Most real estate investment trusts (REITs) prefer to focus on either a specific property type or a certain metro region. That enables them to concentrate their efforts on what they know best and leverage their expertise to create the most value for their shareholders. This approach also allows investors to choose pure-play REITs that they believe are in an ideal position to benefit from a particular trend.
JBG SMITH Properties (NYSE: JBGS) is a market-focused REIT that owns a diversified portfolio of real estate in the Washington, D.C., metro area. That puts it in the driver's seat to benefit from a significant growth catalyst in the capital region.
JBG SMITH Properties profile
JBS SMITH Properties is a diversified REIT. It owns, operates, invests in, and develops mixed-use properties around the Washington, D.C., metro area. As of the end of 2020's third quarter, its portfolio comprised 20.8 million square feet of high-quality office, multifamily, and retail properties.
The company owned nearly 11.2 million square feet of commercial properties, including 10 million square feet of office space and 880,000 square feet of retail space. Its commercial portfolio contributed 79% of its net operating income (NOI) in the third quarter of 2020. The REIT also owned a 5,999-unit multifamily portfolio. These assets supplied 21% of its NOI during the third quarter of 2020.
While all of JBG SMITH's properties are in the capital region, it has high concentrations in specific submarkets:
- 57% of its NOI comes from the National Landing submarket of Virginia.
- 23% of its NOI comes from the D.C. area.
- 16% comes from other markets in Virginia.
- 4% comes from markets in Maryland.
The company's focus on National Landing is noteworthy because that's where e-commerce giant Amazon (NASDAQ: AMZN) is building its HQ2. That company is bringing more than 38,000 new jobs to the region, which will boost its daytime population by 70%. It's also driving $11 billion in public and private investments in the area, including new infrastructure, like metro stations and educational facilities like Virginia Tech's Innovation Campus. JBG SMITH is serving as Amazon's development manager for the project. The companies signed three lease agreements and two purchase and sale agreements in April of 2019, which help pave the way for the e-commerce giant to eventually develop up to 4.6 million square feet of office space in the area.
That massive influx of people and investment will benefit JBG SMITH's existing portfolio while also opening the door for it to develop additional properties in the future. The company currently has a 7.2 million-square-foot development pipeline in the National Landing market, including the potential to build 3,100 new multifamily units in the next three years. That's part of a broader 15 million square foot development pipeline in the D.C. metro area, 75% of which is new multifamily units and 25% is new office space. It anticipates starting 5.6 million square feet of those projects within three years. Given the heavy multifamily focus of that development pipeline, JBG SMITH envisions a future where at least 50% of its portfolio is multifamily, up from 31% in the third quarter of 2020.
While Amazon is a major catalyst for its future growth -- and currently its third-largest tenant at 3.3% of its total annualized rent -- the REIT is also heavily reliant on the U.S. Government. The company leases nearly 2.3 million square feet to the Government Services Administration (GSA), 23.7% of its total space and 20.7% of its annualized rent. Meanwhile, the government and government contractors combine to supply 40.1% of its rent. Even though that's a significant amount of concentration in one sector, the government is very stable, reducing the REIT's risk profile.
JBG SMITH Properties news
While having an anchor tenant like the U.S. Government helps stabilize JBG SMITH's portfolio, it's still susceptible to changes in the economy. That was evident in 2020 as the COVID-19 outbreak impacted the economy and the real estate market. For example, during the third quarter, JBG SMITH's NOI declined by 7.6% year over year due to rent deferral for some office and retail tenants, lower multifamily income as a result of lower occupancy and rental rates, a decline in parking revenue at its commercial properties, and lower occupancy at the Crystal City Marriott. Overall, the company's portfolio held up reasonably well as it collected 99.4% of the office rent it billed during that period, 98.5% of residential rent, and 63.1% of retail rent.
Despite the pandemic, JBG SMITH has continued to make progress on its development pipeline. It had two assets under construction at the end of 2020's third quarter, a 274,000- square-foot commercial asset and a 161-unit multifamily property. Meanwhile, the REIT modified its near-term development pipeline in the third quarter by focusing on properties it expects to complete within three years. These included 10 near-term development assets consisting of 5.6 million square feet of space. On top of that, the company has another 28 projects comprising 11.5 million square feet of estimated development potential, including 2.1 million square feet of Amazon-related projects.
JBG SMITH has also been investing in accelerating the rollout of 5G technology in the National Landing area. It spent $25.3 million to acquire 5G wireless spectrum licenses across the area during the third quarter so it can meet the needs of the tech-savvy workforce that will continue moving into that market.
The REIT also has an active capital recycling program. It aims to sell or recapitalize at least $1.5 billion of assets in the coming years to finance its development pipeline and acquire new multifamily units in high-growth submarkets. Earlier this year, it sold Metropolitan Park to Amazon for $155 million. It used those funds to acquire F1RST Residences, a 325-unit multifamily property with 21,000 square feet of street-level retail in the Ballpark submarket of Washington, D.C. for $160 million.
JBG SMITH Properties stock price
Despite its ties to Amazon's growth, JBG SMITH has delivered an underwhelming performance in recent years: