Federal Cuts Take Bite Out Of JBG Smith's Cash Flow, Occupancy

JBG Smith, the largest publicly traded real estate owner focused exclusively on the D.C. region, is feeling the pain from the Trump administration's aggressive push to shrink the federal government. 

The REIT had a net loss of $28.6M in the third quarter, up from $27M in the same quarter last year, according to its Tuesday evening earnings release. Its net operating income among properties it has owned for 12 months or more decreased 6.7% from the prior quarter.

Through the first nine months of this year, its core funds from operations — a key metric measuring a REIT's cash flow — totaled $29M, less than half of the $62M it reported for the same period last year. 

The losses were driven in part by its roughly 6,000-unit multifamily portfolio, where same-store NOI dropped by 2.2%, caused by increased expenses and lower occupancy. Those units were 93.1% leased as of Sept. 30, down 1.6% from the prior quarter. 

“The larger-than-normal loss in occupancy and a continuation of a deceleration in rent growth that have persisted since the spring has us monitoring the health of the market closely,” JBG Smith CEO Matt Kelly wrote in a letter accompanying the earnings release, commenting on the region's overall multifamily market.

Kelly attributed the drop in demand to the Trump administration's job cuts this year, citing Bureau of Labor Statistics data that the region has lost 13,000 jobs since the beginning of the year. That includes federal agencies and contractors that depend on government spending. 

“In the near term, we expect demand to remain tepid at a regional level due to disruptions and uncertainty around the federal government and its all-important procurement spending,” Kelly wrote in his quarterly letter to investors. 

The company's office portfolio ended the third quarter at 77.6% leased, up 1.1% from the prior quarter. The REIT says it signed 182K SF of leases last quarter.

Kelly said JBG Smith is capturing office demand from defense and technology-related tenants in the National Landing area near Amazon HQ2 and the Pentagon.

He said the federal procurement activity that benefits the area's office tenants had picked back up after being halted earlier in the year, but the ongoing government shutdown “has the potential to significantly disrupt that normalization.”

“It has already impacted economic activity in our region and, if prolonged, could begin to hinder tenants’ desire to make leasing decisions, and significantly dampen regional economic activity,” he said. “The uncertainty surrounding federal operations and procurement, particularly in a market as closely tied to government and defense spending as ours, poses real risks to growth and stability.”

The risks could further stress JBG Smith's D.C.-area portfolio as it already faces questions about its financial health.  The Washington Business Journal reported this month that the company's debt levels have raised concerns among industry experts, pointing to a key leverage ratio called net debt to annualized adjusted earnings before interest, taxes, depreciation and amortization.

That ratio has been in the double digits for six quarters in a row, while experts told the WBJ a healthy range is 5% to 6%. For the third quarter, the REIT reported a 12.6% ratio. 

It attributed its high leverage to four apartment projects it recently delivered — including the 355-unit The Valen in the quarter — that need to be leased up. It said it expects rent growth, the stabilization of those assets and a potential rebound in office demand to lower its debt-to-EBIDTA ratio.

The company's strategy to navigate this tumultuous period, which it highlighted in previous quarters and maintained Tuesday, has been to repurchase its own stock, sell multifamily assets and buy distressed office.

It sees today's multifamily pricing as attractive for sellers, and Kelly said last quarter that market distress is “creating some of the most attractive office investment opportunities in nearly two decades.”

JBG Smith's stock price is up nearly 40% so far in 2025, but it is still trading at roughly half of its prepandemic value.