JBGS - JBG Smith

[thepupil]

In case AMZN's committment to National Landing was in doubt, they are buying and demolishing a hotel (for $150mm) next to HQ2 to make it bigger.

The site was always part of Amazon’s HQ2 plans, but the hotel remained the last holdout, and it appeared the company would just build around it......

Amazon’s HQ2 is currently in the midst of its 2.1 million-square foot Phase 1, which consists of two 22-story office towers plus retail, and is situated to the south in Metropolitan Park, land that Amazon acquired earlier this year from JBG Smith for a little under $155 million. The project is projected to deliver by 2023.

https://commercialobserver.com/2020/09/amazon-acquires-pentagon-city-hotel-for-148m-setting-stage-for-next-phase-of-hq2/

[bizaro86]

$100MM per acre...

[thepupil]

https://www.bisnow.com/washington-dc/news/office/walmart-labs-putting-full-herndon-building-on-sublease-market-as-it-shifts-to-remote-work-106189?utm_source=outbound_pub_7&utm_campaign=outbound_issue_42573&utm_content=outbound_link_10&utm_medium=email

[LounginMKL]

Pupil- thank you for the write-up.

I wonder if the recent Big Tech land-grab in NYC would pull the demand away from National Landing.

Excerpt:
After Amazon bought the Lord & Taylor building, it announced in August that 2,000 employees would eventually work there, increasing by half its current tech work force of 4,000.

Amazon now has eight office properties in New York, most of which are clustered in Midtown. The company recently expanded outside Manhattan, leasing space on the Brooklyn waterfront for its Amazon Music team.

“We know that talent attracts talent, and we believe that the creative energy of cities like New York will continue to attract diverse professionals from around the world,” said Ardine Williams, Amazon’s vice president of work force development.

Source: https://www.nytimes.com/2020/10/13/nyregion/big-tech-nyc-office-space.html

I know a few software engineers in NoVA. When I asked them whether they are interested in working for the Big Tech (albeit 7-10 years ago), they gave me blank stares. I'm under the impression that once you have a Security Clearance, there is little incentive for them to leave the gov't/ gov't contracting ecosystem. They are well-paid, have job security, good work-life balance. I wonder if National Landing HQ2 will be limited to initiatives that sell AWS to the federal government.

[thepupil]

I don't really see it as zero sum. AMZN has committed to 25,000 jobs there (there are only at 1,000 now) and has demonstrated that commitment very recently by voluntarily expanding the campus by paying up for some very expensive dirt (the hotel). Virginia Tech's campus was just approved. I see no evidence of AMZN pulling back from their commitment. 

I think it's hard to argue that having 25,000 people making an average of $150K, working (at least part of the week) next door to your asset base / development pipeline won't be a good thing. there's also lots of public $ going into the area for infrastructure, metro, stuff, making it less damn ugly, etc. 

National Landing/DC area will be a metro-connected dense millennial gen z or whatever playground where you can code to sell cloud services, lobby, lawyer it up, kill people with drones, save the world working at a non-profit, etc. and JBGS will probably benefit from that...eventually.

[Cardboard]

Hey Bizaro86, what is tax treatment for Canadians if you buy this in a taxable account. Seems like a REIT.

Moreover is this eligible for registered accounts? Thanks!

Cardboard

[bizaro86]

Hey Bizaro86, what is tax treatment for Canadians if you buy this in a taxable account. Seems like a REIT.

Moreover is this eligible for registered accounts? Thanks!

Cardboard

I don't own this, but assuming its a plain vanilla US REIT the taxation is pretty straightforward, imo. My understanding is that the US withholds 15% (assuming you're a Canadian with a properly completed W8-BEN). You can claim that as a credit on your Canadian taxes. Assuming your CAD tax rate is higher than 15% you get it back.

It should be registered account eligible. I own ALX in my RRSP, and the dividend there has been received with 0 withholding due to the tax treaty.

Worth noting here that the 0% withholding only applies to retirement accounts (RRSP, LIRA, etc). It explicitly doesn't apply to TFSA, RESP, or RDSP. So if you hold a US REIT (or any US dividend payer) you pay the withholding tax. Whats worse, because its in a registered account you can't claim the corresponding tax credit.

[Cardboard]

Thanks Bizaro86!

Bought some of this today. An excellent idea IMO.

Cardboard

[thepupil]

https://s1.q4cdn.com/569464730/files/doc_financials/2020/q3/JBGS-3Q-2020-Investor-Pkg-FINAL.pdf

results out, covid hurting retail/multi-family. company talking up the long term opportunity. losing a hotel asset (walking away), which i think most expected.

[thepupil]

I am serious when I say "this is why they make the big bucks". This is good stuff right here.

https://s1.q4cdn.com/569464730/files/doc_presentations/2020/12/Top-NAREIT-Questions-vFinal-(12.4.20).pdf

We target investment opportunities with the highest potential return, including share repurchases, which
we also evaluate for the impact on our liquidity. During the third quarter, we repurchased 1.4 million
shares at an average price of $26.64, bringing our total repurchases to $38.4 million for the quarter. At
those pricing levels, the return opportunity is far richer than any current internal or external alternative,
either from the standpoint of NAV per share impact or immediate return on investment. Limited private
market comps make precise NAVs challenging to determine at the present time, but even using the most
conservative estimate of post-pandemic asset values, we believe purchasing shares at the level we have
this year represents an enormous discount to NAV per share. While spot office values have no doubt
declined, we are confident there is still a wide profit margin at the price implied by our share repurchase
activity. Said differently, if we were to remove the value of our non-income producing land and
7
construction in progress at market value, and our income producing multifamily at a cap rate implied by
the trading range of our multifamily REIT peers, we believe the implied cap rate on our commercial
portfolio would be double digits.