JBG SMITH Properties - Annual Report: 2019 (Form 10-K)

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•	Achieving a 4-star rating in the Global Real Estate Sustainability Benchmark (GRESB) Real Estate Assessment and 2019 Global Sector Leader - Diversified - Office/Residential Sector

•	Maintaining oversight of environmental and social matters by the Board of Trustees' Corporate Governance & Nominating Committee

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Surpassing $104 million in investor commitments to the WHI Impact Pool, which is the social impact investment vehicle of the WHI (the "Impact Pool"), and closing its first investment, a $15.1 million mezzanine loan for the purchase of a residential community in Alexandria, Virginia. We launched the WHI in partnership with the Federal City Council to preserve or build between 2,000 and 3,000 units of affordable workforce housing in the Washington, D.C. region over the next decade.

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•	69% of all operating assets, based on square footage, have earned at least one green certification:

◦	7.3 million square feet of LEED Certified Commercial Space (69%)

◦	1.6 million square feet of LEED Certified Multifamily Space (37%)

◦	4.4 million square feet of ENERGY STAR Certified Commercial Space (41%)

◦	1.9 million square feet of ENERGY STAR Certified Multi-family Space (42%)

•	84% of our operational assets' energy and water use are benchmarked

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•	Preserving or building between 2,000 and 3,000 units of affordable workforce housing in the Washington, D.C. region over the next decade; and

•	Delivering triple bottom line results consisting of environmental and social objectives in addition to financial returns.

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•	construction or redevelopment costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated, or unprofitable;

•	time required to complete the construction or redevelopment of a project or to lease-up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;

•	contractor, subcontractor and supplier disputes, strikes, labor disputes, weather conditions or supply disruptions;

•	failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all;

•	delays with respect to obtaining, or the inability to obtain, necessary zoning, occupancy, land use and other governmental permits, and changes in zoning and land use laws;

•	occupancy rates and rents of a completed project may not be sufficient to make the project profitable;

•	incurrence of design, permitting and other development costs for opportunities that we ultimately abandon;

•	the ability of prospective real estate venture partners or buyers of our properties to obtain financing; and

•	the availability and pricing of financing to fund our development activities on favorable terms or at all.

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•	even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;

•	we may acquire properties that are not accretive to our results upon acquisition, and we may not be able to successfully manage and lease those properties to meet our expectations;

•	we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

•	we may be unable to integrate new acquisitions quickly and efficiently, particularly acquisitions of portfolios of properties, into our existing operations, and, as a result, our results of operations and financial condition could be adversely affected;

•	market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

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we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities, such as liabilities for clean‑up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of such properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, trustees, officers and others indemnified by the former owners of such properties.

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•	our cash flow may be insufficient to meet our required principal and interest payments;

•	we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs;

•	we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

•	we may be forced to dispose of one or more of our assets, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;

•	we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and

•	our default under any loan with cross-default provisions could result in a default on other indebtedness.

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•	global, national, regional and local economic conditions;

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•	competition from other available space;

•	local conditions such as an oversupply of space or a reduction in demand for real estate in the area;

•	how well we manage our assets;

•	the development and/or redevelopment of our assets;

•	changes in market rental rates;

•	the timing and costs associated with property improvements and rentals;

•	whether we can pass all or portions of any increases in operating costs through to tenants;

•	changes in real estate taxes and other expenses;

•	whether tenants and users consider a property attractive;

•	the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

•	availability of financing on acceptable terms or at all;

•	inflation or deflation;

•	fluctuations in interest rates;

•	our ability to obtain adequate insurance;

•	changes in zoning laws and taxation;

•	government regulation;

•	consequences of any armed conflict involving, or terrorist attack against, the United States or individual acts of violence in public spaces;

•	potential liability under environmental or other laws or regulations;

•	natural disasters;

•	general competitive factors; and

•	climate change.

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•	discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common shares or that our shareholders might otherwise believe to be in their best interest; or

•	result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

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"business combination" provisions that, subject to limitations, prohibit business combinations between us and an "interested shareholder" (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then-outstanding voting shares at any time within the two-year period immediately prior to the date in question) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter impose fair price and/or supermajority shareholder voting requirements on these combinations; and

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"control share" provisions that provide that a shareholder’s "control shares" of our company (defined as shares that, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares") have no voting rights with respect to their control shares, except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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•	cause us to issue additional authorized but unissued common or preferred shares;

•	classify or reclassify, in one or more classes or series, any unissued common or preferred shares;

•	set the preferences, rights and other terms of any classified or reclassified shares that we issue; and

•	amend our declaration of trust to increase the number of shares of beneficial interest that we may issue.

•	actual receipt of an improper benefit or profit in money, property or services; or

•	a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated.

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•	the economic health of the greater Washington Metro region and our geographic concentration therein, in particular our concentration in National Landing;

•	reductions in or actual or threatened changes to the timing of federal government spending;

•	changes in general political, economic and competitive conditions and specific market conditions;

•	the risks associated with real estate development and redevelopment, including unanticipated expenses, delays and other contingencies;

•	the risks associated with the acquisition, disposition and ownership of real estate in general and our real estate assets in particular;

•	the ability to control our operating expenses;

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•	the risks related to co-investments in real estate ventures and partnerships;

•	the ability to renew leases, lease vacant space or re-let space as leases expire, and to do so on favorable terms;

•	the economic health of our tenants;

•	fluctuations in interest rates;

•	the supply of competing properties and competition in the real estate industry generally;

•	the availability and terms of financing and capital and the general volatility of securities markets;

•	the risks associated with mortgage debt and other indebtedness;

•	compliance with applicable laws, including those concerning the environment and access by persons with disabilities;

•	terrorist attacks and the occurrence of cyber incidents or system failures;

•	the ability to maintain key personnel;

•	failure to qualify and maintain our qualification as a REIT and the risks of changes in laws affecting REITs; and

•	other factors discussed under the caption "Risk Factors."

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(1)	"C" denotes a consolidated interest. "U" denotes an unconsolidated interest.

(2)	"Y" denotes an asset as same store and "N" denotes an asset as non-same store. Same store refers to assets that were in service for the entirety of both periods being compared, except for assets for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

(3)	Represents percentage of total square feet subject to executed leases, including leases that have been executed but for which the tenants have not taken occupancy of the space.

(4)	Asset is subject to a ground lease.

(5)	This asset, a development site in Washington, D.C., was leased by us (as landlord) in 2018 for a 99-year term, with no extension options.

(6)	The following assets contain space that is held for development or not otherwise available for lease. This out-of-service square footage is excluded from area, leased, and occupancy metrics in the above table.

(7)	In December 2019, we sold a 50% interest in a real estate venture that owns Central Place Tower.

(8)	Includes our corporate office lease for approximately 84,400 square feet.

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(1)	"C" denotes a consolidated interest. "U" denotes an unconsolidated interest.

(2)	"Y" denotes an asset as same store and "N" denotes an asset as non-same store. Same store refers to assets that were in service for the entirety of both periods being compared, except for assets for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

(3)	Represents percentage of total square feet subject to executed leases, including leases that have been executed but for which the tenants have not taken occupancy of the space.

(4)	In December 2019, we acquired F1RST Residences for $160.5 million.

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(5)	Asset is subject to a ground lease.

(6)	The following asset contains space that is held for development or not otherwise available for lease. This out-of-service square footage is excluded from area, leased, and occupancy metrics in the above table.

(7)	During the third quarter of 2019, we completed the construction of West Half.

(8)	Ownership percentage reflects expected dilution of our real estate venture partner as contributions are funded during the construction of the asset. As of December 31, 2019, our ownership interest was 95.0%.

(1)	Represents management's estimate of the total office and/or retail rentable square feet and multifamily units that would need to be redeveloped to access some of the estimated potential development density.

(2)	As of December 31, 2019, the weighted average remaining term for the optioned future development assets is 4.5 years.

(3)

Represents the estimated potential development density that we have sold to Amazon pursuant to executed purchase and sale agreements. Subject to customary closing conditions, Amazon contracted to acquire these two development sites for an estimated aggregate $293.9 million. In January 2020, we sold the Metropolitan Park land sites to Amazon for a gross sales price of $155.0 million, which represents an $11.0 million increase over the previously estimated contract value resulting from an increase in the approved development density on the sites. We expect the sale of the Pen Place land site to Amazon to be completed in 2021.

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(1)

Represents monthly base rent before free rent, plus tenant reimbursements, as of lease expiration multiplied by 12 and divided by square feet. Triple net leases are converted to a gross basis by adding tenant reimbursements to monthly base rent. Tenant reimbursements at lease expiration are estimated by escalating tenant reimbursements as of December 31, 2019, or management’s estimate thereof, by 2.75% annually through the lease expiration year.

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(1)

FFO attributable to common shareholders and FFO per diluted common share prior to the year ended December 31, 2018 are excluded since periods before and after the Formation Transaction are not directly comparable. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Funds from Operations" for a reconciliation of net income attributable to common shareholders, the most directly comparable GAAP measure, to FFO.

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net income attributable to common shareholders of $65.6 million, or $0.48 per diluted common share, for the year ended December 31, 2019 as compared to $39.9 million, or $0.31 per diluted common share, for the year ended December 31, 2018. Net income attributable to common shareholders for the years ended December 31, 2019 and 2018 included gains on the sale of real estate of $105.0 million and $52.2 million, and transaction and other costs of $23.2 million and $27.7 million;

•	third-party real estate services revenue, including reimbursements, of $120.9 million for the year ended December 31, 2019 as compared to $98.7 million for the year ended December 31, 2018;

•	operating commercial portfolio leased and occupied percentages at our share of 91.4% and 88.2% as of December 31, 2019 compared to 89.6% and 85.5% as of December 31, 2018;

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operating multifamily portfolio leased and occupied percentages at our share of 89.5% and 87.2% as of December 31, 2019 and 95.7% and 93.9% as of December 31, 2018. The decreases are due in part to the movement of West Half into our recently delivered operating assets during the fourth quarter of 2019. The in service operating multifamily portfolio was 95.1% leased and 93.3% occupied as of December 31, 2019;

•	the leasing of approximately 2.3 million square feet, or 2.1 million square feet at our share, at an initial rent (1) of $45.61 per square foot and a GAAP-basis weighted average rent per square foot (2) of $46.31 for the year ended December 31, 2019; and

•	a decrease in same store (3) NOI of 7.0% to $292.3 million for the year ended December 31, 2019 as compared to $314.1 million for the year ended December 31, 2018.

(1)	Represents the cash basis weighted average starting rent per square foot, which excludes free rent and fixed escalations.

(2)	Represents the weighted average rent per square foot that is recognized over the term of the respective leases, including the effect of free rent and fixed escalations.

(3)	Includes the results of the properties that are owned, operated and in service for the entirety of both periods being compared except for properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

•	the closing of an underwritten public offering of 11.5 million common shares (including 1.5 million common shares related to the exercise of the underwriters' option to cover overallotments) at $42.00 per share, which generated net proceeds, after deducting the underwriting discounts and commissions and other offering expenses, of $472.8 million;

•	the sale of three commercial assets for the gross sales price of $165.4 million, and the sale of a 50.0% interest in a real estate venture that owns Central Place Tower for the gross sales price of $220.0 million;

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the execution of agreements for the sale of the Pen Place and Metropolitan Park land sites with Amazon for its headquarters in National Landing, for an estimated aggregate $293.9 million. In January 2020, we sold the Metropolitan Park land sites to Amazon for the gross sales price of $155.0 million, which represents an $11.0 million increase over the previously estimated contract value as the result of an increase in the approved development density on the sites;

•	the acquisition of F1RST Residences, a 325-unit multifamily asset located in the Ballpark submarket of Washington, D.C. with approximately 21,000 square feet of street level retail, for $160.5 million through a like-kind exchange agreement with a third-party intermediary;

•	a $200.0 million draw under the revolving credit facility, which was repaid in 2020;

•	the repayment of mortgages payable totaling $709.1 million;

•	the payment of dividends totaling $129.8 million and distributions to our noncontrolling interests of $17.4 million; and

•	the investment of $441.0 million in development, construction in progress and real estate additions.

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•	the amendment of the credit facility to extend the maturity date of the revolving credit facility to January 2025;

•	the closing of a mortgage loan with a principal balance of $175.0 million collateralized by 4747 and 4749 Bethesda Avenue; and

•	the issuance of 471,598 long-term incentive partnership units ("LTIP Units") and 593,100 LTIP Units with performance-based vesting requirements ("Performance-Based LTIP Units") to management and employees with an estimated aggregate fair value of $29.4 million.

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The value allocable to the above- or below-market component of an acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired lease) of the difference between (i) the contractual amounts to be received pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be received using market rates over the remaining term of the lease. Amounts allocated to above- market leases are recorded as lease intangible assets in "Other assets, net" in our balance sheets, and amounts allocated to below-market leases are recorded as lease intangible liabilities in "Other liabilities, net" in our balance sheets. These intangibles are amortized to "Property rentals revenue" in our statements of operations over the remaining terms of the respective leases;

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Factors considered in determining the value allocable to in-place leases during hypothetical lease-up periods related to space that is leased at the time of acquisition include (i) lost rent and operating cost recoveries during the hypothetical lease-up period and (ii) theoretical leasing commissions required to execute similar leases. These intangible assets are recorded as lease intangible assets in "Other assets, net" in our balance sheets and are amortized to "Depreciation and amortization expense" in our statements of operations over the remaining term of the existing lease; and

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The fair value of the in-place property management, leasing, asset management, and development and construction management contracts is based on revenue and expense projections over the estimated life of each contract discounted using a market discount rate. These management contract intangibles are amortized to "Depreciation and amortization expense" in our statements of operations over the weighted average life of the management contracts.

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(1)	Due to our adoption of Topic 842, beginning in 2019, we no longer capitalize internal leasing costs and expense these costs as incurred (such costs were $6.5 million for the year ended December 31, 2018).

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(1)	Excludes parking revenue of $26.0 million and $25.7 million for the years ended December 31, 2019 and 2018.

(2)	Adjustment to exclude straight-line rent, above/below market lease amortization and lease incentive amortization.

(3)	Adjustment to include other revenue and payments associated with assumed lease liabilities related to operating properties and to exclude commercial lease termination revenue and allocated corporate general and administrative expenses to operating properties.

(4)	Includes the results for our under construction assets and future development pipeline.

(5)	Includes the results for properties that were not in service for the entirety of both periods being compared and properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared. The decrease in non-same store NOI was primarily attributable to lost income from disposed assets.

(6)	Includes the results of the properties that are owned, operated and in service for the entirety of both periods being compared except for properties for which significant redevelopment, renovation or repositioning occurred during either of the periods being compared.

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(1)	Represents reimbursements of expenses incurred by us on behalf of third parties, including allocated payroll costs and amounts paid to third-party contractors for construction management projects.

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(1)	Includes activity related to future development assets and corporate entities and the elimination of intersegment activity.

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(1)	Weighted average effective interest rate as of December 31, 2019.

(2)	Includes a variable rate mortgage payable with an interest rate cap agreement as of December 31, 2018.

(3)	Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.

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(1)	Interest rate as of December 31, 2019.

(2)	As of December 31, 2019 and 2018, letters of credit with an aggregate face amount of $1.5 million and $5.7 million were provided under our revolving credit facility.

(3)	As of December 31, 2019 and 2018, net deferred financing costs related to our revolving credit facility totaling $3.1 million and $4.8 million were included in "Other assets, net."

(4)	The interest rate for the revolving credit facility excludes a 0.15% facility fee. In January 2020, the credit facility was amended to extend the maturity date of the revolving credit facility from July 2021 to January 2025, and to reduce its range of interest rates by five basis points to LIBOR plus 1.05% to 1.50%.

(5)	The interest rate includes the impact of interest rate swap agreements.

•	normal recurring expenses;

•	debt service and principal repayment obligations, including balloon payments on maturing debt;

•	capital expenditures, including major renovations, tenant improvements and leasing costs;

•	development expenditures;

•	dividends to shareholders and distributions to holders of OP Units and

•	possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests therein.

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•	cash flows from operations;

•	distributions from real estate ventures;

•	cash and cash equivalent balances;

•	proceeds from the issuance and sale of equity securities and

•	proceeds from financings, recapitalizations and asset sales.

(1)	Interest was computed giving effect to interest rate hedges. One-month LIBOR of 1.76% was applied to loans which are variable (no hedge) or variable with an interest rate cap. Additionally, we assumed no additional borrowings on construction loans.

(2)	Excludes our proportionate share of unconsolidated real estate venture indebtedness. See additional information in Off-Balance Sheet Arrangements section below.

(3)	With the adoption of Topic 842, as of January 1, 2019, we recognized right-of-use assets and lease liabilities in our balance sheet associated with our corporate office lease and various ground leases for which we are the lessee. See Note 2 to the financial statements for more information.

(4)	Excludes obligations related to construction or development contracts, since payments are only due upon satisfactory performance under the contracts. See Commitments and Contingencies section below for additional information.

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(1)	Includes a variable rate mortgage payable with an interest rate cap agreement as of December 31, 2018.

(2)	Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.

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(3)	The interest rate for the revolving credit facility excludes a 0.15% facility fee.

(4)	As of December 31, 2019 and 2018, the outstanding balance was fixed by interest rate swap agreements.

(5)	As of December 31, 2019, a portion of the outstanding balance was fixed by interest rate swap agreements with a notional value of $137.6 million.

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•	We tested the effectiveness of the controls over management’s judgments to determine whether a real estate venture is a VIE and whether the Company is the primary beneficiary or has a controlling financial interest, both at inception of a real estate venture and upon occurrence of a reconsideration event.

•	We assessed each of the Company’s new or modified real estate ventures and evaluated the appropriateness of the Company’s accounting conclusions upon formation and reconsideration events by:

▪	Reading the operating agreements, including the operating agreement for the real estate venture that owns Central Place Tower, and other related documents and evaluating the structure and terms of the agreements to determine whether a real estate venture is a VIE and whether the Company is the primary beneficiary or has a controlling financial interest that should be consolidated.

▪	Evaluating the evidence obtained in other areas of the audit to determine if there were additional reconsideration events that had not been identified by the Company, including, among others, reading board minutes and understanding changes to the real estate venture’s economics and status of development projects, if applicable.

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•	Reclassification of parking revenue totaling $25.7 million and $23.1 million previously included in "Property rentals revenue" for the years ended December 31, 2018 and 2017 to "Other revenue" in our statements of operations.

•	Reclassification of tenant reimbursements totaling $39.3 million and $38.0 million for the years ended December 31, 2018 and 2017 to "Property rentals revenue" in our statements of operations.

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The value allocable to the above- or below-market component of an acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired lease) of the difference between (i) the contractual amounts to be received pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be received using market rates over the remaining term of the lease. Amounts allocated to above- market leases are recorded as lease intangible assets in "Other assets, net" in our balance sheets, and amounts allocated to below-market leases are recorded as lease intangible liabilities in "Other liabilities, net" in our balance sheets. These intangibles are amortized to "Property rentals revenue" in our statements of operations over the remaining terms of the respective leases;

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Factors considered in determining the value allocable to in-place leases during hypothetical lease-up periods related to space that is leased at the time of acquisition include (i) lost rent and operating cost recoveries during the hypothetical lease-up period and (ii) theoretical leasing commissions required to execute similar leases. These intangible assets are recorded as lease intangible assets in "Other assets, net" in our balance sheets and are amortized to "Depreciation and amortization expense" in our statements of operations over the remaining term of the existing lease; and

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The fair value of the in-place property management, leasing, asset management, and development and construction management contracts is based on revenue and expense projections over the estimated life of each contract discounted using a market discount rate. These management contract intangibles are amortized to "Depreciation and amortization expense" in our statements of operations over the weighted average life of the management contracts.

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(1)	The total for operating leases of $28.5 million corresponds to lease liabilities related to operating right-of-use assets, which was included in "Other liabilities, net" as of December 31, 2019. See Note 10 for additional information.

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3.	The Combination

(1)	During the year ended December 31, 2017, we received proceeds of $50.9 million from the repayment of the notes receivable acquired in the Combination.

(2)	Subject to various interest rate swap and cap agreements assumed in the Combination that are considered economic hedges, but not designated as accounting hedges.

(3)	In the Combination, two ground leases were assumed that were determined to be capital leases. On July 25, 2017, we purchased a land parcel located in Reston, Virginia associated with one of the ground leases for $19.5 million.

(4)

Includes a $14.0 million payment to a tenant, which was paid in 2018, and a $34.1 million lease liability we assumed in relocating a tenant to one of our office buildings. The $34.1 million assumed lease liability was based on the contractual payments we assumed under the tenant’s previous lease, which are partially offset by estimated sub-tenant income we anticipate receiving as we actively pursue a sub-tenant.

(5)	Related to the management and leasing contracts acquired in the Combination.

(6)

The Combination resulted in a gain on bargain purchase of $24.4 million for the year ended December 31, 2017 because the fair value of the identifiable net assets acquired exceeded the purchase consideration. As a result of finalizing our fair value estimates used in the purchase price allocation related to the Combination, during the year ended December 31, 2018, we adjusted the fair value of certain assets acquired and liabilities assumed consisting of a decrease of $468,000 to investments in unconsolidated real estate ventures, an increase of $4.7 million to lease assumption liabilities and an increase of $2.4 million to other liabilities acquired, resulting in a reduction of the gain on bargain purchase of $7.6 million for the year ended December 31, 2018. The purchase consideration was based on the fair value of the common shares and OP Units issued in the Combination. We have concluded that all acquired assets and liabilities were recognized and that the valuation procedures and resulting estimates of fair values were appropriate.

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(1)	Represents the implied exchange ratio of one common share and OP Unit of JBG SMITH for 2.71 common shares and common limited partnership units prior to the Combination.

(2)	Represents the volume weighted average share price on July 18, 2017.

(3)

OP Unit consideration paid to certain of the owners of the JBG Assets, which have a fair value of $110.6 million, is subject to post-combination employment with vesting over periods of either 12 or 60 months and amortization is recognized as compensation expense over the period of employment in "General and administrative expense: Share-based compensation related to Formation Transaction and special equity awards" in our statements of operations.

(1)	In determining these useful lives, we considered the length of time the asset had been in existence, the maintenance history, as well as anticipated future maintenance, and any contractual stipulations that might limit the useful life.

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(2)	Includes in-place property management, leasing, asset management and development management contracts.

(1)	The sale also included 894,000 square feet of estimated potential development density. The sale was part of a like-kind exchange. See Note 7 for additional information.

(2)	Cash proceeds include the reimbursement of $4.0 million of tenant improvement costs and leasing commissions paid by us prior to the closing.

(3)	Represents the gain, net of certain liabilities, on the sale of a 50.0% interest in the entity that owns Central Place Tower and the remeasurement of our remaining 50.0% interest to fair value. See Note 6 for additional information.

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(1)

In March 2019, we entered into agreements for the sale of Pen Place and Metropolitan Park, land sites having an aggregate estimated potential development density of up to approximately 4.1 million square feet, for approximately $293.9 million, subject to customary closing conditions. In January 2020, we sold the Metropolitan Park land sites to Amazon for the gross sales price of $155.0 million, which represents an $11.0 million increase over the previously estimated contract value as the result of an increase in the approved development density on the sites. The sale was part of a like-kind exchange. See Note 7 for additional information.

(2)	As noted above, we sold Commerce Executive/Commerce Metro Land in February 2019.

(1)

Due to the adoption of Topic 842 as of January 1, 2019, we recognize changes in the assessment of collectability of tenant receivables as adjustments to the specific tenant’s receivable in our balance sheet and to "Property rentals revenue" in our statement of operations. Prior to the adoption of Topic 842, we recorded estimated losses on tenant receivables as an allowance for doubtful accounts in our balance sheets and to "Property operating expenses" in our statements of operations.

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(1)	Ownership interests as of December 31, 2019. We have multiple investments with certain venture partners with varying ownership interests.

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(1)	Weighted average effective interest rate as of December 31, 2019.

(2)	Includes variable rate mortgages payable with interest rate cap agreements.

(3)	Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.

(4)	See Note 19 for additional information on guarantees of the debt of certain of our unconsolidated real estate ventures.

(1)	On January 1, 2019, our unconsolidated real estate ventures adopted Topic 842, which required the ventures to record operating right-of-use assets totaling $52.4 million and related lease liabilities totaling $44.1 million.

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(1)	Includes gain on sale of The Warner of $32.5 million recognized by our unconsolidated real estate venture with CPPIB during the year ended December 31, 2018.

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(1)	Related to our adoption of Topic 842 on January 1, 2019. See Note 2 for additional information.

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(1)	Weighted average effective interest rate as of December 31, 2019.

(2)	Includes a variable rate mortgage payable with an interest rate cap agreement as of December 31, 2018.

(3)	Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.

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(1)	Interest rate as of December 31, 2019.

(2)	As of December 31, 2019 and 2018, letters of credit with an aggregate face amount of $1.5 million and $5.7 million were provided under our revolving credit facility.

(3)	As of December 31, 2019 and 2018, net deferred financing costs related to our revolving credit facility totaling $3.1 million and $4.8 million were included in "Other assets, net."

(4)	The interest rate for the revolving credit facility excludes a 0.15% facility fee. In January 2020, the credit facility was amended to extend the maturity date of the revolving credit facility from July 2021 to January 2025, and to reduce its range of interest rates by five basis points to LIBOR plus 1.05% to 1.50%.

(5)	The interest rate includes the impact of interest rate swap agreements.

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(1)	Related to our adoption of Topic 842 on January 1, 2019. See Note 2 for additional information.

(2)	In December 2019, we sold a 50.0% interest in Central Place Tower, which resulted in the deconsolidation of the entity that was the lessee to our sole finance lease. See Note 6 for additional information.

(3)	In connection with our adoption of Topic 842 on January 1, 2019, the ground lease deferred rent payable balance as of December 31, 2018 was included in the initial determination of the operating right-of-use assets. See Note 2 for additional information.

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(1)	See Note 13 for additional information.

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(1)

For the years ended December 31, 2019 and 2018, primarily includes compensation expense for certain executives who have elected to receive all or a portion of any cash bonus that may be paid in the subsequent year related to past service in the form of fully vested LTIP Units and related to our ESPP. For the year ended December 31, 2017, represents share-based compensation expense related to equity awards prior to the Formation Transaction.

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(2)	Represents share-based compensation expense for LTIP Units and OP Units subject to post-Combination employment obligations.

(3)	Represents equity awards issued related to our successful pursuit of Amazon's additional headquarters in National Landing.

(4)	Included in "General and administrative expense: Share-based compensation related to Formation Transaction and special equity awards" in the accompanying statements of operations.

(1)	In November 2019, we relocated our corporate headquarters. Upon the relocation of our corporate headquarters, we incurred an impairment charge on the right-of-use assets for leases related to our former corporate headquarters as well as other costs. See Note 17 for more information.

(2)	Related to 1900 Crystal Drive.

(3)

For the year ended December 31, 2019 includes integration and severance costs. For the year ended December 31, 2018 includes transition services provided by our former parent, and integration and severance costs. For the year ended December 31, 2017 includes severance and transaction bonus expense of $40.8 million, investment banking fees of $33.6 million, legal fees of $13.9 million and accounting fees of $10.8 million.

(4)	For the year ended December 31, 2019 represents a contribution to the Washington Housing Conservancy. For the year ended December 31, 2018 represents costs related to the successful pursuit of Amazon's additional headquarters at our properties in National Landing.

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(1)	Represents reimbursement of expenses incurred by us on behalf of third parties, including allocated payroll costs and amounts paid to third-party contractors for construction management projects.

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(1)	Excludes parking revenue of $26.0 million, $25.7 million and $23.1 million for each of the three years in the period ended December 31, 2019.

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(1)	Includes assets held for sale. See Note 4 for additional information.

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20.	Transactions with Vornado and Related Parties

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(1)	During the first quarter of 2019, we recognized a gain on the sale of real estate of $39.0 million from the sale of Commerce Executive/Commerce Metro Land.

(2)	During the third quarter of 2019, we recognized a gain on the sale of real estate of $8.1 million from the sale of 1600 K Street.

(3)

During the fourth quarter of 2019, we recognized an aggregate gain on the sale of real estate of $57.9 million, from the sale of Vienna Retail, and the partial sale and remeasurement of our remaining interest subsequent to the transfer of control in the real estate venture that owns Central Place Tower. Additionally, during the fourth quarter of 2019, we incurred an impairment charge of $10.2 million and certain additional expenses related to the relocation of our corporate headquarters.

(1)

During the second quarter of 2018, we recognized an aggregate gain on the sale of real estate of $33.4 million from the sale of Summit I and II and the Bowen Building, a reduction to the gain on bargain purchase of $7.6 million related to the final adjustments to the fair value of certain asset acquired and liabilities assumed in the Formation Transaction and a loss on the extinguishment of debt of $4.5 million.

(2)	During the third quarter of 2018, we recognized a gain of $15.5 million related to the sale of our interest in a real estate venture that owned the Investment Building and a gain on the sale of real estate of $11.9 million from the sale of Executive Tower.

(3)

During the fourth quarter of 2018, we recognized a gain of $20.6 million from the sale of The Warner by our unconsolidated real estate venture with CPPIB, transaction and other costs of $15.6 million related to expenses incurred in connection with the Formation Transaction (including transition services provided by our former parent, integration costs, and severance costs), costs related to the pursuit of Amazon's additional headquarter, and costs related to other completed, potential and pursued transactions, and an aggregate gain on the sale of real estate of $6.4 million, from the sale of 1233 20th Street and the out-of-service portion of Falkland Chase - North.

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•	dealers in securities or currencies;

•	traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

•	banks;

•	life insurance companies;

•	tax-exempt organizations;

•	certain insurance companies;

•	persons liable for the alternative minimum tax;

•	persons that hold shares that are a hedge, that are hedged against interest rate or currency risks or that are part of a straddle or conversion transaction;

•	persons that purchase or sell shares as part of a wash sale for tax purposes;

•	persons who do not hold our shares as capital assets; and

•	U.S. shareholders whose functional currency is not the U.S. dollar.

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•	First, we will have to pay tax at regular corporate rates on any undistributed real estate investment trust taxable income, including undistributed net capital gains.

•

Second, if we elect to treat property that we acquire in connection with certain leasehold terminations or a foreclosure of a mortgage loan as "foreclosure property," we may thereby avoid (i) the 100% prohibited transactions tax on gain from a resale of that property (if the sale otherwise would constitute a prohibited transaction); and (ii) the inclusion of any income from such property as non-qualifying income for purposes of the REIT gross income tests discussed below. Income from the sale or operation of the property may be subject to U.S. federal corporate income tax at the highest applicable rate (currently 21%).

•	Third, if we have net income from "prohibited transactions," as defined in the Code, we will have to pay a 100% tax on that income. Prohibited transactions are, in general, certain sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.

•

Fourth, if we should fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below under "-Requirements for Qualification-Income Tests," but have nonetheless maintained our qualification as a REIT because we have satisfied some other requirements, we will have to pay a 100% tax on an amount equal to (a) the gross income attributable to the greater of (i) 75% of our gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of our gross income over the amount of gross income that is qualifying income for purposes of the 95% test, multiplied by (b) a fraction intended to reflect our profitability.

•

Fifth, if we should fail to distribute during each calendar year at least the sum of (1) 85% of our real estate investment trust ordinary income for that year, (2) 95% of our real estate investment trust capital gain net income for that year and (3) any undistributed taxable income from prior periods, we would have to pay a 4% excise tax on the excess of that required distribution over the sum of the amounts actually distributed and retained amounts on which income tax is paid at the corporate level.

•

Sixth, if we acquire any asset from a C corporation in certain transactions in which we must adopt the basis of the asset or any other property in the hands of the C corporation as the basis of the asset in our hands, and we recognize gain on the disposition of that asset during the five-year period beginning on the date on which we acquired that asset, then we will have to pay tax on the built-in gain at the highest regular corporate rate. A C corporation means generally a corporation that has to pay full corporate-level tax.

•

Seventh, if we derive "excess inclusion income" from a residual interest in a real estate mortgage investment conduit, or "REMIC," or certain interests in a taxable mortgage pool, or "TMP," we could be subject to corporate level federal income tax at a 21% rate to the extent that such income is allocable to certain types of tax-exempt shareholders that are not subject to unrelated business income tax, such as government entities.

•	Eighth, if we receive non-arm’s-length income from a "taxable REIT subsidiary" (as defined under "-Requirements for Qualification-Asset Tests"), or as a result of services provided by a taxable REIT subsidiary to our tenants or to us, we will be subject to a 100% tax on the amount of our non-arm’s-length income.

•	Ninth, if we fail to satisfy a REIT asset test, as described below, due to reasonable cause and we nonetheless maintain our REIT qualification because of specified cure provisions, we will generally be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.

•	Tenth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the REIT gross income tests or a violation of the asset tests described below) and the violation is due to reasonable cause, we may retain our REIT qualification but will be required to pay a penalty of $50,000 for each such failure.

•	Eleventh, we have a number of taxable REIT subsidiaries, the net income of which will be subject to U.S. federal, state and local corporate income tax.

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•	which is managed by one or more directors or trustees;

•	the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

•	that would otherwise be taxable as a domestic corporation, but for Sections 856 through 859 of the Code;

•	that is neither a financial institution nor an insurance company to which certain provisions of the Code apply;

•	the beneficial ownership of which is held by 100 or more persons (except with respect to the first taxable year for which an election to be taxed as a REIT is made);

•	during the last half of each taxable year, not more than 50% in value of the outstanding shares of which is owned, directly or constructively, by five or fewer individuals, as defined in the Code to include certain entities (the "not closely held requirement") (except with respect to the first taxable year for which an election to be taxed as a REIT is made); and

•	that meets certain other tests, including tests described below regarding the nature of its income and assets.

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First, we must derive at least 75% of our gross income, excluding gross income from prohibited transactions, for each taxable year directly or indirectly from investments relating to real property, mortgages on real property or investments in REIT equity securities, including "rents from real property," as defined in the Code, or from certain types of temporary investments. Rents from real property generally include our expenses that are paid or reimbursed by tenants.

•	Second, at least 95% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived from real property investments as described in the preceding bullet point, dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of these types of sources.

•	First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from rents from real property solely because it is based on a fixed percentage or percentages of receipts or sales.

•

Second, the Code provides that rents received from a tenant will not qualify as rents from real property in satisfying the gross income tests if the REIT, directly or under the applicable attribution rules, owns a 10% or greater interest in that tenant; except that rents received from a taxable REIT subsidiary under certain circumstances qualify as rents from real property even if we own more than a 10% interest in the subsidiary. We refer to a tenant in which we own a 10% or greater interest as a "related party tenant."

•	Third, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.

•

Finally, for rents received to qualify as rents from real property, the REIT generally must not operate or manage the property or furnish or render services to the tenants of the property, other than through an independent contractor from whom the REIT derives no revenue or through a taxable REIT subsidiary. However, we may directly perform certain services that landlords usually or customarily render when renting space for occupancy only or that are not considered rendered to the occupant of the property.

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•	Our failure to meet the income tests was due to reasonable cause and not due to willful neglect; and

•	We file a schedule of each item of income in excess of the limitations described above in accordance with regulations to be prescribed by the IRS.

•

First, at least 75% of the value of our total assets must be represented by real estate assets, including (a) real estate assets held by our qualified REIT subsidiaries, our allocable share of real estate assets held by partnerships in which we own an interest and stock issued by another REIT, (b) for a period of one year from the date of our receipt of proceeds of an offering of our shares of beneficial interest or publicly offered debt with a term of at least five years, stock or debt instruments purchased

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Second, not more than 25% of our total assets may be represented by securities other than those in the 75% asset class (except that not more than 25% of the REIT’s total assets may be represented by "nonqualified" debt instruments issued by publicly offered REITs). For this purpose, a "nonqualified" debt instrument issued by a publicly offered REIT is any real estate asset that would cease to be a real estate asset if the definition of a real estate asset was applied without regard to the reference to debt instruments issued by publicly offered REITs.

•	Third, not more than 20% of our total assets may constitute securities issued by taxable REIT subsidiaries and, of the investments included in the 25% asset class, the value of any one issuer’s securities, other than equity securities issued by another REIT or securities issued by a taxable REIT subsidiary, owned by us may not exceed 5% of the value of our total assets.

•	Fourth, we may not own more than 10% of the vote or value of the outstanding securities of any one issuer, except for issuers that are REITs, qualified REIT subsidiaries or taxable REIT subsidiaries, or certain securities that qualify under a safe harbor provision of the Code (such as so-called "straight-debt" securities).

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•	a citizen or resident of the United States;

•	a domestic corporation;

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•	an estate whose income is subject to U.S. federal income taxation regardless of its source; or

•	a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons have authority to control all substantial decisions of the trust.

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•	is described in Section 401(a) of the Code;

•	is tax-exempt under Section 501(a) of the Code; and

•	holds more than 10% (by value) of the equity interests in the REIT.

•	it would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Code provides that stock owned by qualified trusts will be treated, for purposes of the "not closely held" requirement, as owned by the beneficiaries of the trust (rather than by the trust itself); and

•	either (a) at least one qualified trust holds more than 25% by value of the interests in the REIT or (b) one or more qualified trusts, each of which owns more than 10% by value of the interests in the REIT, hold in the aggregate more than 50% by value of the interests in the REIT.

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•

A shareholder who participates in the dividend reinvestment feature of the DRIP and whose dividends are reinvested in our shares purchased from us will generally be treated for U.S. federal income tax purposes as having received the gross amount of any cash distributions which would have been paid by us to such a shareholder had they not elected to participate. The amount of the distribution deemed received will be reported on the Form 1099-DIV received by the shareholder.

•

A shareholder who participates in the dividend reinvestment feature of the DRIP and whose dividends are reinvested in our shares purchased in the open market, will generally be treated for U.S. federal income tax purposes as having received (and will receive a Form 1099-DIV reporting) the gross amount of any cash distributions which would have been paid by us to such a shareholder had they not elected to participate (plus any brokerage fees and any other expenses deducted from the amount of the distribution reinvested) on the date the dividends are reinvested.

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(1)	Includes allowance for doubtful accounts related to tenant and other receivables and deferred rent receivable.

(2)

Due to the adoption of Topic 842 as of January 1, 2019, we recognize changes in the assessment of collectability of tenant receivables as adjustments to the specific tenant’s receivable in our balance sheet and to "Property rentals revenue" in our statement of operations. Prior to the adoption of Topic 842, we recorded estimated losses on tenant receivables as an allowance for doubtful accounts in our balance sheets and to "Property operating expenses" in our statements of operations.

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(1)	Represents the contractual debt obligations.

(2)	Includes asset impairments recognized, amounts written off in connection with redevelopment activities, partial sale of assets and the reclassification of the net book value of assets to construction in progress.

(3)	Date of original construction, many assets have had substantial renovation or additional construction. See "Costs Capitalized Subsequent to Acquisition" column.

(4)	In January 2020, we sold the Metropolitan Park land sites to Amazon for a gross sales price of $155.0 million.

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