JBG Q4 Earnings Highlight Challenges, Potential for D.C. Region Properties

reprints


JBG Smith (JBGS) reported a fourth-quarter loss to cap a mixed year for the real estate investment trust’s vast Washington, D.C., area portfolio.

The Bethesda, Md.-based REIT saw net income fall by $32.6 million, or 35 cents per share, in the final three months of 2023 compared with the previous year, while its office occupancy dipped to 86.3 percent at the end of the fourth quarter, compared with 88.5 percent at the end of 2022. 

SEE ALSO: Retail-to-Resi Plans Secure Loan in Los Angeles

Funds from operations were at $36.1.9 million for the fourth quarter, up slightly from the $34.3 million in the final three months of 2022, but down from $41 million at the close of the third quarter. 

And it has big plans moving forward.

Office retreat

JBG Smith has largely retreated from its office holdings over the last several years, and continued to do so in 2023.

The firm noted that it’s essentially giving up on the Foundry office building in Washington’s Georgetown neighborhood, with no additional money earmarked for its management, according to an investor package released by the firm ahead of its Q4 earnings call Wednesday. JBG said it does not receive any cash-flow distributions from the 1973-built property and has not committed any future financial support to the 232,000-square-foot property at 10055 Thomas Jefferson Street NW that it acquired in 2014. Bisnow first reported JBG’s plans to not invest any further in the Foundry.

Nevertheless, JBG entered the earnings season on a high note. Just last week, CoStar Group announced the acquisition of the REIT’s 552,000-square-foot Central Place Tower in Rosslyn, Va., for $339 million to relocate its headquarters from D.C. 

“This sale further fuels the trend of businesses seeking out lower-cost, more business-friendly Virginia over D.C,” JBG said in the investor materials. 

Amazon (AMZN) second headquarters effect 

JBG highlighted completion of the first phase of Amazon’s second headquarters project at Metropolitan Park in early 2023 as one of its highlights for the year. It noted that the roughly 8,000 employees Amazon had hired to work in the 2.1 million-square-foot office complex had already surpassed the e-commerce company’s year-end 2023 commitment to the Commonwealth of Virginia. 

The Amazon second headquarters, known as HQ2, is also expected to “drive demand” for the lease-up of two residential towers JBG is building at 1900 Crystal Drive in National Landing, the REIT said in its investor presentation. 

 No update was given by JBG Smith about the second phase of its planned Amazon second headquarters in Arlington, which was paused by the Seattle-based company in March 2023. 

Amazon acquired the 12 acres of land for 3.2 million square feet of office space at PenPlace from JBG Smith for $198 million in summer 2022. 

Aiming big with Potomac Yard arena

Of course, the biggest news of the fourth quarter was the bombshell December announcement that two of D.C.’s biggest sports teams had plans to relocate to Arlington’s Potomac Yard section — contingent on the development of a publicly funded $2 billion arena on land owned by JBG Smith. 

The agreement among JBG Smith, Virginia Gov. Glenn Youngkin and Monumental Sports & Entertainment, which owns the Washington Capitals and Washington Wizards, requires approval from the Virginia legislature as well as local officials

JBG touted the plan in the investor presentation, saying that if it gains necessary government approvals the project will “complement” academic, technology and defense demand industries already centered in the area. In addition to the arena, the project would also include a global corporate headquarters for Monumental Sports, a practice facility for the Wizards, a performing arts center, and an expanded e-sports facility.

Andrew Coen can be reached at acoen@commercialopbserver.com