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JBG Smith Lost $23M In Q3 As Commercial, Multifamily Occupancies Declined

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JBG Smith's West Half apartment building across the street from Nationals Park delivered in 2019.

JBG Smith, one of the largest commercial and multifamily landlords in the D.C. market, is increasingly feeling the pain from the coronavirus pandemic.  

The Bethesda-based REIT, in its quarterly earnings release Tuesday, reported a Q3 net loss of $22.8M and a year-to-date net loss of $16.6M. 

It attributed the loss to the short-term impacts of the pandemic, including falling multifamily and commercial occupancy rates, but it said it remains bullish on the D.C. market and is still moving forward with new developments. 

The landlord's multifamily occupancy fell from 82.3% as of June 30 to 76.6% as of Sept. 30. This drop came in part because its newly delivered 433-unit building in Shaw is 18% occupied, but its multifamily portfolio also experienced a $4.9M net decline in same-store net operating income, a metric that exempts new buildings.  

JBG Smith CEO Matt Kelly said he sees an overall softness in the apartment market. 

"COVID-19 continues to adversely impact residential leasing demand with overall market demand below normal levels during what is typically prime leasing season," Kelly wrote in his letter to investors. "Occupancy has also been negatively impacted by work-from-home initiatives, which have driven younger renters to give up their urban apartments and move in with parents or take advantage of low interest rates to pursue home purchases."

The landlord's commercial occupancy, including office and retail space, dropped to 85.3% at the end of September from 88.1% as of June 30. It collected nearly all of its office rents, but its retail tenants paid just 63.1% of rents, leaving $3.6M in unpaid bills.

Kelly said JBG Smith has seen increasing demand for rent relief in its retail portfolio, and it is reaching arrangements with smaller, non-credit retail tenants on a case-by-case basis.

"As expected, the retail sector continues to suffer dramatically, as many retailers remain closed or struggle to generate sales volume with different operating models, such as takeout," Kelly said. "As we head into the winter, and the pandemic worsens, it is likely that we will experience additional retail closures with restaurants unable to take advantage of outdoor seating."

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JBG Smith CEO Matt Kelly speaking at Bisnow's Amazon HQ2-Apalooza in February 2019.

The company cited additional pandemic-related losses including a $3.9M decline in parking revenue and a $900K decline in net operating income from the Crystal City Marriott. 

"Notwithstanding these short-term impacts, we believe our low leverage and strong liquidity leave us well-positioned to continue managing through this downturn while also capitalizing on future growth opportunities," Kelly said.

Despite the REIT's losses this year, it said it is still planning to move forward with a series of new developments. The next project in its pipeline is the 800-unit development at 1900 Crystal Drive, near the Amazon HQ2 campus, which it said is fully entitled and could begin construction early next year.  

"Given our ample liquidity, this economic downturn presents a unique opportunity for us to grow our multifamily portfolio alongside Amazon during a period of potentially lower construction costs and an expected significant increase in future residential demand," Kelly said. 

The company changed the definition of its near-term development pipeline from 18 months to 36 months, and in doing so, it put 10 projects totaling 5.6M SF into that pipeline. 

The pipeline includes seven projects in National Landing, five of them multifamily and two of them office, plus one office project in Reston and two multifamily projects in the District. It specified that the three office projects are dependent on pre-leases. 

JBG Smith said it remains optimistic about the large National Landing pipeline because Amazon isn't changing its plans to bring thousands of workers to HQ2. 

"Even in a post-COVID-19 world, we remain highly confident that our plan to build new multifamily units in National Landing is one of the most value-accretive, near-term capital investment opportunities in our portfolio," Kelly said. "Where other technology companies have announced plans for a more dramatic shift to remote work, Amazon has publicly indicated its intention to bring people back to the office and has increased its commitment to add office space across the country."