodology did not change in 2022, to the extent the estimates and assumptions in our discounted cash flow models used to value our buildings or our projections of land value change due to market conditions or other factors, our estimated fair values may be different and such differences could be material to our consolidated financial statements.

Real Estate

Description: Real estate is carried at cost, net of accumulated depreciation and amortization. As real estate is undergoing redevelopment activities, all property operating expenses directly associated with and attributable to the redevelopment, including interest expense, are capitalized to the extent that we believe such costs are recoverable through the value of the property.

Judgments and Uncertainties: Our real estate and related intangible assets are reviewed for impairment whenever there are changes in circumstances or indicators that the carrying amount of the assets may not be recoverable. These indicators may include declining operating performance, below average occupancy, shortened anticipated holding periods, costs in excess of budgets for under-construction assets and other adverse changes. An impairment exists when the carrying amount of an asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Estimates of future cash flows are based on our current plans, anticipated holding periods and available market information at the time the analyses are prepared. An impairment loss is recognized if the carrying amount of the asset is not recoverable and is measured based on the excess of the property's carrying amount over its estimated fair value. Estimated fair values are calculated based on the following information in order of preference, dependent upon availability: (i) pending or executed agreements, (ii) market prices for comparable properties or (iii) the sum of discounted cash flows.

Sensitivity of Estimate to Change: While our methodology did not change in 2022, if our estimates of future cash flows, anticipated holding periods, asset strategy or fair values change, based on market conditions, anticipated selling prices or

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other factors, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Longer anticipated holding periods for real estate assets directly reduce the likelihood of recording an impairment loss. If there is a change in the strategy for an asset or if market conditions dictate a shorter holding period, an impairment loss may be recognized, and such loss could be material.

Investments in Real Estate Ventures

Description: We use the equity method of accounting for investments in unconsolidated real estate ventures when we have significant influence, but do not have a controlling financial interest.

Judgments and Uncertainties: On a periodic basis, we evaluate our investments in unconsolidated real estate ventures for impairment. An investment in a real estate venture is considered impaired if we determine that its fair value is less than the net carrying value of the investment in that real estate venture on an other-than-temporary basis. Cash flow projections for the investments consider property level factors such as expected future operating income, trends and prospects, anticipated holding periods, as well as the effects of demand, competition and other factors. We consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary. These factors include the age of the venture, our intent and ability to retain our investment in the real estate venture, financial condition and long-term prospects of the real estate venture and relationships with our partners and banks. If we believe that the decline in the fair value of the investment is temporary, no impairment loss is recorded. If our analysis indicates that there is an other-than temporary impairment related to the investment in a particular real estate venture, the carrying value of the venture will be adjusted to an amount that reflects the estimated fair value of the investment. In the event our investment in a real estate venture is reduced to zero, and we are not obligated to provide for additional losses, have not guaranteed its obligations or otherwise committed to providing financial support, we will discontinue the equity method of accounting until such point that our share of net income equals the share of net losses not recognized during the period the equity method was suspended.

Sensitivity of Estimate to Change: While our methodology did not change in 2022, if our cash flow projections or our evaluation of qualitative factors change, based on market conditions or other factors, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. Cash flow projections are subjective and are based, in part, on assumptions regarding expected future operating income, trends and prospects, anticipated holding periods, as well as the effects of demand, competition and other factors that could differ materially from actual results. If our assessment that an impairment is other-than-temporary changes, it could result in an impairment loss that could be material to our consolidated financial statements.

Revenue Recognition

Description: We have leases with various tenants across our portfolio of properties, which generate rental income and operating cash flows for our benefit. Property rental revenue includes base rent each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line basis over the non-cancellable term of the lease, which includes the effects of periodic step-ups in rent and rent abatements under the lease.

Judgments and Uncertainties: We periodically evaluate the collectability of amounts due from tenants and recognize an adjustment to property rental revenue for accounts receivable and deferred rent receivable if we conclude it is not probable we will collect the remaining lease payments under the lease agreements. We exercise judgment in assessing the probability of collection and consider payment history, current credit status and economic outlook in making this determination.

Sensitivity of Estimate to Change: If the probability of collection changes, due to tenant creditworthiness, changes to tenant payment patterns or economic trends, our evaluation of collectability may be different and such differences could be material to our consolidated financial statements.

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Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements for a description of recent accounting pronouncements.

Results of Operations

The following section discusses certain line items from our consolidated statements of operations and the year-to-year comparisons between 2022 and 2021. Discussions of the year-to-year comparisons between 2021 and 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022, which is incorporated herein by reference.

In 2022, we sold the Universal Buildings and Pen Place, and sold 7200 Wisconsin Avenue, 1730 M Street, RTC-West/RTC-West Trophy Office/RTC-West Land ("RTC-West") and Courthouse Plaza 1 and 2 to an unconsolidated real estate venture. We collectively refer to these assets as the "Disposed Properties" in the discussion below. In 2022, we acquired the remaining 36.0% ownership interest in Atlantic Plumbing and the remaining 50.0% ownership interest in 8001 Woodmont, which were previously owned by unconsolidated real estate ventures and consolidated upon acquisition. In November 2021, we acquired The Batley.

Comparison of the Year Ended December 31, 2022 to 2021

The following summarizes certain line items from our consolidated statements of operations that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2022 compared to the same period in 2021:

*  Not meaningful.

Property rental revenue decreased by $7.8 million, or 1.6%, to $491.7 million in 2022 from $499.6 million in 2021. The decrease was primarily due to a $50.2 million decrease in revenue from our commercial assets, partially offset by a $40.2 million increase in revenue from our multifamily assets. The decrease in revenue from our commercial assets was primarily due to (i) a $55.4 million decrease related to the Disposed Properties and (ii) a $2.1 million decrease related to 2451 Crystal Drive due to construction management services provided to tenants in 2021, partially offset by (iii) a $3.5 million increase related to the commencement of a lease with Amazon at 2100 Crystal Drive and (iv) a $2.7 million increase related to increased occupancy and higher average daily rates at Crystal City Marriott. The increase in revenue from our multifamily assets was primarily due to (i) a $10.9 million increase related to higher occupancy at several recently developed properties (West Half, The Wren, 900 W Street and 901 W Street), (ii) a $10.5 million increase at RiverHouse, The Bartlett and 2221 S. Clark Street - Residential due to higher occupancy and rents (iii) a $9.7 million increase related to our acquisition of The Batley and (iv) a $6.6 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont.

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Third-party real estate services revenue, including reimbursements, decreased by $25.0 million, or 21.9%, to $89.0 million in 2022 from $114.0 million in 2021. The decrease was primarily due to (i) a $17.2 million decrease in development fees related to the timing of development projects, (ii) a $5.5 million decrease in reimbursement revenue due to the termination of a management agreement and fewer construction management projects, and (iii) a $2.3 million decrease in asset management fees due to the sale of assets within the JBG Legacy Funds.

Depreciation and amortization expense decreased by $22.5 million, or 9.5%, to $213.8 million in 2022 from $236.3 million in 2021. The decrease was primarily due to a $33.3 million decrease related to the Disposed Properties and a $4.9 million decrease related to 2345 Crystal Drive primarily due to the amortization and disposal of certain tenant improvements in 2021. The decrease in depreciation and amortization expense was partially offset by (i) an $8.0 million increase related to our acquisition of The Batley, (ii) a $5.9 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont and (iii) a $1.8 million increase related to 2221 S. Clark Street – Office due to the amortization and disposal of certain tenant improvements.

Property operating expense decreased by $634,000, or 0.4%, to $150.0 million in 2022 from $150.6 million in 2021. The decrease was primarily due to a $19.4 million decrease related to the Disposed Properties, partially offset by (i) a $10.9 million increase in property expenses across our portfolio, primarily related to higher repairs and maintenance, utilities, cleaning, insurance, and payroll, primarily due to higher tenant occupancy and rising costs, (ii) a $3.2 million increase related to our acquisition of The Batley, (iii) a $2.7 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, and (iv) a $2.0 million increase related to digital infrastructure initiatives in National Landing.

Real estate tax expense decreased by $8.7 million, or 12.2%, to $62.2 million in 2022 from $70.8 million in 2021. The decrease was primarily due to a $9.0 million decrease related to the Disposed Properties.

General and administrative expense: corporate and other increased by $4.5 million, or 8.3%, to $58.3 million in 2022 from $53.8 million in 2021. The increase was primarily due to higher compensation expenses.

General and administrative expense: third-party real estate services decreased by $12.6 million, or 11.8%, to $94.5 million in 2022 from $107.2 million in 2021. The decrease was primarily due to a decrease in reimbursable and compensation expenses.

General and administrative expense: share-based compensation related to Formation Transaction and special equity awards decreased by $10.9 million, or 67.0%, to $5.4 million in 2022 from $16.3 million in 2021. The decrease was primarily due to the graded vesting of certain awards issued in prior years, which resulted in lower expense as portions of the awards vested, and the recapture of expense from forfeited awards.

Transaction and other costs of $5.5 million in 2022 consisted of (i) $2.7 million of expenses related to completed, potential and pursued transactions, (ii) $2.0 million of integration and severance costs, and (iii) $813,000 of demolition costs primarily related to 223 23rd Street and 2250/2300 Crystal Drive. Transaction and other costs of $10.4 million in 2021 consisted of (i) $5.8 million of expenses related to completed, potential and pursued transactions, (ii) $3.6 million of demolition costs related to 2000/2001 South Bell Street and (iii) $1.0 million of integration and severance costs.

Loss from unconsolidated real estate ventures increased by $15.4 million, or 742.0%, to $17.4 million for 2022 from $2.1 million in 2021. The increase was primarily due to a $21.5 million reduction in gains at our share from the sale of various assets in 2022 compared to 2021, partially offset by a $6.0 million decrease in impairment losses in 2022 compared to 2021.

Interest and other income of $18.6 million in 2022 was primarily related to (i) a net realized gain of $12.3 million primarily from the sale of investments in equity securities, which had been carried at cost, during the first quarter of 2022, (ii) $3.2 million in interest income primarily on cash and cash equivalents and (iii) a $2.1 million unrealized gain related to equity investments carried at fair value. Interest and other income of $8.8 million in 2021 was primarily related to $4.5 million of business interruption insurance proceeds received for COVID-19 related losses and $3.6 million of net investment income from investment funds entered into in 2021.

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Interest expense increased by $8.0 million, or 11.7%, to $75.9 million in 2022 from $68.0 million in 2021. The increase in interest expense was primarily due to (i) a $7.3 million increase due to new mortgage loans entered into at WestEnd25, 1225 S. Clark Street and 1215 S. Clark Street, (ii) a $5.1 million increase related to 4747 Bethesda Avenue and The Bartlett due to rising interest rates, (iii) a $2.6 million increase related to the consolidation of Atlantic Plumbing and 8001 Woodmont, (iv) a $2.0 million increase related to a higher average outstanding balance and higher interest rates on our revolving credit facility and (v) a $1.2 million increase related to additional draws on our term loans. The increase in interest expense was partially offset by a $6.7 million increase in the fair value of our interest rate caps as a result of rising interest rates and a $4.2 million increase in capitalized interest primarily related to 1900 Crystal Drive.

Gain on the sale of real estate of $161.9 million in 2022 was primarily due to the sale of the Disposed Properties. Gain on the sale of real estate of $11.3 million in 2021 was based on the cash received and the remeasurement of our retained interest in the land we contributed to one of our unconsolidated real estate ventures. See Note 3 to the consolidated financial statements for additional information.

Impairment loss of $25.1 million in 2021 was related to 7200 Wisconsin Avenue, RTC-West and a development parcel, which were written down to their estimated fair value and subsequently sold to an unconsolidated real estate venture in April 2022.

FFO

FFO is a non-GAAP financial measure computed in accordance with the definition established by Nareit in the Nareit FFO White Paper - 2018 Restatement. Nareit defines FFO as net income (loss) (computed in accordance with GAAP), excluding depreciation and amortization expense 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, including our share of such adjustments for unconsolidated real estate ventures.

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

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The following is the reconciliation of net income (loss) attributable to common shareholders, the most directly comparable GAAP measure, to FFO:

NOI and Same Store NOI

NOI is a non-GAAP financial measure management uses to assess an asset's performance. The most directly comparable GAAP measure is net income (loss) attributable to common shareholders. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only 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 for operating leases, 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 the amortization of acquired above-market leases and below-market ground lease intangibles. Management uses NOI as a supplemental performance measure of our assets and believes it provides useful information to investors because it reflects 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 expense 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. NOI presented by us may not be comparable to NOI reported by other REITs that define these measures differently. We believe to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) attributable to common shareholders as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) attributable to common shareholders as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.

Information provided on a same store basis includes the results of properties that are owned, operated and in-service for the entirety of both periods being compared, which excludes disposed properties or properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared. During the year ended December 31, 2022, our same store pool decreased to 47 properties from 55 properties due to (i) the exclusion of The Alaire, The Terano, Galvan and The Gale Eckington, which were sold during the period, (ii) the exclusion of 2221 S. Clark

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Street – Office, which was taken out of service, (iii) the exclusion of Universal Buildings, 7200 Wisconsin Avenue, 1730 M Street, RTC-West, Courthouse Plaza 1 and 2, which were sold to an unconsolidated real estate venture during the period and for which our investment in the venture was written down to zero and we have discontinued applying the equity method of accounting, (iv) the exclusion of the L’Enfant Plaza assets (L’Enfant Plaza Office – East, L’Enfant Plaza Office – North and L’Enfant Plaza Retail), assets owned through an unconsolidated real estate venture for which our investment in the venture was written down to zero and we have discontinued applying the equity method of accounting, and (v) the inclusion of West Half, 901 W Street, 900 W Street, 1770 Crystal Drive and 4747 Bethesda Avenue as they were in service for the entirety of the comparable periods. While there is judgment surrounding changes in designations, a property is removed from the same store pool when the property is considered to be under-construction because it is undergoing significant redevelopment or renovation pursuant to a formal plan or is being repositioned in the market and such renovation or repositioning is expected to have a significant impact on property NOI. A development property or under-construction property is moved to the same store pool once a substantial portion of the growth expected from the development or redevelopment is reflected in both the current and comparable prior year period. Acquisitions are moved into the same store pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment.

Same store NOI increased by $32.5 million, or 12.1%, to $302.3 million for the year ended December 31, 2022 from $269.7 million for the year ended December 31, 2021. The increase was substantially attributable to (i) higher occupancy and rents and lower concessions in our multifamily portfolio, (ii) higher occupancy and average daily rates at the Crystal City Marriott, (iii) an increase in parking revenue in our commercial portfolio and (iv) abatement burn-off at certain assets, partially offset by (v) higher utilities and cleaning expenses.

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The following is the reconciliation of net income (loss) attributable to common shareholders to NOI and same store NOI:

Reportable Segments

We review operating and financial data for each property on an individual basis; therefore, each of our individual properties is a separate operating segment. We define our reportable segments to be aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our CODM, makes key operating decisions, evaluates financial results, allocates resources and manages our business. Accordingly, we aggregate our operating segments into three reportable segments (commercial, multifamily, and third-party asset management and real estate services) based on the economic characteristics and nature of our assets and services.

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The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party asset management and real estate services business, based on the NOI of properties within each segment.

With respect to the third-party asset management and real estate services business, the CODM reviews revenue streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative: third-party real estate services"), which are both disclosed separately in our consolidated statements of operations. The following represents the components of revenue from our third-party asset management and real estate services business:

See discussion of third-party real estate services revenue, including reimbursements, and third-party real estate services expenses for the year ended December 31, 2022 in the preceding pages under "Results of Operations."

Consistent with internal reporting presented to our CODM and our definition of NOI, the third-party asset management and real estate services operating results are excluded from the NOI data below. To conform to the current period presentation, we have reclassified the prior period segment financial data for 1700 M Street, for which we are the ground lessor, that had been classified as part of the commercial segment to the other segment to better align with our internal reporting.

Property revenue is calculated as property rental revenue plus parking revenue. Property expense is calculated as property operating expenses plus real estate taxes. Consolidated NOI is calculated as property revenue less property expense. See Note 19 to the consolidated financial statements for the reconciliation of net income (loss) attributable to common shareholders to consolidated NOI for the years ended December 31, 2022 and 2021. The following is a summary of NOI by segment:

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Comparison of the Year Ended December 31, 2022 to 2021

Commercial: Property revenue decreased by $46.1 million, or 12.7%, to $318.5 million in 2022 from $364.6 million in 2021. Consolidated NOI decreased by $21.6 million, or 10.0%, to $194.3 million in 2022 from $216.0 million in 2021. The decreases in property revenue and consolidated NOI were due to the Disposed Properties, which were partially offset by an increase at the Crystal City Marriott due to higher occupancy and higher average daily rates, and an increase in parking revenue driven by an increase in both contract and transient parking.

Multifamily: Property revenue increased by $40.6 million, or 28.9%, to $180.9 million in 2022 from $140.3 million in 2021. Consolidated NOI increased by $30.7 million, or 45.5%, to $98.3 million in 2022 from $67.6 million in 2021. The increases in property revenue and consolidated NOI were due to our acquisition of The Batley in November 2021, the consolidation of Atlantic Plumbing and 8001 Woodmont in 2022, and higher occupancy and rental rates across the portfolio. The increase in consolidated NOI was partially offset by an increase in operating costs.

Liquidity and Capital Resources

Property rental revenue is our primary source of operating cash flow and depends on many factors including occupancy levels and rental rates, as well as our tenants' ability to pay rent. In addition, our third-party asset management and real estate services business provides fee-based real estate services to the WHI, the JBG Legacy Funds and other third parties. Our assets provide a relatively consistent level of cash flow that enables us to pay operating expenses, debt service, recurring capital expenditures, dividends to shareholders and distributions to holders of OP Units and LTIP Units. Other sources of liquidity to fund cash requirements include proceeds from financings, recapitalizations, asset sales and the issuance and sale of securities. We anticipate that cash flows from continuing operations and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, any dividends to shareholders and distributions to holders of OP Units and LTIP Units over the next 12 months.

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Financing Activities

The following is a summary of mortgage loans:

As of December 31, 2022 and 2021, the net carrying value of real estate collateralizing our mortgage loans totaled $2.2 billion and $1.8 billion. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and, in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity. Certain mortgage loans are recourse to us. See Note 20 to the consolidated financial statements for additional information.

In August 2022, we entered into a mortgage loan with a principal balance of $97.5 million collateralized by WestEnd25. The mortgage loan has a seven-year term and an interest rate of SOFR plus 1.45%. We also entered into an interest rate swap with a total notional value of $97.5 million, which effectively fixes SOFR at an average interest rate of 2.71% through the maturity date. During the year ended December 31, 2021, we entered into two separate mortgage loans with an aggregate principal balance of $190.0 million, collateralized by 1225 S. Clark Street and 1215 S. Clark Street.

In January 2023, we entered into a $187.6 million loan facility, collateralized by The Wren and F1RST Residences. The loan has a seven-year term and a fixed interest rate of 5.13%. This loan is the initial advance under a Fannie Mae multifamily credit facility, which provides flexibility for collateral substitutions, future advances tied to performance, ability to mix fixed and floating rates, as well as stagger maturities. Proceeds from the loan were used to repay the mortgage loan on 2121 Crystal Drive, which had a fixed interest rate of 5.51%.

As of December 31, 2022 and 2021, we had various interest rate swap and cap agreements on certain of our mortgage loans with an aggregate notional value of $1.3 billion. See Note 18 for additional information.

Credit Facility

As of December 31, 2022, our $1.6 billion credit facility consisted of a $1.0 billion revolving credit facility maturing in January 2025, a $200.0 million Tranche A-1 Term Loan maturing in January 2025, and a $400.0 million Tranche A-2 Term Loan maturing in January 2028, of which $50.0 million remains available to be borrowed until July 2023.

In January 2022, the Tranche A-1 Term Loan was amended to extend the maturity date to January 2025 with two one-year extension options, and to amend the interest rate to SOFR plus 1.15% to SOFR plus 1.75%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets. In connection with the loan amendment, we amended the related interest rate swaps, extending the maturity to July 2024 and converting the hedged rate from one-month LIBOR to one-month term SOFR.

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In July 2022, the Tranche A-2 Term Loan was amended to increase its borrowing capacity by $200.0 million. The incremental $200.0 million includes a delayed draw feature, of which $150.0 million was drawn in September 2022 with the remaining $50.0 million undrawn as of the date of this filing. The amendment extends the maturity date of the term loan from July 2024 to January 2028 and amends the interest rate to SOFR plus 1.25% to SOFR plus 1.80%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets. We entered into two interest rate swaps that were effective September 2022 with a total notional value of $150.0 million, which effectively fix SOFR at a weighted average interest rate of 2.15% through the maturity date. We also entered into two forward-starting interest rate swaps that will be effective July 2024 with a total notional value of $200.0 million, which will effectively fix SOFR at a weighted average interest rate of 2.80% through the maturity date. Additionally, we amended the interest rate of the revolving credit facility to SOFR plus 1.15% to SOFR plus 1.60%, varying based on a ratio of our total outstanding indebtedness to a valuation of certain real property and assets.

The following is a summary of amounts outstanding under the credit facility:

As of December 31, 2022, we had debt with a principal balance totaling $692.7 million and hedging arrangements with a notional value totaling $1.0 billion that use LIBOR as a reference rate. On November 30, 2020, the United Kingdom regulator announced its intentions to cease the publication of the one-week and two-month USD-LIBOR immediately following the December 31, 2021 publications, and the remaining USD-LIBOR tenors immediately following the June 30, 2023 publications. Though an alternative reference rate for LIBOR, the SOFR, exists, significant uncertainties still remain. We can provide no assurance regarding the future of LIBOR and when our LIBOR-based instruments will transition from LIBOR as a reference rate to SOFR or another reference rate. The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things, result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions. In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations.

Common Shares Repurchased

In March 2020, our Board of Trustees authorized the repurchase of up to $500.0 million of our outstanding common shares, which it increased to an aggregate of $1.0 billion in June 2022. During the year ended December 31, 2022, we repurchased and retired 14.2 million common shares for $361.0 million, a weighted average purchase price per share of $25.49. During the year ended December 31, 2021, we repurchased and retired 5.4 million common shares for $157.7 million, a weighted

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average purchase price per share of $29.34. Since we began the share repurchase program, we have repurchased and retired 23.3 million common shares for $623.5 million, a weighted average purchase price per share of $26.74.

Purchases under the program are made either in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, share price, applicable legal requirements and other factors. The program may be suspended or discontinued at our discretion without prior notice.

Material Cash Requirements

Our material cash requirements for the next 12 months and beyond are to fund:

We expect to satisfy these requirements using one or more of the following:

While we do not expect the need to do so during the next 12 months, we also can issue securities to raise funds.

The following is a summary of our material cash requirements as of December 31, 2022:

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Summary of Cash Flows

The following summary discussion of our cash flows is based on our consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows:

​

Cash Flows for the Year Ended December 31, 2022

Cash and cash equivalents, and restricted cash decreased $28.0 million to $274.1 million as of December 31, 2022, compared to $302.1 million as of December 31, 2021. This decrease resulted from $730.1 million of net cash used in financing activities, partially offset by $524.0 million of net cash provided by investing activities and $178.0 million of net cash provided by operating activities. Our outstanding debt was $2.5 billion as of December 31, 2022 and 2021.

Net cash provided by operating activities of $178.0 million primarily comprised: (i) $181.9 million of net income (before $244.8 million of non-cash items and a $161.9 million gain on the sale of real estate), (ii) $11.4 million of return on capital from unconsolidated real estate ventures and (iii) $15.2 million of net change in operating assets and liabilities. Non-cash income adjustments of $244.8 million primarily include depreciation and amortization expense, share-based compensation expense, deferred rent, loss from unconsolidated real estate ventures, net income from investments, amortization of lease incentives and other non-cash items.

Net cash provided by investing activities of $524.0 million comprised: (i) $928.9 million of proceeds from the sale of real estate; (ii) $59.7 million of distributions of capital from unconsolidated real estate ventures and (iii) $19.0 million of proceeds from the sale of investments, partially offset by (iv) $326.7 million of development costs, construction in progress and real estate additions, (v) $91.6 million of investments in unconsolidated real estate ventures and other investments and (vi) $65.3 million for the acquisition of real estate.

Net cash used in financing activities of $730.1 million primarily comprised: (i) $400.0 million of repayments of our revolving credit facility, (ii) $361.0 million of common shares repurchased, (iii) $270.7 million of repayments of mortgage loans, (iv) $107.7 million of dividends paid to common shareholders, (v) $16.4 million of distributions to redeemable noncontrolling interests and (vi) $9.5 million related to the redemption of our partner’s noncontrolling interest, partially offset by (vii) $179.7 million of borrowings under mortgage loans, (viii) $150.0 million of borrowings under our unsecured term loan, (ix) $100.0 million of proceeds from borrowings under our revolving credit facility and (x) $9.4 million of contributions from noncontrolling interests.

Unconsolidated Real Estate Ventures

We consolidate entities in which we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance-sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.

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As of December 31, 2022, we have investments in unconsolidated real estate ventures totaling $299.9 million. For these investments, we exercise significant influence over but do not control these entities and, therefore, account for these investments using the equity method of accounting. For a more complete description of our real estate ventures, see Note 5 to the consolidated financial statements.

From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to unconsolidated real estate ventures, to (i) guarantee portions of the principal, interest and other amounts in connection with borrowings, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with borrowings or (iii) provide guarantees to lenders and other third parties for the completion of development projects. We customarily have agreements with our outside venture partners whereby the partners agree to reimburse the real estate venture or us for their share of any payments made under certain of these guarantees. At times, we also have agreements with certain of our outside venture partners whereby we agree to either indemnify the partners and/or the associated ventures with respect to certain contingent liabilities associated with operating assets or to reimburse our partner for its share of any payments made by them under certain guarantees. Guarantees (excluding environmental) customarily terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt. Amounts that we may be required to pay in future periods in relation to guarantees associated with budget overruns or operating losses are not estimable.

As of December 31, 2022, we had additional capital commitments and certain recorded guarantees to our unconsolidated real estate ventures and other investments totaling $62.8 million. As of December 31, 2022, we had no principal payment guarantees related to our unconsolidated real estate ventures.

We evaluate reconsideration events as we become aware of them. Reconsideration events include, among other criteria, amendments to real estate venture agreements or changes in the capital requirements of the real estate venture. A reconsideration event could cause us to consolidate an unconsolidated real estate venture or deconsolidate a consolidated entity.

Commitments and Contingencies

Insurance

We maintain general liability insurance with limits of $150.0 million per occurrence and in the aggregate, and property and rental value insurance coverage with limits of $1.5 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties. We also maintain coverage, through our wholly owned captive insurance subsidiary, for a portion of the first loss on the above limits and for both terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence. These policies are partially reinsured by third-party insurance providers.

We will continue to monitor the state of the insurance market, and the scope and costs of coverage for acts of terrorism. We cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of the insurance coverage, which could be material.

Our debt, consisting of mortgage loans secured by our properties, a revolving credit facility and unsecured term loans, contains customary covenants requiring adequate insurance coverage. Although we believe that we currently have adequate insurance coverage, we may not be able to obtain an equivalent amount of coverage at a reasonable cost in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.

Construction Commitments

As of December 31, 2022, we had assets under construction that will, based on our current plans and estimates, require an additional $403.5 million to complete, which we anticipate will be primarily expended over the next two to three years. These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, and available cash.

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Other

As of December 31, 2022, we had committed tenant-related obligations totaling $62.3 million ($60.4 million related to our consolidated entities and $1.9 million related to our unconsolidated real estate ventures at our share). The timing and amounts of payments for tenant-related obligations are uncertain and may only be due upon satisfactory performance of certain conditions.

There are various legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

With respect to borrowings of our consolidated entities, we have agreed, and may in the future agree, to (i) guarantee portions of the principal, interest and other amounts, (ii) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) or (iii) provide guarantees to lenders, tenants and other third parties for the completion of development projects. As of December 31, 2022, the aggregate amount of principal payment guarantees was $8.3 million for our consolidated entities.

In connection with the Formation Transaction, we have a Tax Matters Agreement that provides special rules that allocate tax liabilities if the distribution of JBG SMITH shares by Vornado, together with certain related transactions, is determined not to be tax-free. Under the Tax Matters Agreement, we may be required to indemnify Vornado against any taxes and related amounts and costs resulting from a violation by us of the Tax Matters Agreement.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on that real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of remediation or removal of these substances may be substantial, and the presence of these substances, or the failure to promptly remediate these substances, may adversely affect the owner's ability to sell the real estate or to borrow using the real estate as collateral. In connection with the ownership and operation of our assets, we may be potentially liable for these costs. The operations of current and former tenants at our assets have involved, or may have involved, the use of hazardous materials or generated hazardous wastes. The release of these hazardous materials and wastes could result in us incurring liabilities to remediate any resulting contamination. The presence of contamination or the failure to remediate contamination at our properties may (i) expose us to third-party liability (e.g., for cleanup costs, natural resource damages, bodily injury or property damage), (ii) subject our properties to liens in favor of the government for damages and costs the government incurs in connection with the contamination, (iii) impose restrictions on the manner in which a property may be used or businesses may be operated, or (iv) materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, our assets are exposed to the risk of contamination originating from other sources. While a property owner may not be responsible for remediating contamination that has migrated onsite from an identifiable and viable offsite source, the contaminant's presence can have adverse effects on operations and the redevelopment of our assets. To the extent we send contaminated materials to other locations for treatment or disposal, we may be liable for the cleanup of those sites if they become contaminated.

Most of our assets have been subject to environmental assessments that are intended to evaluate the environmental condition of the assets. These environmental assessments generally have included a historical review, a public records review, a visual inspection of the site and surrounding assets, visual or historical evidence of underground storage tanks, and the preparation and issuance of a written report. Soil and/or groundwater subsurface testing is conducted at our assets, when necessary, to further investigate any issues raised by the initial assessment that could reasonably be expected to pose a material concern to the property or result in us incurring material environmental liabilities as a result of redevelopment. The tests may not, however, have included extensive sampling or subsurface investigations. In each case where the environmental assessments have identified conditions requiring remedial actions required by law, we have initiated appropriate actions. The environmental assessments did not reveal any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations, or that have not been anticipated and remediated during site redevelopment as required by law. Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in significant cost to us. As disclosed

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in Note 20 to the consolidated financial statements, environmental liabilities totaled $18.0 million and $18.2 million as of December 31, 2022 and 2021, and are included in "Other liabilities, net" in our consolidated balance sheets.