UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)10-Q
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20172018
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission file number 001-37994
logoverticaltransbluea02.jpg
JBG SMITH PROPERTIES

(Exact name of Registrant as specified in its charter)

Maryland 
81‑4307010

(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4445 Willard Avenue, Suite 400
Chevy Chase, MD
 20815
(Address of principal executive offices) (Zip Code)
(240) 333‑3600
Registrant’s telephone number, including area codecode: (240) 333‑3600

_______________________________                

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer ý Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ActAct. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý

As of August 10, 2017,3, 2018, JBG SMITH Properties had 118,200,851120,328,976 common shares outstanding.




EXPLANATORY NOTEJBG SMITH PROPERTIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2018

JBG SMITH Properties (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment”) to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2017 (the “Original 10-Q”) solely for the purpose of including certain exhibits that were inadvertently omitted from the Original 10-Q (the “Additional Exhibits”).

The Original 10-Q is being filed in its entirety with the certifications of the Company’s principal executive officer and principal financial officer being filed as of the date of this Amendment. Except for the addition of the Additional Exhibits, this Amendment does not modify or update disclosure in the Original 10-Q. Information not affected by this Amendment remains unchanged and reflects the disclosures made at the time the Original 10-Q was filed.


TABLE OF CONTENTS

JBG SMITH PROPERTIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2017
TABLE OF CONTENTS
 
   
Item 1.Page
 
Condensed CombinedConsolidated Balance Sheets (unaudited) as of June 30, 20172018 and
   December 31, 20162017
 
Condensed Consolidated and Combined Statements of IncomeOperations (unaudited) for the three and six months
   ended June 30, 20172018 and 20162017
 
Condensed Consolidated and Combined StatementStatements of Comprehensive Income (unaudited) for the
  three and six months ended June 30, 2018 and 2017
Condensed Consolidated and Combined Statements of Equity (unaudited) for the six months
   ended June 30, 2018 and 2017
 
Condensed Consolidated and Combined Statements of Cash Flows (unaudited) for the six months
   ended June 30, 20172018 and 20162017
 Notes to Condensed Consolidated and Combined Financial Statements (unaudited)
   
Item 2.
Item 3.
Item 4.
   
 
   
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


















PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

JBG SMITH PROPERTIES
Condensed Combined Balance Sheets
June 30, 2017 and December 31, 2016
(Unaudited)
(In thousands)
JBG SMITH PROPERTIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value amounts)
JBG SMITH PROPERTIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value amounts)
June 30,
2017
 December 31,
2016
June 30, 2018 December 31, 2017
ASSETS      
Real estate, at cost:      
Land and improvements$930,001
 $939,592
$1,444,872
 $1,368,294
Buildings and improvements3,028,517
 3,064,466
3,832,013
 3,670,268
Construction in progress212,795
 151,333
Construction in progress, including land595,063
 978,942
4,171,313
 4,155,391
5,871,948
 6,017,504
Less accumulated depreciation(959,352) (930,769)(1,045,632) (1,011,330)
Real estate, net3,211,961
 3,224,622
4,826,316
 5,006,174
Cash and cash equivalents280,613
 29,000
239,440
 316,676
Restricted cash3,735
 3,263
22,248
 21,881
Tenant and other receivables, net28,232
 33,380
37,860
 46,734
Deferred rent receivable, net
143,395
 136,582
144,837
 146,315
Investments in unconsolidated real estate ventures45,476
 45,776
Receivable from Vornado Realty Trust76,738
 75,062
Investments in and advances to unconsolidated real estate ventures368,308
 261,811
Other assets, net
119,795
 112,955
273,722
 263,923
Assets held for sale2,218
 8,293
TOTAL ASSETS$3,909,945
 $3,660,640
$5,914,949
 $6,071,807
      
LIABILITIES AND EQUITY   
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY   
Liabilities:      
Mortgages payable, net$1,376,077
 $1,165,014
$1,906,402
 $2,025,692
Payable to Vornado Realty Trust289,904
 283,232
Revolving credit facility35,729
 115,751
Unsecured term loan, net96,833
 46,537
Accounts payable and accrued expenses31,779
 40,923
130,431
 138,607
Other liabilities, net50,045
 49,487
126,265
 161,277
Total liabilities1,747,805
 1,538,656
2,295,660
 2,487,864
Commitments and contingencies
 

 
Equity:   
Parent equity2,161,845
 2,121,689
Noncontrolling interests295
 295
Redeemable noncontrolling interests665,623
 609,129
Shareholders' equity:   
Preferred shares, $0.01 par value - 200,000 shares authorized, none issued
 
Common shares, $0.01 par value - 500,000 shares authorized and 117,955 shares issued and outstanding as of June 30, 2018 and December 31, 20171,180
 1,180
Additional paid-in capital3,035,194
 3,063,625
Accumulated deficit(105,962) (95,809)
Accumulated other comprehensive income19,662
 1,612
Total shareholders' equity of JBG SMITH Properties2,950,074
 2,970,608
Noncontrolling interests in consolidated subsidiaries3,592
 4,206
Total equity2,162,140
 2,121,984
2,953,666
 2,974,814
TOTAL LIABILITIES AND EQUITY$3,909,945
 $3,660,640
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY$5,914,949
 $6,071,807

See accompanying notes to the condensed consolidated and combined financial statements.statements (unaudited).

JBG SMITH PROPERTIES
Condensed Combined Statements of Income
For the three and six months ended June 30, 2017 and 2016
(Unaudited)
(In thousands)
JBG SMITH PROPERTIES
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
(In thousands, except per share data)
JBG SMITH PROPERTIES
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162018 2017 2018 2017
REVENUE              
Property rentals$100,747
 $98,861
 $199,771
 $196,232
$125,240
 $100,747
 $251,891
 $199,771
Tenant reimbursements9,030
 8,716
 17,667
 18,197
7,967
 8,947
 18,907
 17,488
Third-party real estate services
4,869
 5,767
 9,923
 12,301
Third-party real estate services, including reimbursements24,160
 6,794
 48,490
 13,919
Other income3,374
 2,995
 6,931
 6,393
2,080
 1,532
 3,196
 3,114
Total revenue118,020
 116,339
 234,292
 233,123
159,447
 118,020
 322,484
 234,292
EXPENSES              
Depreciation and amortization31,993
 32,625
 65,775
 66,914
48,117
 31,993
 97,277
 65,775
Property operating28,285
 27,374
 56,466
 56,460
30,416
 23,955
 61,277
 47,736
Real estate taxes15,582
 14,137
 30,754
 29,250
17,509
 15,582
 37,119
 30,754
General and administrative11,708
 11,939
 25,398
 25,960
General and administrative:       
Corporate and other12,651
 11,552
 25,362
 24,944
Third-party real estate services21,189
 4,486
 43,798
 9,184
Share-based compensation related to Formation Transaction
9,097
 
 18,525
 
Transaction and other costs5,237
 
 11,078
 
3,787
 5,237
 8,008
 11,078
Total operating expenses92,805
 86,075
 189,471
 178,584
142,766
 92,805
 291,366
 189,471
OPERATING INCOME25,215
 30,264
 44,821
 54,539
16,681
 25,215
 31,118
 44,821
Income (loss) from unconsolidated real estate ventures105
 (374) 314
 (1,536)
Income from unconsolidated real estate ventures, net3,836
 105
 1,934
 314
Interest and other income, net970
 760
 1,745
 1,543
513
 970
 1,086
 1,745
Interest expense(14,586) (13,549) (28,504) (25,634)(18,027) (14,586) (37,284) (28,504)
INCOME BEFORE INCOME TAX EXPENSE11,704
 17,101
 18,376
 28,912
Income tax expense(363) (318) (717) (582)
NET INCOME ATTRIBUTABLE TO JBG SMITH PROPERTIES$11,341
 $16,783
 $17,659
 $28,330
Gain on sale of real estate33,396
 
 33,851
 
Loss on extinguishment of debt(4,457) 
 (4,457) 
Reduction of gain on bargain purchase(7,606) 
 (7,606) 
INCOME BEFORE INCOME TAX (EXPENSE) BENEFIT24,336
 11,704
 18,642
 18,376
Income tax (expense) benefit(313) (363) 595
 (717)
NET INCOME24,023
 11,341
 19,237
 17,659
Net income attributable to redeemable noncontrolling interests(3,574) 
 (2,980) 
Net loss attributable to noncontrolling interests125
 
 127
 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS$20,574
 $11,341
 $16,384
 $17,659
EARNINGS PER COMMON SHARE:       
Basic$0.17
 $0.11
 $0.14
 $0.18
Diluted$0.17
 $0.11
 $0.14
 $0.18
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
       
Basic117,955
 100,571
 117,955
 100,571
Diluted117,955
 100,571
 117,955
 100,571

See accompanying notes to the condensed consolidated and combined financial statements (unaudited).

JBG SMITH PROPERTIES
Condensed Consolidated and Combined Statements of Comprehensive Income
(Unaudited)
(In thousands)
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
NET INCOME$24,023
 $11,341
 $19,237
 $17,659
OTHER COMPREHENSIVE INCOME:       
Change in fair value of derivative financial instruments5,215
 
 19,311
 
Reclassification of net loss on derivative financial instruments
   from accumulated other comprehensive income into
   interest expense
414
 
 1,449
 
Other comprehensive income5,629
 
 20,760
 
COMPREHENSIVE INCOME29,652
 11,341
 39,997
 17,659
Net income attributable to redeemable noncontrolling interests(3,574) 
 (2,980) 
Other comprehensive income attributable to redeemable
noncontrolling interests
(834) 
 (2,710) 
Net loss attributable to noncontrolling interests125
 
 127
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO
JBG SMITH PROPERTIES
$25,369
 $11,341
 $34,434
 $17,659

See accompanying notes to the condensed consolidated and combined financial statements (unaudited).









JBG SMITH PROPERTIES
Condensed Consolidated and Combined Statements of Equity
(Unaudited)
(In thousands)
 Common Shares 
Additional
Paid-In
Capital
 Accumulated Deficit Accumulated Other Comprehensive Income 
Former
Parent
Equity
 Noncontrolling Interests in Consolidated Subsidiaries Total Equity
Shares Amount      
BALANCE AS OF JANUARY 1, 2018117,955
 $1,180
 $3,063,625
 $(95,809) $1,612
 $
 $4,206
 $2,974,814
Net income (loss) attributable to common shareholders and noncontrolling interests
 
 
 16,384
 
 
 (127) 16,257
Dividends declared on common shares
($0.225 per common share)

 
 
 (26,537) 
 
 
 (26,537)
Distributions to noncontrolling interests
 
 
 
 
 
 (487) (487)
Redeemable noncontrolling interests
redemption value adjustment and other
comprehensive income allocation

 
 (27,883) 
 (2,710) 
 
 (30,593)
Other comprehensive income
 
 
 
 20,760
 
 
 20,760
Other
 
 (548) 
 
 
 
 (548)
BALANCE AS OF JUNE 30, 2018117,955
 $1,180
 $3,035,194
 $(105,962) $19,662
 $
 $3,592
 $2,953,666
                
BALANCE AS OF JANUARY 1, 2017          $2,121,689
 $295
 $2,121,984
Net income attributable to former parent          17,659
 
 17,659
Deferred compensation shares and options, net          1,294
 
 1,294
Contributions from former parent, net          21,203
 
 21,203
BALANCE AS OF JUNE 30, 2017          $2,161,845
 $295
 $2,162,140

See accompanying notes to the condensed consolidated and combined financial statements (unaudited).

JBG SMITH PROPERTIES
Condensed Consolidated and Combined Statements of Cash Flows
(Unaudited)
(In thousands)
 Six Months Ended June 30,
 2018 2017
 OPERATING ACTIVITIES:   
 Net income$19,237
 $17,659
 Adjustments to reconcile net income to net cash provided by operating activities:   
 Share-based compensation expense27,276
 1,294
 Depreciation and amortization, including amortization of debt issuance costs99,312
 66,563
 Deferred rent(6,265) (6,829)
 Income from unconsolidated real estate ventures, net(1,934) (314)
 Amortization of above- and below-market lease intangibles, net143
 (687)
 Amortization of lease incentives3,148
 1,511
 Return on capital from unconsolidated real estate ventures5,168
 628
 Reduction of gain on bargain purchase7,606
 
 Loss on extinguishment of debt4,457
 
 Gain on sale of real estate(33,851) 
 Unrealized gain on interest rate swaps and caps(1,551) 
 Bad debt expense1,565
 692
 Other non-cash items829
 911
 Changes in operating assets and liabilities:   
 Tenant and other receivables5,877
 4,472
 Other assets, net(5,263) (14,868)
 Accounts payable and accrued expenses(30,213) 359
 Other liabilities, net(1,996) 1,267
 Net cash provided by operating activities93,545
 72,658
 INVESTING ACTIVITIES:   
Development costs, construction in progress and real estate additions(165,718) (54,747)
Proceeds from sale of real estate232,882
 
Acquisition of interests in unconsolidated real estate ventures, net of cash acquired(386) 
Distributions of capital from unconsolidated real estate ventures1,350
 
Investments in and advances to unconsolidated real estate ventures(16,167) (14)
Other investments(665) (1,396)
 Net cash provided by (used in) investing activities51,296
 (56,157)
 FINANCING ACTIVITIES:   
Contributions from former parent, net
 21,203
Acquisition of interest in consolidated real estate venture(548) 
Proceeds from borrowings from former parent
 4,000
Capital lease payments(52) 
Borrowings under mortgages payable41,344
 220,000
Borrowings under revolving credit facility35,000
 
Borrowings under unsecured term loan50,000
 
Repayments of mortgages payable(170,021) (6,689)
Repayments of revolving credit facility(115,022) 
Debt issuance costs
 (2,930)
Dividends paid to common shareholders(53,077) 
Distributions to redeemable noncontrolling interests(9,214) 
Distributions to noncontrolling interests(120) 
 Net cash (used in) provided by financing activities(221,710) 235,584
 Net (decrease) increase in cash and cash equivalents and restricted cash(76,869) 252,085
 Cash and cash equivalents and restricted cash as of the beginning of the period338,557
 32,263
 Cash and cash equivalents and restricted cash as of the end of the period$261,688
 $284,348
    

JBG SMITH PROPERTIES
Consolidated and Combined Statements of Cash Flows
(Unaudited)
 (In thousands)
 Six Months Ended June 30,
 2018 2017
    
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
   AS OF END OF THE PERIOD:
   
Cash and cash equivalents$239,440
 $280,613
Restricted cash22,248
 3,735
Cash and cash equivalents and restricted cash$261,688
 $284,348
    
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH
    INFORMATION: 
   
 Cash paid for interest (net of capitalized interest of $9,182 and $917 in 2018 and 2017)$31,741
 $22,719
Accrued capital expenditures included in accounts payable and accrued expenses60,735
 1,475
Write-off of fully depreciated assets10,973
 12,946
Deferred interest on mortgages payable (of which $1,411 is included in capitalized interest)3,216
 
Cash payments for income taxes49
 706
Deconsolidation of 1900 N Street95,923
 



See accompanying notes to the condensed consolidated and combined financial statements.

JBG SMITH PROPERTIES
Condensed Combined Statement of Equity
For the six months ended June 30, 2017
(Unaudited)
(In thousands)
 
Parent
Equity
 Noncontrolling Interests Total Equity
  
BALANCE AT JANUARY 1, 2017$2,121,689
 $295
 $2,121,984
Net income attributable to JBG SMITH Properties17,659
 
 17,659
Deferred compensation shares and options, net1,294
 
 1,294
Contributions from Vornado Realty Trust, net21,203
 
 21,203
BALANCE AT JUNE 30, 2017$2,161,845
 $295
 $2,162,140

See accompanying notes to the condensed combined financial statements.

of other investments
JBG SMITH PROPERTIES
Condensed Combined Statements of Cash Flows
For the six months ended June 30, 2017 and 2016
 (Unaudited)
 (In thousands)
 Six Months Ended June 30,
 2017 2016
 OPERATING ACTIVITIES:   
 Net income attributable to JBG SMITH Properties$17,659
 $28,330
 Adjustments to reconcile net income to net cash provided by operating activities:   
 Depreciation and amortization, including amortization of debt issuance costs66,563
 67,806
 Straight-line rent(6,829) (5,461)
 Equity in (income) loss of unconsolidated real estate ventures(314) 1,536
 Accretion of below-market lease intangibles, net(687) (673)
 Operating distributions from unconsolidated real estate ventures628
 777
 Other non-cash adjustments4,408
 5,399
 Changes in operating assets and liabilities:   
 Tenant and other receivables4,472
 134
 Other assets, net(14,868) (7,214)
 Accounts payable and accrued expenses359
 6,122
 Other liabilities, net1,267
 (5,836)
 Net cash provided by operating activities72,658
 90,920
 INVESTING ACTIVITIES:   
Development costs, construction in progress and real estate additions(54,747) (123,519)
Restricted cash(472) 272
Other investments(1,396) (1,529)
Investments in unconsolidated real estate ventures(14) (19,965)
 Net cash used in investing activities(56,629) (144,741)
 FINANCING ACTIVITIES:   
Contributions from Vornado Realty Trust, net21,203
 1,487
Proceeds from borrowings from Vornado Realty Trust4,000
 28,500
Repayments of borrowings(6,689) (4,858)
Distributions to noncontrolling interests
 (7)
Debt issuance costs(2,930) (4)
Proceeds from borrowings220,000
 
 Net cash provided by financing activities235,584
 25,118
 Net increase (decrease) in cash and cash equivalents251,613
 (28,703)
 Cash and cash equivalents at beginning of the period29,000
 74,966
 Cash and cash equivalents at end of the period$280,613
 $46,263
    
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:   
Transfer of mortgage payable to Vornado Realty Trust$
 $115,022
 Cash paid for interest (net of capitalized interest of $917 and $2,761 in
   2017 and 2016, respectively)
$22,719
 $19,907
Accrued capital expenditures included in accounts payable and accrued expenses$1,475
 $44,754
Write-off of fully depreciated assets$(12,946) $(43,027)
Cash payments for income taxes$706
 $762

See accompanying notes to the condensed combined financial statements.statements (unaudited).

JBG SMITH PROPERTIES
Notes to Condensed Consolidated and Combined Financial Statements
June 30, 2017(Unaudited)
(Unaudited)


1.    Organization and Basis of Presentation and Combination
Organization

JBG SMITH Properties (“("JBG SMITH”SMITH") (NYSE: JBGS) was organized by Vornado Realty Trust (NYSE: VNO) (“Vornado”("Vornado" or "former parent") as a Maryland real estate investment trust (“REIT”("REIT") on October 27, 2016 (capitalized on November 22, 2016). JBG SMITH was formed for the purpose of receiving, via the spin-off on July 17, 2017 (the “Separation”"Separation"), substantially all of the assets and liabilities of Vornado’s Washington, DCD.C. segment, which operated as Vornado / Charles E. Smith, (the “Vornado"Vornado Included Assets”Assets"). On July 18, 2017, JBG SMITH acquired the management business and certain assets and liabilities (the "JBG Assets") of The JBG Companies (“JBG”("JBG") (the “Combination”"Combination"). The Separation and the Combination are collectively referred to as the "Formation Transaction." Unless the context otherwise requires, all references to “we,” “us,”"we," "us," and “our,”"our," refer to the Vornado Included Assets (our predecessor and accounting acquirer) for periods prior to the Separation and to JBG SMITH for periods after giving effect to the transfer of assets and liabilities from Vornado, but prior to the date of completion of the Separation. References to "our share" refers to our ownership percentage of consolidated and unconsolidated assets in real estate ventures. Substantially all of our assets are held by, and our operations are conducted through, JBG SMITH Properties LP ("JBG SMITH LP"), our operating partnership. As of June 30, 2018, we, as its sole general partner, controlled JBG SMITH LP and owned 85.6% of its common limited partnership units ("OP Units").

Prior to the Separation from Vornado, JBG SMITH was a wholly owned subsidiary of Vornado and had no material assets or operations. Pursuant to a separation agreement, on July 17, 2017, Vornado distributed 100% of the then outstanding common shares of JBG SMITH on a pro rata basis to the holders of its common shares. Prior to such distribution by Vornado, Vornado Realty L.P. (“VRLP”), Vornado's operating partnership, distributed JBG SMITH LP, our operating partnership, common limited partnership units on a pro rata basis to the holders of its common limited partnership units, consisting of Vornado and the other common limited partners of VRLP. Following such distribution by VRLP and prior to such distribution by Vornado, Vornado contributed to JBG SMITH all of the JBG SMITH LP common limited partnership units it received in exchange for common shares of JBG SMITH. Each Vornado common shareholder received one JBG SMITH common share for every two Vornado common shares held as of the close of business on July 7, 2017 (the “Record Date”).  Vornado and each of the other limited partners of VRLP received one JBG SMITH LP common limited partnership unit for every two common limited partnership units in VRLP held as of the close of business on the Record Date. TheOur operations of JBG SMITH are presented as if the transfer of the Vornado Included Assets had been consummated prior to all historical periods presented in the accompanying condensedconsolidated and combined financial statements at the carrying amounts of such assets and liabilities reflected in Vornado’s books and records. The assets and liabilities of the JBG Assets and subsequent results of operations and cash flows are reflected in our consolidated and combined financial statements beginning on the date of the Combination.
In connectionWe own and operate a portfolio of high-quality office and multifamily assets, many of which are amenitized with ancillary retail. Our portfolio reflects our longstanding strategy of owning and operating assets within Metro-served submarkets in the Separation, JBG SMITH issued 94.7 million common sharesWashington, D.C. metropolitan area that have high barriers to entry and JBG SMITH LP issued 5.8 million common limited partnership units to parties other than JBG SMITH. In connection with the Combination, JBG SMITH issued 23.5 million common shares and JBG SMITH LP issued 13.7 million common limited partnership units to parties other than JBG SMITH. key urban amenities, including being within walking distance of a Metro station. 
As of the completionJune 30, 2018, our Operating Portfolio consists of the Separation and the Combination there were 118.2 million JBG SMITH common shares outstanding and 19.5 million JBG SMITH LP common limited partnership units outstanding that were owned by parties other than JBG SMITH.
After the Combination on July 18, 2017, the combined portfolio of JBG SMITH was comprised of: (i) 6867 operating assets comprising 5048 office assets totaling over 13.913.7 million square feet (11.9(11.8 million square feet at our share), 1415 multifamily assets totaling 6,0166,307 units (4,232(4,523 units at our share) and four other assets totaling approximately 765,000 square feet (348,000 square feet at our share); (ii) 11. Additionally, we have (i) eight assets under construction comprising fivethree office assets totaling over 1.3 millionapproximately 774,000 square feet (1.2 million(542,000 square feet at our share) and six, four multifamily assets totaling 1,3341,476 units (1,146(1,282 units at our share); (iii) two near-term development assets comprising one other asset of approximately 65,000 square feet (6,500 square feet at our share) and one multifamilyother asset totaling 433 units (303 unitsapproximately 41,100 square feet (4,100 square feet at our share),; and (iv) 44(ii) 42 future development assets totaling over 22approximately 20.7 million square feet (18.3(17.2 million square feet at our share) of estimated potential development density.
Our revenues are derived primarily from leases with office and multifamily tenants, including fixed rents and reimbursements from tenants for certain expenses such as real estate taxes, property operating expenses, and repairs and maintenance. In addition, we have a third-party real estate services business that provides fee-based real estate services to the legacy funds (the "JBG Legacy Funds") formerly organized by JBG and other third parties.
OnlyBasis of Presentation
The accompanying unaudited condensed consolidated and combined financial statements and notes are prepared in accordance with accounting principles generally accepted in the U.S. federal government accountedUnited States of America ("GAAP") for 10% or moreinterim financial information and with the instructions of revenueForm 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited condensed consolidated and
combined financial statements do not contain certain information required in annual financial statements and notes as required under GAAP. In our opinion, all adjustments considered necessary for a fair presentation have been included, and all such adjustments are of a normal recurring nature. All intercompany transactions and balances have been eliminated. The results of operations for the three and six months ended June 30, 2018 and 2017 are not necessarily indicative of the results that may be expected for a full year. These condensed consolidated and 2016, as follows:
 Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands)2017 2016 2017 2016
U.S. federal government$23,168
 $23,326
 $46,377
 $47,345
Percentage of office segment revenue26.74% 26.03% 26.80% 26.26%
Percentage of total revenue19.63% 20.05% 19.79% 20.31%
combined financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission.


Basis of Presentation and Combination
The accompanying condensed consolidated and combined financial statements include the accounts of JBG SMITH and our wholly owned subsidiaries and those other entities, including JBG SMITH LP, in which we have a controlling financial interest, including where we have been determined to be the primary beneficiary of a variable interest entity ("VIE"). See Note 5 for additional information on our VIEs. The portions of the equity and net income of consolidated subsidiaries that are not attributable to JBG SMITH are presented separately as amounts attributable to noncontrolling interests in our condensed consolidated and combined financial statements.
References to the financial statements refer to our condensed consolidated and combined financial statements as of June 30, 2018 and December 31, 2017, and for the three and six months ended June 30, 2018 and 2017. References to the balance sheets refer to our condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017. References to the statements of operations refer to our condensed consolidated and combined statements of operations for the three and six months ended June 30, 2018 and 2017. References to the statements of cash flows refer to our condensed consolidated and combined statements of cash flows for the six months ended June 30, 2018 and 2017.
Formation Transaction
JBG SMITH and the Vornado Included Assets all of which were under common control of Vornado for all periods prior to the July 17, 2017Separation. The transfer of assetsthe Vornado Included Assets from Vornado to JBG SMITH andwas completed prior to the distribution of JBG SMITH’s common shares to Vornado’s shareholders. The assets and liabilities in these combined financial statements have beenSeparation, at net book values (historical carrying amounts) carved out offrom Vornado’s books and records at their historical carrying amounts. All significant intercompany transactionsrecords. For purposes of the formation of JBG SMITH, the Vornado Included Assets were designated as the predecessor and balances have been eliminated.

Our condensed combinedthe accounting acquirer of the JBG Assets. Consequently, the financial statements covered in this report presentof JBG SMITH, as set forth herein, represent a continuation of the financial conditioninformation of the Vornado Included Assets as the predecessor and accounting acquirer such that the historical financial information included herein as of any date or for any periods on or prior to the completion of the Combination represents the pre-Combination financial information of the Vornado Included Assets. The financial statements reflect the common shares as of the date of the Separation as outstanding for all periods prior to July 17, 2017. The acquisition of the JBG Assets completed subsequently by JBG SMITH was accounted for as a business combination using the acquisition method whereby identifiable assets acquired and liabilities assumed are recorded at acquisition-date fair values and income and cash flows from the operations were consolidated into the financial statements of JBG SMITH commencing July 18, 2017. Consequently, the financial statements for the periods before and after the Formation Transaction are not directly comparable.
The accompanying financial statements as of June 30, 2018 and December 31, 2017 and for the three-three and six-month periodssix months ended June 30, 2018 include our consolidated accounts. The accompanying financial statements for the three and six months ended June 30, 2017 which is prior to consummation ofinclude the Separation and the Combination.Vornado Included Assets. Therefore, the discussion of our results of operations, cash flows and financial condition set forth in this report isfor the three and six months ended June 30, 2017 are not necessarily indicative of our future results of operations, cash flows or financial condition as an independent, publicly traded company.
The historical financial results for the Vornado Included Assets reflect charges for certain corporate costs allocated by the former parent, which we believe are reasonable. These charges were based on either actual costs incurred or a proportion of costs estimated to be applicable, to the Vornado Included Assets based on an analysis of key metrics, including total revenues. Such costs do not necessarily reflect what the actual costs would have been if JBG SMITH had been operating as a separate standalone public company. These charges are discussed further inSee Note 11.

Presentation of earnings per share information is not applicable in these condensed combined financial statements, since these assets and liabilities were owned by Vornado during the periods presented.16 for additional information.
The condensed combined financial statementstotal revenue and net loss of the JBG Assets for the three months ended June 30, 2018 included in this report are unaudited. In our opinion, all adjustments considered necessary for a fair presentation have been included, and all such adjustments are of a normal recurring nature. The resultsstatements of operations was $45.4 million and $22.6 million. The total revenue and net loss of the JBG Assets for the six months ended June 30, 2018 included in our statements of operations was $93.6 million and $39.3 million.
The following pro forma information for the three and six months ended June 30, 2017 and 2016 areis presented as if the Formation Transaction had occurred on January 1, 2017. This pro forma information is based upon historical financial statements, adjusted for certain factually supported items directly related to the Formation Transaction. This pro forma information does not necessarily indicativepurport to represent what the actual results of our operations would have been, nor does it purport to predict the results that may be expectedof operations of future periods. The pro forma information was adjusted to exclude transaction and other costs of $5.2 million and $11.1 million for the three and six months ended June 30, 2017. 


 Three Months Ended Six Months Ended
 June 30, 2017
 (In thousands, except per share data)
Pro forma information:   
Total revenue$162,593
 $321,672
Net loss attributable to common shareholders$(10,074) $(19,156)
Loss per common share:   
Basic$(0.09) $(0.16)
Diluted$(0.09) $(0.16)
As a full year.
The accompanying unaudited condensed combined financial statements and notes are prepared in accordance with accounting principles generally acceptedresult of finalizing our fair value estimates used in the United Statespurchase price allocation related to the Combination, we adjusted the fair value of America (“GAAP”) for interim financial informationcertain assets acquired and with the instructionsliabilities assumed consisting of Form 10-Q. Accordingly, these unaudited condensed combined financial statements do not contain certain information requireda decrease of $468,000 to investments in annual financial statements and notes. The unaudited condensed combined balance sheet asadvances to unconsolidated real estate ventures, an increase of December 31, 2016 was derived from audited financial statements, but does not include all disclosures required under GAAP. These condensed combined financial statements should be read in conjunction with our Registration Statement on Form 10, as amended, filed with the Securities$4.7 million to lease assumption liabilities and Exchange Commission (the “SEC”) and declared effective on June 26, 2017 as well as the final Information Statement filed with the SEC as Exhibit 99.1an increase of $2.4 million to our Current Report on Form 8-K filed on June 27, 2017.
Commencing with the transfer of assets to JBG SMITH and the distribution of JBG SMITH’s common shares to Vornado’s shareholders, JBG SMITH operatesother liabilities acquired, resulting in a manner intendedreduction of gain on bargain purchase of $7.6 million for the three and six months ended June 30, 2018.
Income Taxes
We intend to enable itelect to qualifybe taxed as a REIT under Sections 856‑860sections 856-860 of the Internal Revenue Code of 1986, as amended.amended (the "Code"). Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. SincePrior to the Separation, Vornado operatesoperated as a REIT and distributesdistributed 100% of taxable income to its shareholders, accordingly, no provision for federal income taxes has been made in the accompanying condensed combined financial statements. The Vornado Included Assetsstatements for the periods prior to the Separation. We intend to adhere to these requirements and maintain our REIT status in future periods. We also participate in the activities conducted by subsidiary entities which have elected to be treated as taxable REIT subsidiaries under the Code. As such, we are subject to certain other taxes, includingfederal, state, and local taxes which are included in “income tax expense” inon the condensed combined statements of income.income from these activities.
The Vornado Included Assets aggregate assets into two reportable segments (officeReclassifications
For the three and multifamily) because all of the assets in each segment have similar economic characteristicssix months ended June 30, 2017, we reclassified $4.5 million and we provide similar products and services to similar types of office and multifamily tenants.
Certain prior period data have been reclassified to conform to the current period presentation. We reclassified $4.0$9.2 million of investmentsexpenses to “Other assets” on our condensed combined balance sheet as of December 31, 2016 as a result of the revision in the line item “Investments in unconsolidated"General and administrative: third-party real estate ventures” on our condensed combined balance sheetservices" from "Property operating expenses" and "General and administrative: corporate and other" as it relates to include onlyexpenses incurred to provide third-party real estate investments.services. Additionally, we reclassified $1.8 million and $3.8 million of revenue for the three and six months ended June 30, 2017 to "Third-party real estate services, including reimbursements" from "Other income" as it relates to revenue earned from providing third-party real estate services.

2.    Summary of Significant Accounting Policies
Significant Accounting Policies
There were no material changes to our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires managementus to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atas of the date of the financial

statements and the reported amounts of revenue and expenses during the reporting period. The most significant of these estimates include: (i) the underlying cash flows used to establish the fair values recorded in connection with the Combination and used in assessing impairment and (ii) the determination of useful lives for tangible and intangible assets. Actual results could differ from thosethese estimates.

Recent Accounting Pronouncements
In connection with the adoption of Accounting Standards Update ("ASU") ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, we revised the presentation of restricted cash in the statement of cash flows for the six months ended June 30, 2017.
The following table provides a brief description of recent accounting pronouncements (Accounting Standards Update or “ASU”) by the Financial Accounting Standards Board (“FASB”("FASB") that could have a material effect on our financial statements:
Standard Description Date of Adoption 
Effect on the Financial Statements or Other
Significant Matters
       
Standards not yetStandard adopted
ASU 2017‑09, Compensation—Stock Compensation2014-09, Revenue from Contracts with Customers (Topic 718): Scope of Modification Accounting606), as clarified and amended by ASU 2016-08, ASU 2016-10 and ASU 2016-12 This standard clarifies which changesestablishes a single comprehensive model for entities to the terms or conditions of a share-based payment award are subject to the guidance on modificationuse in accounting under FASB Accounting Standards Codification (“ASC”) Topic 718. Entities would apply the modification accounting guidance unless the value, vesting requirementsfor revenue arising from contracts with customers and classification of a share-based payment award are the same immediately before and after a change to the terms or conditionssupersedes most of the award.January 2018We are currently evaluatingexisting revenue recognition guidance. It requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the overall impact ofconsideration to which the adoption of ASU 2017-09. The adoption of this standard is not expected to have a material impact on our combined financial statements.
ASU 2017‑05, Other Income—Gains and Losses from the Derecognition
of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for
Partial Sales of Nonfinancial Assets

This standard clarifies the scope of recently established guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606.

January 2018The adoption of this standard is not expected to have an impact on our combined financial statements.
ASU 2017‑01 Business Combinations (Topic 805): Clarifying the
Definition of a Business

This standard provides a screen to determine when an asset acquired or group of assets acquired is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that needentity expects to be further evaluated.

January 2018The adoption of this standard will resultentitled in fewer real estate acquisitions qualifying as businesses and, accordingly, acquisition costsexchange for those acquisitions that are not businesses will be capitalized rather than expensed.
ASU 2016-15,
Statement of Cash
Flows (Topic 230):
Classification of
Certain Cash
Receiptsgoods or services and Cash
Payments and ASU
2016-18, Statement
of Cash Flows
(Topic 230):
Restricted Cash

These standards amend the existing guidance and address specific cash flow issues with the objective of reducing existing diversity in practice. ASU 2016-15 addresses eight specific cash flow issues and ASU 2016-18 specifically addresses presentation of restricted cash and restricted cash equivalents in the statements of cash flows. These standards require a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, entities may apply the amendments prospectively as of the earliest date practicable.

also requires certain additional disclosures.
 January 2018 
Other thanWe utilized the revised statementmodified retrospective method of cash flows presentationadoption. The standard excludes from its scope the areas of restricted cash,accounting that most significantly affect our revenue recognition, including accounting for leases and financial instruments. Our evaluation determined there were no required changes to our recognition of revenue related to our third-party real estate services, tenant reimbursements, property and asset management fees, or transactional/management fees for leasing, development and construction. Our evaluation also determined there were no required changes to our recognition of promote fees and dispositions of real estate properties as we did not have any deferred gains due to continuing involvement at the time of adoption. Therefore, the adoption of these standards isthis standard did not expected to have a material impact on our combined financial statements. We adopted the practical expedient of this standard to only assess the recognition of revenue for open contracts at the date of adoption and there was no adjustment to the opening balance of our accumulated deficit at January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for that period.




Standard Description Date of Adoption 
Effect on the Financial Statements or Other
Significant Matters
Standard not yet adopted
ASU 2016-02, Leases (Topic 842), as clarified and amended by ASU 2018-01, ASU 2018-10 and ASU 2018-11 This standard sets out theestablishes principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The ASU also clarifies that an assessment of whether a land easement meets the definition of a lease under the new lease standard is required. The provisions of this standard are effective for fiscal years beginning after December 15, 2018 and should be applied through a modified retrospective transition, which includes optional practical expedients related to leases that commenced before the effective date and allows the new requirements to be applied on the date of adoption rather than the beginning of the earliest comparative period presented. January 2019 
We are currently evaluating the overall impact of the adoption of ASU 2016-02 on our combined financial statements, including the timing of adopting this standard.statements. ASU 2016-02 will more significantly impact the accounting for leases in which we are the lessee. We have ground leases for which we will be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments upon adoption of this standard. As of June 30, 2018, future ground lease payments totaled $574.4 million to which we would apply a discount rate. We also expectare in the process of determining an appropriate discount rate. Under ASU 2016-02, initial direct costs for both lessees and lessors would include only those costs that this standard willare incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, we may no longer be able to capitalize internal leasing costs and instead may be required to expense these costs as incurred. Capitalized internal leasing costs were $1.5 million and $269,000 for the three months ended June 30, 2018 and 2017, and $2.8 million and $800,000 for the six months ended June 30, 2018 and 2017.
ASU 2018-09, Codification ImprovementsThese amendments provide clarifications and corrections to certain ASC subtopics including the following: 220-10 (Income Statement - Reporting Comprehensive Income - Overall), 470-50 (Debt - Modifications and Extinguishments), 480-10 (Distinguishing Liabilities from Equity - Overall), 718-740 (Compensation - Stock Compensation - Income Taxes), 805-740 (Business Combinations - Income Taxes), 815-10 (Derivatives and Hedging - Overall), and 820-10 (Fair Value Measurement - Overall).
January 2019

The updates related to Subtopics 470-50 and 820-10 were effective immediately and their adoption did not have an impact on the presentation of certain lease and non‑lease components of revenue from leases with no material impact to “total revenues.”

ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as clarified and amended by ASU 2016-08, ASU 2016-10 and ASU 2016-12This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. It requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. This standard may be adopted either retrospectively or on a modified retrospective basis.January 2018
our financial statements. We are currently expect to utilize the modified retrospective method of adoption. We have commenced the execution of our project plan for adopting this standard, which consists of gathering and evaluating the inventory of our revenue streams. We expect this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases upon the adoption of ASU 2016‑02, Leases, with no material impact on “total revenues.” We expect this standard will have an impact on the timing of gains on certain sales of real estate. We are continuingremaining guidance to evaluatedetermine the impact of this standardit may have on our combined financial statements.

3.    Dispositions
In April 2018, we sold Summit I and II, two office assets located in Reston, Virginia including 700,000 square feet of estimated potential development density, for an aggregate gross sales price of $95.0 million, resulting in a gain on the sale of $6.2 million. In connection with the sale, we repaid the related $59.0 million mortgage payable outstanding. In February 2018, we sold a land parcel and temporary easements associated with the Summit site for $2.2 million, resulting in a gain on the sale of $455,000.
In May 2018, we sold the Bowen Building, an office building located in Washington, D.C., for a gross sales price of $140.0 million, resulting in a gain on the sale of $27.2 million. In connection with the sale, we repaid $115.0 million of the then outstanding balance on our revolving credit facility.


4.    Investments in and Advances to Unconsolidated Real Estate Ventures
The following is a summary of the composition of our investments in and advances to unconsolidated real estate ventures:
Real Estate Venture Partners 
Ownership
Interest (1)
 June 30, 2018 December 31, 2017
   (In thousands)
Canadian Pension Plan Investment Board ("CPPIB") 55.0% - 87.3% $135,801
 $36,317
Landmark 1.8% - 49.0% 88,494
 95,368
CBREI Venture 5.0% - 64.0% 77,062
 79,062
Berkshire Group 50.0% 33,424
 27,761
Brandywine 30.0% 13,732
 13,741
CIM Group ("CIM") and Pacific Life Insurance Company
   ("PacLife")
 16.7% 10,289
 
JP Morgan 5.0% 9,185
 9,296
Other   241
 246
Total investments in unconsolidated real estate ventures   368,228
 261,791
Advances to unconsolidated real estate ventures   80
 20
Total investments in and advances to unconsolidated real
   estate ventures
   $368,308
 $261,811
_______________
(1)
Ownership interests as of June 30, 2018. We have multiple investments with certain venture partners with varying ownership interests.
In January 2018, we invested $10.1 million for a 16.67% interest in a real estate venture with CIM and PacLife, which purchased the 1,152-key Wardman Park hotel, located adjacent to the Woodley Park Metro Station in northwest Washington, D.C. Prior to the acquisition by this venture, the JBG Legacy Funds owned a 47.64% interest in the Wardman Park hotel. The JBG Legacy Funds did not receive any proceeds from the sale, as the net proceeds were used to satisfy the prior mortgage debt. A third-party asset manager oversees the hotel operations on behalf of the venture and our involvement will increase only to the extent the land development opportunity becomes the primary business plan for the asset.
In February 2018, we entered into a real estate venture with CPPIB to develop and own 1900 N Street, an under-construction office asset in Washington, D.C. We contributed 1900 N Street, valued at $95.9 million, to the real estate venture, and CPPIB has committed to contribute approximately $101.0 million to the venture for a 45.0% interest, which will reduce our ownership interest from 100.0% at the real estate venture's formation to 55.0% as contributions are funded.
In June 2018, the real estate venture with CPPIB that owns 1101 17th Street, a 216,000 square foot office building located in Washington, D.C., in which we have a 55.0% ownership interest, refinanced a mortgage loan payable that was collateralized by the property. The terms of the new mortgage loan eliminated the principal guaranty provisions that had been included in the prior loan. Distributions and our share of the cumulative earnings of the venture exceeded our investment in the venture by $5.4 million, which resulted in a negative investment balance. After the elimination of the principal guaranty provisions in the prior mortgage loan, we have not guaranteed the obligations of the venture or otherwise committed to provide further financial support to the venture. Accordingly, we recognized the $5.4 million negative investment balance as income within “Income from unconsolidated real estate ventures, asnet” in our statements of operations for the three and six months ended June 30, 20172018. We have also suspended the equity method accounting for this real estate venture. We will recognize as income any future distributions from the venture until our share of unrecorded earnings and December 31, 2016:contributions exceed the cumulative excess distributions previously recognized in income.
  
Ownership
Interest
 Investment Balance
Investments June 30,
2017
 June 30,
2017
 December 31,
2016
   (In thousands)
The Warner 55.0% $38,823
 $39,417
Other investments Various 6,653
 6,359
Total investments in unconsolidated real estate ventures   $45,476
 $45,776



The following is a summary of the debt of our unconsolidated real estate ventures as of June 30, 2017 and December 31, 2016:ventures:
  
Weighted Average Effective
Interest Rate
(1)
 June 30, 2018 December 31, 2017
    (In thousands)
Variable rate (2)
 4.83% $530,258
 $534,500
Fixed rate (3)
 3.95% 854,619
 657,701
Unconsolidated real estate ventures - mortgages payable   1,384,877
 1,192,201
Unamortized deferred financing costs   (2,734) (2,000)
Unconsolidated real estate ventures - mortgages payable,
   net (4)
   $1,382,143
 $1,190,201
______________
    Interest Rate 100% Unconsolidated Real Estate Ventures' Debt
Investments Maturity June 30,
2017
 June 30,
2017
 December 31,
2016
      (In thousands)
The Warner 06/01/23 3.65% $273,000
 $273,000
1101 17th Street
 01/19/18
(1) 
2.47% 31,000
 31,000
Unconsolidated real estate ventures - mortgages payable   304,000
 304,000
Unamortized deferred financing costs, net     (918) (1,034)
Unconsolidated real estate ventures - mortgages payable, net   $303,082
 $302,966
____________________
(1)
Weighted average effective interest rate as of June 30, 2018.
(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 15 for additional information on guarantees of the debt of certain of our unconsolidated real estate ventures.

(1) In January 2017, the 1101 17th Street mortgage was extended from January 2017 to January 2018.
The following is a summary of the condensed combined financial information for all of our unconsolidated real estate ventures, as of June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016:ventures:
 June 30,
2017
 December 31, 2016 June 30, 2018 December 31, 2017
Balance sheet information: (In thousands)
Combined balance sheet information: (In thousands)
Real estate, net $2,397,644
 $2,106,670
Other assets, net 332,400
 264,731
Total assets $606,293
 $598,239
 $2,730,044
 $2,371,401
    
Mortgages payable, net $1,382,143
 $1,190,201
Other liabilities, net 103,283
 76,416
Total liabilities $334,092
 $327,862
 1,485,426
 1,266,617
Noncontrolling interests $343
 $343
Total equity $271,858
 $270,034
 1,244,618
 1,104,784
Total liabilities and equity $2,730,044
 $2,371,401
  Three Months Ended June 30, Six Months Ended June 30,
  2017 2016 2017 2016
Income statement information: (In thousands)
Total revenue $18,318
 $17,379
 $36,557
 $34,702
Net income $3,570
 $2,298
 $5,993
 $2,476
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
Combined income statement information:(In thousands)
Total revenue$87,518
 $18,318
 $160,691
 $36,557
Operating income12,484
 6,213
 16,858
 11,835
Net income (loss)(514) 3,570
 (5,189) 5,993
4.5.    Variable Interest Entities

We hold various interests in entities deemed to be VIEs, which we evaluate at acquisition, formation, after a change in the ownership agreement or a change in the real estate venture's economics to determine if the VIEs should be consolidated in our financial statements or should no longer be considered a VIE. Certain criteria we assess in determining whether the VIEs should be consolidated relate to our at-risk equity, our control over significant business activities, our voting rights, the noncontrolling interest kick-out rights and whether we are the primary beneficiary of the VIE.  

Unconsolidated VIEs
As of June 30, 20172018 and December 31, 2016,2017, we have several unconsolidated variable interest entities. Weinterests in entities deemed to be VIEs that are in the development stage and do not consolidatehold sufficient equity at risk or conduct substantially all their operations on behalf of an investor with disproportionately few voting rights. Although we are engaged to act as the managing partner in charge of day-to-day operations of these entities becauseinvestees, we are not the primary beneficiary and the nature of our involvement in the activities of these entities doesVIEs as we do not give ushold unilateral power over decisionsactivities that, when taken together, most significantly affect these entities’ economicimpact the respective VIE’s performance. We account for our investment in these entities under the equity method.


As of June 30, 20172018 and December 31, 2016,2017, the net carrying amounts of our investment in these entities were $43.2$226.5 million and $42.4$163.5 million, respectively,which are included in "Investments in and advances to unconsolidated real estate ventures" in our balance sheets. Our equity in the income of unconsolidated VIEs is included in "Income from unconsolidated real estate ventures, net" in our statements of operations. Our maximum exposure to loss in these entities is limited to our investments.

investments, construction commitments and debt guarantees. See Note 15 for additional information.

5.Consolidated VIEs

JBG SMITH LP is our most significant consolidated VIE. We hold the majority membership interest in the operating partnership, act as the general partner and exercise full responsibility, discretion and control over its day-to-day management.
The noncontrolling interests of the operating partnership do not have substantive liquidation rights, substantive kick-out rights without cause, or substantive participating rights that could be exercised by a simple majority of noncontrolling interest members (including by such a member unilaterally). Because the noncontrolling interest holders do not have these rights, the operating partnership is a VIE. As general partner, we have the power to direct the core activities of the operating partnership that most significantly affect its performance, and through our majority interest in the operating partnership have both the right to receive benefits from and the obligation to absorb losses of the operating partnership. Accordingly, we are the primary beneficiary of the operating partnership and consolidate the operating partnership in our financial statements. As we conduct our business and hold our assets and liabilities through the operating partnership, the total assets and liabilities of the operating partnership comprise substantially all of our consolidated assets and liabilities.
We also consolidate certain VIEs in which we control the most significant business activities. These entities are VIEs because they are in the development stage and do not hold sufficient equity at risk. We are the primary beneficiaries of these VIEs because the noncontrolling interest holders do not have substantive kick-out or participating rights and we control all of the significant business activities. As of June 30, 2018, we consolidated two VIEs with total assets and liabilities, excluding the operating partnership, of $155.2 million and $13.2 million. As of December 31, 2017, we consolidated two VIEs with total assets and liabilities, excluding the operating partnership, of $111.0 million and $8.8 million.
6.    Other Assets, Net
The following is a summary of other assets, net as of June 30, 2017 and December 31, 2016:net:
 June 30,
2017
 December 31,
2016
 June 30, 2018 December 31, 2017
 (In thousands) (In thousands)
Deferred leasing costs, gross $166,689
 $157,258
Deferred leasing costs $190,308
 $171,153
Accumulated amortization (63,442) (57,910) (71,674) (67,180)
Deferred leasing costs, net 103,247
 99,348
 118,634
 103,973
Prepaid expenses 4,111
 2,199
 5,961
 9,038
Identified intangible assets, net 2,739
 3,063
 104,073
 126,467
Deferred financing costs on credit facility, net 5,781
 6,654
Deposits 4,020
 6,317
Derivative agreements, at fair value 23,977
 2,141
Other 9,698
 8,345
 11,276
 9,333
Total other assets, net $119,795
 $112,955
 $273,722
 $263,923


6.    7.    Debt
Mortgages Payable
The following is a summary of mortgages payable as of June 30, 2017 and December 31, 2016:payable:
  Interest Rate Balance as of
  June 30,
2017
 June 30,
2017
 December 31,
2016
    (In thousands)
Variable rate (1)
 2.77% $767,291
 $547,291
Fixed rate 5.52% 613,637
 620,327
Mortgages payable   1,380,928
 1,167,618
Unamortized deferred financing costs and premium/discount, net   (4,851) (2,604)
Mortgages payable, net   $1,376,077
 $1,165,014
Payable to Vornado Realty Trust (2)
 3.70% $289,904
 $283,232
  
Weighted Average
Effective
Interest Rate
(1)
 June 30, 2018 December 31, 2017
    (In thousands)
Variable rate (2)
 3.94% $266,615
 $498,253
Fixed rate (3)
 4.15% 1,644,111
 1,537,706
Mortgages payable   1,910,726
 2,035,959
Unamortized deferred financing costs and premium/
  discount, net
   (4,324) (10,267)
Mortgages payable, net   $1,906,402
 $2,025,692
__________________________ 
(1) 
OnWeighted average effective interest rate as of June 20, 2017, we completed a $220.0 million financing of The Bartlett, a 699-unit residential building in Arlington, Virginia. The five-year interest-only mortgage loan bears interest at LIBOR plus 1.70% per annum and matures in June 2022. We realized net proceeds of approximately $217.2 million.30, 2018.
(2) 
In June 2016, the mortgage loan for the Bowen Building was repaidIncludes variable rate mortgages payable with proceeds of a $115.6 million draw on Vornado’s revolving credit facility collateralizedinterest rate cap agreements.
(3)
Includes variable rate mortgages payable with interest rates fixed by an interest in the property, and, accordingly, has been reflected as a component of “Payable to Vornado Realty Trust” on the combined balance sheetsrate swap agreements.
As of June 30, 2018, the net carrying value of real estate collateralizing our mortgages payable totaled $2.5 billion. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity. Certain of our mortgage loans are recourse to us.
During the six months ended June 30, 2018, aggregate borrowings under mortgages payable totaled $41.3 million related to construction draws. We repaid mortgages payable with an aggregate principal balance of $162.5 million and recognized losses on the extinguishment of debt in conjunction with these repayments of $4.5 million for the three and six months ended June 30, 2018.
As of June 30, 2018 and December 31, 2017, we had various interest rate swap and cap agreements with an aggregate notional value of $1.3 billion and $1.4 billion on certain of our mortgages payable, which mature on various dates concurrent with the maturity of the related mortgages payable. During the six months ended June 30, 2018, we entered into various interest rate swap and cap agreements on certain of our mortgages payable with an aggregate notional value of $374.2 million. See Note 13 for additional information.
Credit Facility
Our $1.4 billion credit facility, consists of a $1.0 billion revolving credit facility maturing in July 2021, with two six-month extension options, a delayed draw $200.0 million unsecured term loan ("Tranche A-1 Term Loan") maturing in January 2023, and a delayed draw $200.0 million unsecured term loan ("Tranche A-2 Term Loan") maturing in July 2024.
In January 2018, we drew $50.0 million under the Tranche A-1 Term Loan in accordance with the delayed draw provisions of the credit facility, bringing the outstanding borrowings under the term loan facility to $100.0 million. Concurrent with the draw, we entered into an interest rate swap agreement to convert the variable interest rate to a fixed interest rate. As of June 30, 2018 and December 31, 2017, we had interest rate swaps with an aggregate notional value of $100.0 million and $50.0 million to convert the variable interest rate applicable to our Tranche A-1 Term Loan to a fixed interest rate, providing weighted average base interest rates under the facility agreement of 2.12% and 1.97% per annum. The interest rate swaps mature in January 2023, concurrent with the maturity of our Tranche A-1 Term Loan.

The following is a summary of amounts outstanding under the credit facility:
  
Interest Rate (1)
 June 30, 2018 December 31, 2017
    (In thousands)
Revolving credit facility (2) (3) (4)
 3.19% $35,729
 $115,751
       
Tranche A-1 Term Loan 3.32% $100,000
 $50,000
Unamortized deferred financing costs, net   (3,167) (3,463)
Unsecured term loan, net   $96,833
 $46,537
__________________________
(1)
Interest rate as of June 30, 20172018.
(2)
As of June 30, 2018 and December 31, 2016. The mortgage was assigned2017, letters of credit with an aggregate face amount of $5.7 million for both periods were provided under our revolving credit facility.
(3)
As of June 30, 2018 and December 31, 2017, net deferred financing costs related to JBG SMITH at Separation, and the note was repaid with amounts drawn under theour revolving credit facility (seetotaling $5.8 million and $6.7 million were included in "Other assets, net."
(4)
In May 2018, in connection with the sale of the Bowen Building, we repaid $115.0 million of the then outstanding balance on our revolving credit facility. See Note 123 for further discussion).additional information.



7.8.    Other Liabilities, Net
The following is a summary of other liabilities, netnet:
 June 30, 2018 December 31, 2017
 (In thousands)
Lease intangible liabilities$41,875
 $44,917
Accumulated amortization(25,635) (26,950)
Lease intangible liabilities, net16,240
 17,967
Prepaid rent19,571
 15,751
Lease assumption liabilities and accrued tenant incentives49,016
 50,866
Capital lease obligation15,766
 15,819
Security deposits13,864
 13,618
Ground lease deferred rent payable3,249
 3,730
Net deferred tax liability6,962
 8,202
Dividends payable (1)

 31,097
Other1,597
 4,227
Total other liabilities, net$126,265
 $161,277

(1)
Dividends declared in December 2017 were paid in January 2018.

9.    Redeemable Noncontrolling Interests
JBG SMITH LP
JBG SMITH LP has issued 19.8 million OP Units to persons other than JBG SMITH that are redeemable for cash or, at our election, our common shares beginning August 1, 2018, subject to certain limitations. These OP Units represent a 14.4% interest in JBG SMITH LP as of June 30, 2017 and December 31, 2016:2018. During the third quarter of 2018, unitholders gave notice to redeem 3.0 million OP units, which we have elected to redeem for an equivalent number of our common shares. On our balance sheets, our redeemable noncontrolling interests are presented at the higher of their redemption value at the end of each reporting period or their carrying value, with such adjustments recognized in "Additional paid-in capital." Redemption value is equivalent to the market value of one our common shares at the end of the period multiplied by the number of vested OP units outstanding.


Consolidated Real Estate Venture
We are a partner in a real estate venture that owns an under construction multifamily asset located at 965 Florida Avenue in Washington, D.C. Pursuant to the terms of the 965 Florida Avenue real estate venture agreement, we will fund all capital contributions until our ownership interest reaches a maximum of 97.0%. Our partner can redeem its interest for cash two years after delivery, but no later than seven years subsequent to delivery. As of June 30, 2018, we held an 81.5% ownership interest.
Below is a summary of the activity of redeemable noncontrolling interests:
 June 30,
2017
 December 31,
2016
 (In thousands)
Prepaid rent$13,762
 $9,163
Lease assumptions liabilities and accrued tenant incentives11,792
 14,907
Lease intangible liabilities, net10,862
 11,570
Security deposits10,316
 10,324
Ground lease deferred rent payable3,313
 3,331
Other
 192
Total other liabilities, net$50,045
 $49,487
 JBG SMITH LP Consolidated Real Estate Venture Total
 (In thousands)
Balance as of January 1, 2018$603,717
 $5,412
 $609,129
Net income (loss) attributable to redeemable noncontrolling interests2,985
 (5) 2,980
Other comprehensive income2,710
 
 2,710
Contributions (distributions)(4,657) 500
 (4,157)
Share-based compensation expense27,078
 
 27,078
Adjustment to redemption value27,883
 
 27,883
Balance as of June 30, 2018$659,716
 $5,907
 $665,623


8.10.     Share-Based Payments

Time-Based LTIP Units

In February 2018, we granted 357,759 long-term incentive partnership units ("LTIP Units") with time-based vesting requirements ("Time-Based LTIP Units") to management and other employees with a grant-date fair value of $11.2 million or $31.38 per unit valued based on the post-vesting restriction periods. The significant assumptions used to value the Time-Based LTIP Units included expected volatility (20.0%), risk-free interest rate (2.1%) and post-grant restriction periods (2 years). The Time-Based LTIP units vest in four equal installments in January of each year, subject to continued employment. Compensation expense is being recognized over a four-year period.
Performance-Based LTIP Units

In February 2018, we granted 553,489 LTIP Units with performance-based vesting requirements ("Performance-Based LTIP Units") to management and other employees with a grant-date fair value of $9.4 million or $17.04 per unit valued using Monte Carlo simulations. The significant assumptions used to value the Performance-Based LTIP Units included expected volatility (19.9%), dividend yield (2.7%) and risk-free interest rates (2.3%). Fifty percent of any Performance-Based LTIP Units that are earned vest at the end of the three-year performance period and the remaining 50% on the fourth anniversary of the date of grant, subject to continued employment. Compensation expense is being recognized over a four-year period.
LTIP Units

In May 2018, we granted a total of 25,770 fully vested LTIP Units to certain of our trustees with an aggregate grant-date fair value of $794,000.
Other Equity Awards

Certain executives have elected to receive all or a portion of any cash bonus that may be paid in 2019, related to 2018 service, in the form of fully vested LTIP Units.


Share-Based Compensation Expense

Share-based compensation expense is summarized as follows:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (In thousands)
Time-Based LTIP Units$2,895
 $
 $5,252
 $
Performance-Based LTIP Units1,350
 
 2,507
 
LTIP Units794
 
 794
 
Other equity awards920
 603
 1,704
 1,294
Share-based compensation expense - other 
5,959
 603
 10,257
 1,294
Formation Awards1,239
 
 2,817
 
LTIP and OP Units (1)
7,858
 
 15,708
 
 Share-based compensation related to Formation
   Transaction (2)
9,097
 
 18,525
 
Total share-based compensation expense15,056
 603
 28,782
 1,294
Less amount capitalized(879) 
 (1,506) 
Share-based compensation expense$14,177
 $603
 $27,276
 $1,294

______________________________________________
(1)
Represents share-based compensation expense for LTIP and OP Units subject to post-Combination employment obligations.
(2)
Included in "General and administrative expense: Share-based compensation related to Formation Transaction" in the accompanying statements of operations.
As of June 30, 2018, we had $119.5 million of total unrecognized compensation expense related to unvested share-based payment arrangements (unvested OP Units, Formation Awards, Time-Based LTIP Units and Performance-Based LTIP Units). This expense is expected to be recognized over a weighted average period of 2.8 years.
11.     Interest Expense

The following is a summary of interest expense included in the statements of operations:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (In thousands)
Interest expense$21,884
 $14,672
 $45,559
 $28,633
Amortization of deferred financing costs1,241
 376
 2,458
 788
Net unrealized gain on derivative financial instruments
not designated as cash flow hedges
(432) 
 (1,551) 
Capitalized interest(4,666) (462) (9,182) (917)
Interest expense$18,027
 $14,586
 $37,284
 $28,504



12.     Earnings Per Common Share
The following summarizes the calculation of basic and diluted earnings per common share and provides a reconciliation of the amounts of net income available to common shareholders used in calculating basic and diluted earnings per common share:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (In thousands, except per share amounts)
Net income$24,023
 $11,341
 $19,237
 $17,659
Net income attributable to redeemable noncontrolling interests(3,574) 
 (2,980) 
Net loss attributable to noncontrolling interests125
 
 127
 
Net income attributable to common shareholders20,574
 11,341
 16,384
 17,659
Distributions to participating securities(218) 
 (361) 
Net income available to common shareholders
  — basic and diluted
$20,356
 $11,341
 $16,023
 $17,659
        
Weighted average number of common shares
   outstanding — basic and diluted (1)
117,955
 100,571
 117,955
 100,571
        
Earnings per common share:       
Basic$0.17
 $0.11
 $0.14
 $0.18
Diluted$0.17
 $0.11
 $0.14
 $0.18
______________
(1)
For the three and six months ended June 30, 2017, reflects the weighted average common shares attributable to the Vornado Included Assets at the date of the Separation.

The effect of the redemption of OP Units that were outstanding as of June 30, 2018 is excluded in the computation of basic and diluted earnings per common share, as the assumed exchange of such units for common shares on a one-for-one basis was antidilutive (the assumed redemption of these units would have no impact on the determination of diluted earnings per share). Since vested and outstanding OP Units, which are held by noncontrolling interests, are attributed gains and losses at an identical proportion to the common shareholders, the gains and losses attributable and their equivalent weighted average OP Unit impact are excluded from net income available to common shareholders and from the weighted average number of common shares outstanding in calculating basic and diluted earnings per common share. For both the three and six months ended June 30, 2018, the number of additional securities excluded from the calculation of diluted earnings per common share as they were antidilutive, but potentially could be dilutive in the future was 21.7 million. There were no additional potentially dilutive securities for the three and six months ended June 30, 2017.

13.    Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
To manage or hedge our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments. We do not enter into derivative financial instruments for speculative purposes.
As of June 30, 2018, we had various derivative financial instruments consisting of interest rate swap and cap agreements that are measured at fair value on a recurring basis. The net unrealized gain on our derivative financial instruments designated as cash flow hedges was $22.6 million as of June 30, 2018 and was recorded in "Accumulated other comprehensive income" in the balance sheet, of which a portion was reclassified to "Redeemable noncontrolling interests." Within the next 12 months, we expect to reclassify $2.3 million as a decrease to interest expense. The net unrealized gain on our derivative financial instruments not designated as cash flow hedges was $432,000 and $1.6 million for the three and six months ended June 30, 2018 and is recorded in "Interest expense" in our statements of operations.
ASC 820,, Fair Value Measurement and Disclosures,, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:
Level 1 — quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;

Level 2 — observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and
Level 3 — unobservable inputs that are used when little or no market data is available.
The fair value hierarchy givesvalues of the highest priorityderivative financial instruments are based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and observable inputs. The derivative financial instruments are classified within Level 1 inputs2 of the valuation hierarchy.
The following are assets and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

There were no financial assets or liabilities measured at fair value on a recurring basisbasis:
 Fair Value Measurements
 Total Level 1 Level 2 Level 3
June 30, 2018(In thousands)
Derivative financial instruments designated as cash flow hedges:       
Classified as assets in "Other assets, net"$17,609
 $
 $17,609
 $
Classified as liabilities in "Other liabilities, net"1,331
 
 1,331
 
Derivative financial instruments not designated as cash flow hedges:       
Classified as assets in "Other assets, net"6,367
 
 6,367
 
        
December 31, 2017       
Derivative financial instruments designated as cash flow hedges:       
Classified as assets in "Other assets, net"$1,506
 $
 $1,506
 $
Classified as liabilities in "Other liabilities, net"2,640
 
 2,640
 
Derivative financial instruments not designated as cash flow hedges:       
Classified as assets in "Other assets, net"635
 
 635
 
Classified as liabilities in "Other liabilities, net"22
 
 22
 
The fair values of our derivative financial instruments were determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivatives fall within Level 2 of the fair value hierarchy under authoritative accounting guidance, the credit valuation adjustments associated with the derivatives also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of June 30, 20172018, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instruments was assessed and December 31, 2016.it was determined that these adjustments were not significant to the overall valuation of the derivative financial instruments. As a result, it was determined that the derivative financial instruments in their entirety should be classified in Level 2 of the fair value hierarchy. The net unrealized gain included in "Other comprehensive income'' was primarily attributable to the net change in unrealized gains or losses related to the interest rate swaps that were outstanding as of June 30, 2018, none of which were reported in the statements of operations because they were documented and qualified as hedging instruments.


Financial Assets and Liabilities Not Measured at Fair Value
As of June 30, 20172018 and December 31, 2016,2017, all financial instruments and liabilities were reflected in our condensed combined balance sheets at amounts which, in our estimation, reasonably approximated their fair values, except for the following:
June 30, 2017 December 31, 2016June 30, 2018 December 31, 2017
     Carrying
      Amount (1)
 Fair Value 
     Carrying
      Amount (1)
 Fair Value
     Carrying
      Amount (1)
 Fair Value 
     Carrying
      Amount (1)
 Fair Value
(In thousands)(In thousands)
Financial liabilities:              
Mortgages payable$1,380,928
 $1,411,419
 $1,167,618
 $1,192,267
$1,910,726
 $1,921,116
 $2,035,959
 $2,060,899
Revolving credit facility35,729
 35,742
 115,751
 115,768
Unsecured term loan100,000
 100,096
 50,000
 50,029
______________________________________ 
(1) The carrying amount consists of principal only.

The fair value of our mortgages payable is estimated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings, which are provided by a third-party specialist. The fair value of the mortgages payable and unsecured term loan was determined using Level 2 inputs of the fair value hierarchy.

The fair value of our revolving credit facility and unsecured term loan is calculated based on the net present value of payments over the term of the facilities using estimated market rates for similar notes and remaining terms. The fair value of the revolving credit facility and unsecured term loan was determined using Level 2 inputs of the fair value hierarchy.

14.    Segment Information

We review operating and financial data for each property on an individual basis; therefore, each of our individual properties is a separate operating segment. As a result of the Formation Transaction, we redefined our reportable segments to be aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker ("CODM"), makes key operating decisions, evaluates financial results, allocates resources and manages our business. Accordingly, we aggregate our operating segments into three reportable segments (office, multifamily, and third-party real estate services) based on the economic characteristics and nature of our assets and services. In connection therewith, we have reclassified the prior period segment financial data to conform to the current period presentation.

The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party real estate services business, based on the net operating income ("NOI") of properties within each segment. NOI includes property rental revenues and tenant reimbursements and deducts property operating expenses and real estate taxes.

With respect to the third-party real estate services business, the CODM reviews revenues streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative: third-party real estate services"), which are disclosed separately in the statements of operations. Management company assets primarily consist of management and leasing contracts with a net book value of $42.1 million and $45.7 million and classified in "Other assets, net" in the balance sheets as of June 30, 2018 and December 31, 2017. Consistent with internal reporting presented to our CODM and our definition of NOI, the third-party real estate services operating results are excluded from the NOI data below.


9.    Segment Information
The following table reflects the reconciliation of net income attributable to common shareholders to consolidated NOI:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (In thousands)
Net income attributable to common shareholders$20,574
 $11,341
 $16,384
 $17,659
Add:       
Depreciation and amortization expense48,117
 31,993
 97,277
 65,775
General and administrative expense:       
Corporate and other12,651
 11,552
 25,362
 24,944
Third-party real estate services21,189
 4,486
 43,798
 9,184
Share-based compensation related to Formation Transaction
9,097
 
 18,525
 
Transaction and other costs3,787
 5,237
 8,008
 11,078
Interest expense18,027
 14,586
 37,284
 28,504
Loss on extinguishment of debt4,457
 
 4,457
 
Reduction of gain on bargain purchase7,606
 
 7,606
 
Income tax expense (benefit)313
 363
 (595) 717
Net income attributable to redeemable noncontrolling interests3,574
 
 2,980
 
Less:       
Third-party real estate services, including reimbursements
24,160
 6,794
 48,490
 13,919
Other income2,080
 1,532
 3,196
 3,114
Income from unconsolidated real estate ventures, net3,836
 105
 1,934
 314
Interest and other income, net513
 970
 1,086
 1,745
Gain on sale of real estate33,396
 
 33,851
 
Net loss attributable to noncontrolling interests125
 
 127
 
Consolidated NOI$85,282
 $70,157
 $172,402
 $138,769

Below is a summary of net incomeNOI by segment for the three and six months ended June 30, 2017 and 2016:segment:

 Three Months Ended June 30, 2017
 Office Multifamily Other Total
 (In thousands)
Total revenue$86,631
 $21,698
 $9,691
 $118,020
Operating expenses57,639
 13,083
 16,846
 87,568
Transaction and other costs
 
 5,237
 5,237
Total operating expenses57,639
 13,083
 22,083
 92,805
Operating income (loss)28,992
 8,615
 (12,392) 25,215
Income from unconsolidated
real estate ventures
105
 
 
 105
Interest and other income, net857
 7
 106
 970
Interest expense(10,476) (4,117) 7
 (14,586)
Income (loss) before income tax expense19,478
 4,505
 (12,279) 11,704
Income tax expense(37) 
 (326) (363)
Net income (loss) attributable to JBG SMITH Properties$19,441
 $4,505
 $(12,605) $11,341

 Three Months Ended June 30, 2016
 Office Multifamily Other Total
 (In thousands)
Total revenue$89,612
 $16,319
 $10,408
 $116,339
Total operating expenses58,964
 10,594
 16,517
 86,075
Operating income (loss)30,648
 5,725
 (6,109) 30,264
Loss from unconsolidated
real estate ventures
(374) 
 
 (374)
Interest and other income, net759
 
 1
 760
Interest expense(10,505) (3,097) 53
 (13,549)
Income (loss) before income tax expense20,528
 2,628
 (6,055) 17,101
Income tax expense(81) 
 (237) (318)
Net income (loss) attributable to JBG SMITH Properties$20,447
 $2,628
 $(6,292) $16,783
 Three Months Ended June 30, 2018
 Office Multifamily Other Elimination of Intersegment Activity Total
 (In thousands)
Rental revenue:         
Property rentals$97,485
 $25,410
 $2,604
 $(259) $125,240
Tenant reimbursements6,370
 1,491
 106
 
 7,967
Total rental revenue103,855
 26,901
 2,710
 (259) 133,207
Rental expense:     
   
Property operating26,414
 7,588
 1,887
 (5,473) 30,416
Real estate taxes12,201
 3,557
 1,751
 
 17,509
Total rental expense38,615
 11,145
 3,638
 (5,473) 47,925
Consolidated NOI$65,240
 $15,756
 $(928) $5,214
 $85,282



 Six Months Ended June 30, 2017
 Office Multifamily Other Total
 (In thousands)
Total revenue$173,044
 $42,473
 $18,775
 $234,292
Operating expenses116,128
 26,476
 35,789
 178,393
Transaction and other costs
 
 11,078
 11,078
Total operating expenses116,128
 26,476
 46,867
 189,471
Operating income (loss)56,916
 15,997
 (28,092) 44,821
Income from unconsolidated
real estate ventures
314
 
 
 314
Interest and other income, net1,723
 7
 15
 1,745
Interest expense(20,783) (7,780) 59
 (28,504)
Income (loss) before income tax expense38,170
 8,224
 (28,018) 18,376
Income tax expense(68) 
 (649) (717)
Net income (loss) attributable to JBG SMITH Properties$38,102
 $8,224
 $(28,667) $17,659
 Three Months Ended June 30, 2017
 Office Multifamily Other Elimination of Intersegment Activity Total
 (In thousands)
Rental revenue:         
Property rentals$78,624
 $19,974
 $2,975
 $(826) $100,747
Tenant reimbursements7,562
 1,133
 252
 
 8,947
Total rental revenue86,186
 21,107
 3,227
 (826) 109,694
Rental expense:         
Property operating22,022
 4,868
 482
 (3,417) 23,955
Real estate taxes12,273
 2,528
 781
 
 15,582
Total rental expense34,295
 7,396
 1,263
 (3,417) 39,537
Consolidated NOI$51,891
 $13,711
 $1,964
 $2,591
 $70,157

 Six Months Ended June 30, 2016
 Office Multifamily Other Total
 (In thousands)
Total revenue$180,296
 $31,825
 $21,002
 $233,123
Total operating expenses123,116
 19,541
 35,927
 178,584
Operating income (loss)57,180
 12,284
 (14,925) 54,539
Loss from unconsolidated
real estate ventures
(1,536) 
 
 (1,536)
Interest and other income, net1,540
 
 3
 1,543
Interest expense(21,517) (4,283) 166
 (25,634)
Income (loss) before income tax expense35,667
 8,001
 (14,756) 28,912
Income tax expense(98) 
 (484) (582)
Net income (loss) attributable to JBG SMITH Properties$35,569
 $8,001
 $(15,240) $28,330
 Six Months Ended June 30, 2018
 Office Multifamily Other Elimination of Intersegment Activity Total
 (In thousands)
Rental revenue:         
Property rentals$198,800
 $49,477
 $4,112
 $(498) $251,891
Tenant reimbursements15,444
 3,215
 248
 
 18,907
Total rental revenue214,244
 52,692
 4,360
 (498) 270,798
Rental expense:     
   
Property operating54,580
 14,682
 2,743
 (10,728) 61,277
Real estate taxes26,966
 7,055
 3,098
 
 37,119
Total rental expense81,546
 21,737
 5,841
 (10,728) 98,396
Consolidated NOI$132,698
 $30,955
 $(1,481) $10,230
 $172,402

 Six Months Ended June 30, 2017
 Office Multifamily Other Elimination of Intersegment Activity Total
 (In thousands)
Rental revenue:         
Property rentals$157,920
 $38,633
 $4,880
 $(1,662) $199,771
Tenant reimbursements14,821
 2,223
 444
 
 17,488
Total rental revenue172,741
 40,856
 5,324
 (1,662) 217,259
Rental expense:     
   
Property operating43,409
 9,921
 1,150
 (6,744) 47,736
Real estate taxes24,120
 5,021
 1,613
 
 30,754
Total rental expense67,529
 14,942
 2,763
 (6,744) 78,490
Consolidated NOI$105,212
 $25,914
 $2,561
 $5,082
 $138,769


The following is a summary of certain balance sheet data by segmentsegment:
 Office Multifamily Other Elimination of Intersegment Activity Total
June 30, 2018(In thousands)
Real estate, at cost$3,657,696
 $1,548,770
 $665,482
 $
 $5,871,948
Investments in and advances to
   unconsolidated real estate ventures
221,077
 101,105
 46,126
 
 368,308
Total assets3,533,869
 1,435,384
 1,138,597
 (192,901) 5,914,949
December 31, 2017         
Real estate, at cost$3,953,314
 $1,476,423
 $587,767
 $
 $6,017,504
Investments in and advances to
unconsolidated real estate ventures
124,659
 98,835
 38,317
 
 261,811
Total assets3,542,977
 1,434,999
 1,299,085
 (205,254) 6,071,807

15.    Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $200.0 million per occurrence and in the aggregate, and property and rental value insurance coverage with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties. We also maintain coverage, through our wholly owned captive insurance subsidiary, for both terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence. These policies are partially reinsured by third-party insurance providers.
We will continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. We cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of the insurance coverage, which could be material.
Our debt, consisting of mortgage loans secured by our properties, revolving credit facility and unsecured term loans contain customary covenants requiring adequate insurance coverage. Although we believe that we currently have adequate insurance coverage, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect the ability to finance or refinance our properties.
Construction Commitments
As of June 30, 20172018, we have construction in progress that will require an additional $461.0 million to complete ($362.9 million related to our consolidated entities and December 31, 2016:
 Office Multifamily Other Total
June 30, 2017(In thousands)
Real estate, at cost$2,935,001
 $965,577
 $270,735
 $4,171,313
Investments in unconsolidated real
   estate ventures
$45,333
 $
 $143
 $45,476
Total assets$2,527,891
 $1,100,658
 $281,396
 $3,909,945
December 31, 2016       
Real estate, at cost$2,929,976
 $959,267
 $266,148
 $4,155,391
Investments in unconsolidated real
estate ventures
$45,647
 $
 $129
 $45,776
Total assets$2,498,148
 $872,838
 $289,654
 $3,660,640




10.    Commitments$98.1 million related to our unconsolidated real estate ventures at our share), based on our current plans and Contingenciesestimates, which we anticipate will be primarily expended over the next two to three years. These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, and available cash.
Environmental Matters
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations.operations, or that have not been anticipated and remediated during site redevelopment as required by law. Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in significant cost to us.
Other
There are various legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree, to (1) guarantee portions of the principal, interest and other amounts in connection with their borrowings, (2) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy)


in connection with their borrowings and (3) provide guarantees to lenders and other third parties for the completion of development projects. We customarily have agreements with our outside partners whereby the partners agree to reimburse the real estate venture or us for their share of any payments made under the guarantee. Amounts that may be required to be paid in future periods in relation to budget overruns or operating losses that are also included in some of our guarantees are not estimable. Guarantees (excluding environmental) terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt. As of June 30, 2017,2018, the aggregate amount of our principal payment guarantees was $61.3 million for our consolidated entities and there were no principal payment guarantees for our unconsolidated real estate ventures.
As of June 30, 2018, we expect to fund additional capital to certain of our unconsolidated investments totaling approximately $5.3 million.$48.6 million, which we anticipate will be primarily expended over the next two to three years.
We are obligated under non-cancelable operating leases, primarily for ground leases onIn connection with the Formation Transaction, we entered into an agreement with Vornado regarding tax matters (the "Tax Matters Agreement") that provides special rules that allocate tax liabilities if the distribution of JBG SMITH shares by Vornado, together with certain related transactions, is not tax-free. Under the Tax Matters Agreement, we may be required to indemnify Vornado against any taxes and related amounts and costs resulting from a violation by us of our properties through 2084, totaling $576.1 million.the Tax Matters Agreement, or from the taking of certain restricted actions by us.

11.16.Transactions with Vornado and Related Party TransactionsParties

Transactions with Vornado
As described in Note 1, the accompanying condensed combined financial statements present the operations of the office and multifamily assetsVornado Included Assets as carved-out from the financial statements of Vornado. Vornado for all periods prior to July 17, 2017.
Certain centralized corporate costs borne by Vornado for management and other services including, but not limited to, accounting, reporting, legal, tax, information technology and human resources have been allocated to the assets in the combined financial statements using reasonable allocation methodologies.based on either actual costs incurred or a proportion of costs estimated to be applicable to the Vornado Included Assets based on key metrics including total revenue. The total amounts allocated during the three months ended June 30, 2017 and 2016 were $5.4 million and $4.6 million, respectively. The total amounts allocated during the six months ended June 30, 2017 and 2016 were $12.2$5.4 million and $10.7 million, respectively.$12.2 million. These allocated amounts are included as a component of general"General and administrative expense: Corporate and other" expenses on the combined statementsstatement of incomeoperations and do not necessarily reflect what actual costs would have been if the Vornado Included Assets were a separate standalone public company. Actual costs may be materially different. Allocated amounts
In connection with the Formation Transaction, we entered into an agreement with Vornado under which Vornado provides operational support for an initial period of up to two years. These services include information technology, financial reporting and payroll services. The charges for these services are based on an hourly or per transaction fee arrangement including reimbursement for overhead and out-of-pocket expenses. The total charges for the three and six months ended June 30, 20172018 were $1.1 million and 2016$2.3 million. Pursuant to an agreement, we are providing Vornado with leasing and property management services for certain of its assets that were not necessarily indicativepart of allocated amountsthe Separation. The total revenue related to these services for the three and six months ended June 30, 2018 was $444,000 and $1.0 million. We believe that the terms of both of these agreements are comparable to those that would have been negotiated based on market rates.
In connection with the Formation Transaction, we entered into a full year.Tax Matters Agreement with Vornado. See Note 15 for additional information.
In August 2014, we completed a $185.0 million financing of the Universal buildings, a 687,000 square foot office complex located in Washington, DC.D.C. In connection with this financing, pursuant to a note agreement dated August 12, 2014, we used a portion of the financing proceeds and made an $86.0 million loan to Vornado at LIBOR plus 2.9% (4.4% at June 30, 2017) due August 2019. During 2016 and 2015, Vornado repaid $4.0 million and $7.0 million of the loan receivable, respectively. As of June 30, 2017 and December 31, 2016, the balance of the receivable from Vornado, including accrued interest, was $76.7 million and $75.1 million, respectively. We recognized interest income of $843,000 and $1.7 million during the three and six months ended June 30, 2017, respectively, and $746,000 and $1.5 million during the three and six months ended June 30, 2016, respectively. At the Separation, Vornado repaid the outstanding balance of the loan and related accrued interest. We recognized interest income of $843,000 and $1.7 million during the three and six months ended June 30, 2017.
In connection with the development of The Bartlett, prior to the Separation, we entered into various note agreements with Vornado whereby we could borrow up to a maximum of $170.0 million. As of June 30, 2017 and December 31, 2016, the amounts outstanding underVornado contributed these note agreements along with accrued and unpaid interest to JBG SMITH at LIBOR plus 2.9% (4.7% at June 30, 2017) were $174.3 million and $166.5 million, respectively, and are included in “Payable to Vornado Realty Trust” on our condensed combined balance sheets.the Separation. We incurred interest expense of $2.0$2.0 million and $3.7$3.7 million during the three and six months ended June 30, 2017, respectively, and $1.1 million and $1.8 million during the three and six months ended June 30, 2016, respectively. Vornado contributed these note agreements to JBG SMITH at the Separation.2017.

In June 2016, the $115.0 million mortgage loan (including $608,000 of accrued interest) secured by the Bowen Building, a 231,000 square foot office building located in Washington, DC,D.C., was repaid with the proceeds of a $115.6 million draw on Vornado’sour former parent's revolving credit facility. Given that the $115.6 million draw on Vornado’sWe repaid our former parent with amounts drawn under our revolving credit facility is secured by an interest inat the property, such amount is included in “Payable to Vornado Realty Trust” on our condensed combined balance sheets.Combination. We incurred interest expense of $625,000$625,000 and $1.2$1.2 million during the three and six months ended June 30, 2017, respectively, and $145,000 for both the three and six months ended June 30, 2016. The mortgage was assigned to JBG SMITH at the Separation, and the note was repaid with amounts drawn under our revolving credit facility. See Note 12 for further discussion.2017.
We have agreements that are terminable on the second anniversary of the Combination with Building Maintenance Services (“BMS”("BMS"), a wholly owned subsidiary of Vornado, to supervise cleaning, engineering and security services at our properties. We

paid BMS $6.1 million and $3.2 million during the three months ended June 30, 2018 and 2017, and $10.1 million and $6.3 million during the three and six months

ended June 30, 2017, respectively, and $3.2 million and $6.3 million during the three and six months ended June 30, 2016, respectively,2018 and 2017, which are included in “Property"Property operating expenses” onexpenses" in our condensed combined statements of income.
In connection with the Separation and the Combination, we entered into an agreement with Vornado under which Vornado will provide operational support for an initial period of up to two years. See Note 12 for further discussion.operations.
We entered into a consulting agreement with Mr.Mitchell Schear, a member of our Board of Trustees and formerly the president of Vornado’s Washington, DCD.C. segment. The consulting agreement which expiresexpired on December 31, 2017 is subject to renewal through the second anniversary of the closing of the Combination unless earlier terminated and provides for the payment of consulting fees and expenses at the rate of $166,667$169,400 per month for the 24 months following the closing,Separation, including uponafter the termination of the consulting agreement. The amount due under this consulting agreement of $4.1 million was expensed in certain circumstances by us, or after December 31, 2017 by him. Inconnection with the Combination. As of June 30, 2018, the remaining liability is $2.0 million. Additionally, in March 2017, Vornado amended Mr. Schear’s employment agreement with Vornado to provide for the paymentspayment of severance, bonus and post-employment services. 
Transactions with Real Estate Ventures
We have a third-party real estate services business that Mr. Schear will receiveprovides fee-based real estate services to the JBG Legacy Funds and other third parties. We provide services for the benefit of the JBG Legacy Funds that own interests in the assets retained by the JBG Legacy Funds. In connection with certain post-employment services related to the Separation which services are intended to facilitate the integrationcontribution of the operationsJBG Assets to us, it was determined that the general partner and managing member interests in the JBG Legacy Funds that were held by former JBG executives (and who became members of Vornado’s Washington, DC segment with thoseour management team and/or Board of Trustees) would not be transferred to us and remain under the control of these individuals. In addition, certain members of our senior management business and Board of Trustees have an ownership interest in the JBG Legacy Funds and own carried interests in each fund and in certain assets of JBG.our real estate ventures that entitles them to receive additional compensation if the fund or real estate venture achieves certain return thresholds. This third-party real estate services revenue, including reimbursements, from these JBG Legacy Funds for the three and six months ended June 30, 2018 was $8.3 million and $16.9 million. As of June 30, 2018 and December 31, 2017, we had receivables from the JBG Legacy Funds totaling $2.2 million and $3.1 million for third-party real estate services, including reimbursements.
We rent our corporate offices from an unconsolidated real estate venture and incurred expenses totaling $1.2 million and $2.4 million during the three and six months ended June 30, 2018, which is recorded in "General and administrative expense: Corporate and other" in our statements of operations.

12.17.Subsequent Events
Pursuant to the Subsequent Events Topic of the Financial Accounting Standards Board ASC,In July 2018, we have evaluated subsequent events and transactions that occurred after our June 30, 2017 unaudited condensed combined balance sheet date for potential recognition or disclosure in our condensed combined financial statements and have also included such events in the footnotes herein.
The Separation
On July 17, 2017, we completed the Separation from Vornado. The Separation was effectuated by the distribution by Vornado of one common share of JBG SMITH for every two common shares of Vornado, and the distribution by VRLP of one common limited partnership unit of JBG SMITH LP for every two common limited partnership units of VRLP. A total of 94.7 million of our common shares and 5.8 million common limited partnership units of JBG SMITH LP were distributed to parties other than JBG SMITH. We are now an independent public company trading under the ticker symbol “JBGS” on the New York Stock Exchange. See Note 1 for further discussion.
The Combination
On July 18, 2017, we completed the Combination and acquired the management business and certain assets and liabilities, including mortgages payable with an aggregate principal balance of approximately $770.0 million, of The JBG Companies in exchange for 37.2 million common shares and common limited partnership units with a volume weighted average price on July 18, 2017 of $37.10 per share/unit. In accordance with ASC 805, Business Combinations, the Combination will be accounted for at fair value under the acquisition method of accounting. The purchase price allocation is in process and will be finalized after our valuation studies are complete. In addition, due to the short period of time between the closing of the Combination and the filing of this Quarterly Report on Form 10-Q, pro forma disclosures are not included and will be subsequently filed in an amended Current Report on Form 8-K, in accordance with SEC regulations.
The JBG assets acquired comprise: (i) 30 operating assets comprising 19 office assets totaling approximately 3.6 million square feet (2.3 million square feet at our share), nine multifamily assets with 2,883 units (1,099 units at our share) and two other assets totaling approximately 490,000 square feet (73,000 square feet at our share); (ii) 11 office and multifamily assets under construction totaling over 2.5 million square feet (2.2 million square feet at our share); (iii) two near-term development office and multifamily assets totaling approximately 401,000 square feet (242,000 square feet at our share); (iv) 26 future development assets totaling approximately 11.7 million square feet (8.5 million square feet at our share) of estimated potential development density; and (v) JBG/Operating Partners, L.P., a real estate services company providing investment, development, asset management, property management, leasing, construction management and other services. JBG/Operating Partners, L.P. was owned by 20 unrelated individuals of which 19 became our employees, and three of these former owners serve on our Board of Trustees.
Acquisition-related transaction costs and costs to effect the Separation and the Combination (such as advisory, legal, accounting, valuation and other professional fees) will not be included as a component of acquisition consideration. Such costs are expensed in the periods incurred.
In connection with the Separation and the Combination, we entered into an agreement with Vornado under which Vornado will provide operational support for an initial period of up to two years. These services include information technology, financial reporting and payroll services. The charges for these services will be based on an hourly or per transaction fee arrangement including reimbursement for overhead and out-of-pocket expenses. Pursuant to an agreement, we are providing Vornado with leasing and property management services for certain of its assets held under joint venture arrangements that were not part of the Separation. We believe that the terms of both of these agreements are comparable to those that would have been negotiated on an arm’s-length basis.


Other Events

JBG SMITH 2017 Omnibus Share Plan
On June 23, 2017, our Board of Trustees adopted the JBG SMITH 2017 Omnibus Share Plan (the “Plan”), effective as of July 17, 2017, and authorized the reservation of approximately 10.3 million of our common shares pursuant to the Plan. On July 10, 2017, our sole shareholder approved the Plan.
Initial Formation Awards
Pursuant to the Plan, on July 18, 2017, we granted approximately 2.7 million initial formation awards based on an aggregate notional value of approximately $100.0 million divided by the volume-weighted average price on July 18, 2017 of $37.10 per common share. The initial formation awards are structured in the form of profits interests that provide for a share of appreciation determined by the increase in the value of a common share at the time of conversion over the $37.10 volume-weighted average price of a common share at the time the formation unit was granted. The initial formation awards, subject to certain conditions, will vest 25% on each of the third and fourth anniversaries, and 50% on the fifth anniversary, of the closing of the Combination, subject to continued employment with JBG SMITH through each vesting date.
2017 Equity Grants
On July 18, 2017, we granted long-term incentive partnership units (“LTIP Units”) to the seven independent Trustees in the amount of $250,000 each. The LTIP Units fully vested on the date of grant, but may not be sold while an independent Trustee is serving on the Board.
On August 1, 2017, we granted approximately 303,700 LTIP Units to management and other employees under our Plan. The LTIP units vest in four equal installments on July 18 of each year, subject to continued employment.
On August 1, 2017, we granted approximately 607,000 out-performance award units (“OPP Units”) to management and other employees under the Plan. OPP Units are part of a performance-based equity compensation plan pursuant to which participants have the opportunity to earn OPP units based on the relative performance of the total shareholder return (“TSR”) of our common shares compared to the companies in the FTSE NAREIT Equity Office Index, over the three-year performance period beginning on the August 1, 2017 grant date, inclusive of dividends and stock price appreciation. 50% of any OPP Units that are earned vest at the end of the three-year performance period and the remaining 50% on the fourth anniversary of the date of grant, subject to continued employment.
Credit Facility

On July 18, 2017, we entered into a $1.4 billion credit facility, consisting of a $1.0 billion revolving credit facility with a four-year term, with two six-month extension options, a five and a half-year delayed drawborrowed $200.0 million unsecured term loan (“Tranche A-1 Term Loan”) and a seven-year delayed draw $200.0 million unsecured term loan (“Tranche A-2 Term Loan”). The interest rate for the credit facility will vary based on a ratio of our total outstanding indebtedness to a valuation of certain real property businesses and assets and will range (a) in the case of the revolving credit facility, from LIBOR plus 1.10% to LIBOR plus 1.50%, (b) in the case of the Tranche A-1 Term Loan, from LIBOR plus 1.20% to LIBOR plus 1.70% and (c) in the case of the Tranche A-2 Term Loan, from LIBOR plus 1.55% to LIBOR plus 2.35%. On July 18, 2017, in connection with the Combination, we drew $115.8 million on the revolving credit facility and $50.0 million under the Tranche A-2 Term Loan. In connectionLoan, in accordance with the executiondelayed draw provisions of the credit facility. We also repaid the outstanding revolving credit facility we incurred $6.8balance of $35.7 million.
In July 2018, the buyer’s deposit became non-refundable in feesour agreement for the sale of Commerce Executive, a 394,000 square foot office asset located in Reston, Virginia, for $115.0 million, which had a net carrying value of $75.3 million as of June 30, 2018 and expenses.met the held for sale criteria subsequent to June 30, 2018.


In July 2018, our partner in the real estate venture that owns the Investment Building, a 401,000 square foot office building located in Washington, D.C., became obligated to acquire our 5.0% interest in the venture for $20.9 million, following their exercise of the buy-sell provisions of the venture agreement. As of June 30, 2018, our investment balance in the real estate venture was $9.2 million.

In August 2018, our Board of Trustees declared a quarterly dividend of $0.225 per common share, payable on August 27, 2018 to shareholders of record on August 14, 2018.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may”"approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Risk Factors”"Risk Factors" in Item 1A of our Registration Statement on Form 10, as amended, filed with the Securities and Exchange Commission (the “SEC”) and declared effective on June 26, 2017, as well as the section entitled “Risk Factors” of the final Information Statement filed with the SEC as Exhibit 99.1 on our CurrentAnnual Report on Form 8-K filed on June 27,10-K for the year ended December 31, 2017.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Organization and Basis of Presentation and Overview

JBG SMITH Properties (“("JBG SMITH”SMITH") was organized by Vornado Realty Trust (NYSE: VNO) (“Vornado”("Vornado" or "former parent") as a Maryland real estate investment trust (“REIT”("REIT") on October 27, 2016 (capitalized on November 22, 2016). JBG SMITH was formed for the purpose of receiving, via the spin-off on July 17, 2017 (the “Separation”"Separation"), substantially all of the assets and liabilities of Vornado’s Washington, DCD.C. segment, which operated as Vornado / Charles E. Smith, (the “Vornado"Vornado Included Assets”Assets"). On July 18, 2017, JBG SMITH acquired the management business and certain assets and liabilities (the "JBG Assets") of The JBG Companies (“JBG”("JBG") (the “Combination”"Combination"). UnlessThe Separation and the context otherwise requires,Combination are collectively referred to as the "Formation Transaction." Substantially all references to “we,” “us,”of our assets are held by, and “our,” refer toour operations are conducted through, JBG SMITH after giving effect to the transfer of assets and liabilities from Vornado, but prior to the date of completion of the Separation.Properties LP ("JBG SMITH LP"), our operating partnership.

Prior to the Separation from Vornado, JBG SMITH was a wholly owned subsidiary of Vornado and had no material assets or operations. Pursuant to a separation agreement, on July 17, 2017, Vornado distributed 100% of the then outstanding common shares of JBG SMITH on a pro rata basis to the holders of its common shares. Prior to such distribution by Vornado, Vornado Realty L.P. (“VRLP”), Vornado's operating partnership, distributed common limited partnership units of JBG SMITH LP, our operating partnership, on a pro rata basis to the holders of its common limited partnership units, consisting of Vornado and the other common limited partners of VRLP. Following such distribution by VRLP and prior to such distribution by Vornado, Vornado contributed to JBG SMITH all of the JBG SMITH LP common limited partnership units it received in exchange for common shares of JBG SMITH.Each Vornado common shareholder received one JBG SMITH common share for every two Vornado common shares held as of the close of business on July 7, 2017 (the “Record Date”).  Vornado and each of the other limited partners of VRLP received one JBG SMITH LP common limited partnership unit for every two common limited partnership units in VRLP held as of the close of business on the Record Date. TheOur operations of JBG SMITH are presented as if the transfer of the Vornado Included Assets had been consummated prior to all historical periods presented in the accompanying condensedconsolidated and combined financial statements at the carrying amounts of such assets and liabilities reflected in Vornado’s books and records.

After The assets and liabilities of the CombinationJBG Assets and subsequent results of operations and cash flows are reflected in our consolidated and combined financial statements beginning on July 18, 2017, the combined portfoliodate of JBG SMITH comprised: (i) 68 operating assets comprising 50 office assets totaling over 13.9 million square feet (11.9 million square feet at our share), 14 multifamily assets totaling 6,016 units (4,232 units at our share) and four other assets totaling approximately 765,000 square feet (348,000 square feet at our share); (ii) 11 assets under construction comprising five office assets totaling over 1.3 million square feet (1.2 million square feet at our share) and six multifamily assets totaling 1,334 units (1,146 units at our share); (iii) two near-term development assets comprising one other asset of approximately 65,000 square feet (6,500 square feet at our share) and one multifamily asset totaling 433 units (303 units at our share), and (iv) 44 future development assets totaling over 22 million square feet (18.3 million square feet at our share) of estimated potential development density.the Combination.

The following is a discussion of the historical results of operations and liquidity and capital resources of JBG SMITH as of June 30, 2018 and December 31, 2017, and for the periodthree and six months ended June 30, 2018 and 2017, which isincludes results prior to the consummation of the Separation and the Combination.Formation Transaction. The historical results presented prior to the consummation of the Formation Transaction include the Vornado Included Assets, all of which were under common control of Vornado until July 17, 2017. Unless otherwise specified, the discussion of the historical results prior to July 18, 2017 does not include the results of the assets acquired from The JBG Companies on July 18, 2017.Assets. Consequently, our results for the periods before and after the Formation Transaction are not directly comparable. The following discussion should be read in conjunction with theour condensed consolidated and combined interim financial

statements and notes thereto appearing in “Item"Item 1. Financial Statements” of this report andStatements."
References to the more detailed information contained in the final Information Statement filed with the SEC as Exhibit 99.1financial statements refer to our Current Report on Form 8-K filed oncondensed consolidated and combined financial statements as of June 27,30, 2018 and December 31, 2017, and for the three and six months ended June 30, 2018 and 2017. References to the balance sheets refer to our condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017. References to the statements of operations refer to our condensed consolidated and combined statements of operations for the three and six months ended June 30, 2018 and 2017. References to the statements of cash flows refer to our condensed consolidated and combined statements of cash flows for the six months ended June 30, 2018 and 2017.

The accompanying unaudited condensed combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP"). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenuesdisclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The historical financial results

for the Vornado Included Assets reflect charges for certain corporate costs allocated by the former parent which we believe are reasonable. These charges were based on either actual costs incurred or a proportion of costs estimated to be applicable to the Vornado Included Assets based on an analysis of key metrics, including total revenues. Such costs do not necessarily reflect what the actual costs would have been if the Vornado Included AssetsJBG SMITH had been operating as a separate standalone public company. These charges are discussed further in Note 1116 to the condensed combined financial statements included as part of this Quarterly Report on Form 10-Q.herein.
JBG SMITH has electedWe intend to elect to be taxed as a REIT for U.S. Federal income tax purposes. Commencing with the transfer of assets to JBG SMITH and the distribution of JBG SMITH’s common shares to Vornado’s shareholders, JBG SMITH operates in a manner intended to enable it to qualify as a REIT under Sections 856‑860sections 856-860 of the Code.Internal Revenue Code of 1986, as amended (the "Code"). Under those sections, a REIT which distributes at least 90% of its REIT taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. SincePrior to the Separation, Vornado operatesoperated as a REIT and distributesdistributed 100% of its taxable income to its shareholders, accordingly, no provision for federal income taxes has been made in the accompanying combined financial statements. The Vornado Included Assetsstatements for the periods prior to the Separation. We intend to adhere to these requirements and maintain our REIT status in future periods. We also participate in the activities conducted by subsidiary entities which have elected to be treated as taxable REIT subsidiaries under the Code. As such, we are also subject to certain other taxes, includingfederal, state, and local taxes which are included in “income tax expense” inon the condensed combined statements of income.income from these activities.
Presentation of earnings per share information is not applicable inWe aggregate our operating segments into three reportable segments (office, multifamily, and third-party real estate services) based on the condensed combined financial statements, since these assets and liabilities were wholly owned by Vornado.
The Vornado Included Assets aggregate assets into two reportable segments-office and multifamily-because all of the assets in each segment have similar economic characteristics and we will provide similar productsnature of our assets and servicesservices.
Our revenues and expenses are, to similar typessome extent, subject to seasonality during the year, which impacts quarterly net earnings, cash flows and funds from operations that affects the sequential comparison of officeour results in individual quarters over time. We have historically experienced higher utility costs in the first and multifamily tenants.third quarters of the year.
We compete with a large number of property owners and developers. Our success depends upon, among other factors, trends affecting national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and legislation, population trends, zoning laws, and our ability to lease, sublease or sell our assets at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.
Overview
We own and operate a portfolio of high-quality office and multifamily assets, many of which are amenitized with ancillary retail. Our portfolio reflects our longstanding strategy of owning and operating assets within Metro-served submarkets in the Washington, D.C. metropolitan area that have high barriers to entry and key urban amenities, including being within walking distance of a Metro station. 
As of June 30, 2018, our Operating Portfolio consists of 67 operating assets comprising 48 office assets totaling over 13.7 million square feet (11.8 million square feet at our share), 15 multifamily assets totaling 6,307 units (4,523 units at our share) and four other assets totaling approximately 765,000 square feet (348,000 square feet at our share). Additionally, we have (i) eight assets under construction comprising three office assets totaling approximately 774,000 square feet (542,000 square feet at our share), four multifamily assets totaling 1,476 units (1,282 units at our share) and one other asset totaling approximately 41,100 square feet (4,100 square feet at our share); and (ii) 42 future development assets totaling approximately 20.7 million square feet (17.2 million square feet at our share) of estimated potential development density.
Key highlights of operating results for the three and six months ended June 30, 2018 included:

net income attributable to common shareholders of $20.6 million, or $0.17 per diluted common share, for the three months ended June 30, 2018 as compared to $11.3 million, or $0.11 per diluted common share, for the three months ended June 30, 2017. Net income attributable to common shareholders of $16.4 million, or $0.14 per diluted common share, for the six months ended June 30, 2018 as compared to $17.7 million, or $0.18 per diluted common share, for the six months ended June 30, 2017. Net income attributable to common shareholders for the three and six months ended June 30, 2018 included gains on the sale of real estate of $33.4 million and $33.9 million;
operating office portfolio leased and occupied percentages at our share of 87.4% and 86.0% as of June 30, 2018 compared to 87.8% and 87.0% as of March 31, 2018 and 88.0% and 87.2% as of December 31, 2017. The decreases are due in part to the movement of CEB Tower at Central Place into our recently delivered operating assets during the quarter. The in service operating office portfolio was 88.0% leased and 86.6% occupied as of June 30, 2018, compared to 87.9% leased and 87.0% occupied as of March 31, 2018;
operating multifamily portfolio leased and occupied percentages at our share of 95.9% and 92.6% as of June 30, 2018 compared to 96.1% and 94.2% as of March 31, 2018 and 95.6% and 93.8% as of December 31, 2017. The decreases are due in part to the movement of 1221 Van Street into our recently delivered operating assets during the quarter. The in service operating multifamily portfolio was 98.0% leased and 95.0% occupied as of June 30, 2018, compared to 96.1% leased and 94.2% occupied as of March 31, 2018;

the leasing of approximately 356,000 square feet, or 319,000 square feet at our share, at an initial rent (1) of $54.01 per square foot and a GAAP-basis weighted average rent per square foot (2) of $55.52 for the three months ended June 30, 2018, and the leasing of approximately 711,000 square feet, or 641,000 square feet at our share, at an initial rent (1) of $50.66 per square foot and a GAAP-basis weighted average rent per square foot (2) of $52.26 for the six months ended June 30, 2018; and
an increase in same store (3) net operating income of 6.2% to $70.2 million for the three months ended June 30, 2018 as compared to $66.1 million for the three months ended June 30, 2017, and an increase in same store (3) net operating income of 8.0% to $139.5 million for the six months ended June 30, 2018 as compared to $129.1 million for the six months ended June 30, 2017.
_________________
(1)
Represents the cash basis weighted average starting rent per square foot, which excludes free rent and periodic rent steps.
(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. Excludes the JBG Assets acquired in the Combination.
Additionally, investing and financing activity during the six months ended June 30, 2018 included:
the sale of Summit I and II, two office assets located in Reston, Virginia, including 700,000 square feet of estimated potential development density, for an aggregate gross sales price of $95.0 million, resulting in a gain on the sale of $6.2 million. In connection with the sale, we repaid the related $59.0 million mortgage payable outstanding;
the sale of the Bowen Building, an office building located in Washington, D.C., for a gross sales price of $140.0 million, resulting in a gain on the sale of $27.2 million. In connection with the sale, we repaid $115.0 million of the then outstanding balance on our revolving credit facility;
the closing of a real estate venture with Canadian Pension Plan Investment Board ("CPPIB") to develop and own 1900 N Street, an under-construction office asset in Washington, D.C. We contributed 1900 N Street, valued at $95.9 million, to the real estate venture, and CPPIB has committed to contribute approximately $101.0 million to the venture for a 45.0% interest, which will reduce our ownership interest from 100.0% at the real estate venture's formation to 55.0% as contributions are funded;
the investment of $10.1 million for a 16.67% interest in a real estate venture with CIM Group and Pacific Life Insurance Company, which purchased the 1,152-key Wardman Park hotel, located adjacent to the Woodley Park Metro Station in northwest Washington, D.C.;
a $50.0 million draw under our unsecured term loan maturing in January 2023 ("Tranche A-1 Term Loan"), in accordance with the delayed draw provisions of the credit facility, bringing the outstanding borrowings under the term loan facility to $100.0 million. Concurrent with the draw, we entered into an interest rate swap agreement to convert the variable interest rate to a fixed interest rate;
the aggregate borrowings under mortgages payable of $41.3 million related to construction draws;
the prepayment of mortgages payable with an aggregate principal balance of $162.5 million and recognized losses on the extinguishment of debt in conjunction with these repayments of $4.5 million;
the payment of dividends totaling $0.45 per common share that were declared in December 2017 and May 2018; and
the investment of $165.7 million in development costs, construction in progress and real estate additions.
Activity subsequent to June 30, 2018 included:
a $200.0 million borrowing under our unsecured term loan maturing in July 2024 ("Tranche A-2 Term Loan"), in accordance with the delayed draw provisions of the credit facility. We also repaid the outstanding revolving credit facility balance of $35.7 million;
the buyer's deposit became non-refundable in our agreement for the sale of Commerce Executive, a 394,000 square foot office asset located in Reston, Virginia, for $115.0 million, which had a net carrying value of $75.3 million as of June 30, 2018 and met the held for sale criteria subsequent to June 30, 2018;
our partner in the real estate venture that owns the Investment Building, a 401,000 square foot office building located in Washington, D.C., became obligated to acquire our 5.0% interest in the venture for $20.9 million, following their exercise of the buy-sell provisions of the venture agreement. As of June 30, 2018, our investment balance in the real estate venture was $9.2 million; and
the declaration of a quarterly dividend of $0.225 per common share, payable on August 27, 2018, to shareholders of record on August 14, 2018.


Critical Accounting Policies and Estimates
Our Information StatementAnnual Report on Form 10, as amended, filed with10-K for the SEC on June 20,year ended December 31, 2017 contains a description of our critical accounting policies, including business combinations, real estate, deferred costs,investments in and advances to real estate ventures, revenue recognition and income taxes. For the three and six months ended June 30, 2017, there wereshare-based compensation. There have been no materialsignificant changes to these policies.our policies during 2018.

Recent Accounting Pronouncements

See Note 2 to the condensed combined financial statements included as part of this Quarterly Report on Form 10-Q for a description of the potential impact of the adoption of any new accounting pronouncements.
Results of Operations
Comparison of the Three Months Ended June 30, 20172018 to 2016June 30, 2017
The following summarizes certain line items from our unaudited condensed combined statements of incomeoperations that we believe are important in understanding our operations and/or those items which significantly changed in the three months ended June 30, 20172018 as compared to the same period in 2016:

2017:
Three Months Ended June 30,Three Months Ended June 30,
2017 2016 % Change2018 2017 % Change
(In thousands)  (In thousands)  
Property rentals revenue$100,747
 $98,861
 1.9 %$125,240
 $100,747
 24.3 %
Tenant reimbursements revenue9,030
 8,716
 3.6 %7,967
 8,947
 (11.0)%
Third-party real estate services revenue
4,869
 5,767
 (15.6)%
Other income3,374
 2,995
 12.7 %
Third-party real estate services revenue, including reimbursements
24,160
 6,794
 255.6 %
Depreciation and amortization expense31,993
 32,625
 (1.9)%48,117
 31,993
 50.4 %
Property operating expense28,285
 27,374
 3.3 %30,416
 23,955
 27.0 %
Real estate taxes expense15,582
 14,137
 10.2 %17,509
 15,582
 12.4 %
General and administrative expense11,708
 11,939
 (1.9)%
General and administrative expense:     
Corporate and other12,651
 11,552
 9.5 %
Third-party real estate services21,189
 4,486
 372.3 %
Share-based compensation related to Formation Transaction
9,097
 
 *
Transaction and other costs5,237
 
 NM*
3,787
 5,237
 (27.7)%
Income (loss) from unconsolidated real estate ventures105
 (374) NM*
Interest expense14,586
 13,549
 7.7 %18,027
 14,586
 23.6 %
Gain on sale of real estate33,396
 
 *
Loss on extinguishment of debt4,457
 
 *
Reduction of gain on bargain purchase7,606
 
 *
______________
* Not meaningful.
Property rentals revenue increased by approximately $1.8$24.5 million, or 1.9%24.3%, to $125.2 million in 2018 from $100.7 million in 2017 from $98.9 million in 2016.2017. The increase was primarily due to The Bartlett multifamily project being phased into service during$24.8 million of revenue associated with the second quarter of 2016,assets acquired in the Combination. This increase was partially offset by 1150 17th St and 1770 Crystal Drive, botha decrease of $324,000 in revenue associated with the Vornado Included Assets, of which were taken out$1.5 million was due to the sale of service, and higher straight-line rent.the Bowen Building, partially offset by an increase in revenue across the remaining portfolio.
Tenant reimbursements revenue decreased by approximately $1.0 million, or 11.0%, to $8.0 million in 2018 from $8.9 million in 2017. The decrease was primarily due to a $2.2 million decrease in tax recoveries related to lower tax assessments and $579,000 related to the sale of the Bowen Building, partially offset by an increase of $1.8 million associated with the assets acquired in the Combination.
Third-party real estate services revenue, including reimbursements, increased by approximately $300,000,$17.4 million, or 3.6%255.6%, to $9.0$24.2 million in 20172018 from $8.7$6.8 million in 2016.2017. The increase was primarily due to higher real estate taxes.
Third-party$17.8 million associated with the real estate services revenue decreased by approximately $900,000, or 15.6%, to $4.9 millionbusiness acquired in 2017 from $5.8 million in 2016. The decrease was primarily due to lower third-party management fees and leasing commissions,the Combination, partially offset by an increase in developmentlower payroll reimbursements related to third-party arrangements that were terminated during 2017 and construction fees.early 2018.
Other income
Depreciation and amortization expense increased by approximately $400,000,$16.1 million, or 12.7%50.4%, to $3.4$48.1 million for 2018 from $32.0 million in 2017 from $3.0 million in 2016.2017. The increase was primarily due to lease termination payments from tenants.
Depreciationdepreciation and amortization expense decreased by approximately $600,000, or 1.9%, to $32.0 million for 2017 from $32.6 millionassociated with the assets acquired in 2016. The decrease was primarily due to 1150 17th Street and 1726 M Street which were taken out of service during 2016 to prepare for the development of a new Class A office building, partially offset by phasing The Bartlett into service during the second quarter of 2016.Combination.
Property operating expense increased by approximately $900,000,$6.5 million, or 3.3%27.0%, to $28.3$30.4 million in 20172018 from $27.4$24.0 million in 2016.2017. The increase was primarily due to an increaseproperty operating expenses associated with the assets acquired in bad debt expense.the Combination, partially offset by the sale of the Bowen Building.
Real estate tax expense increased by approximately $1.5$1.9 million, or 10.2%12.4%, to $17.5 million in 2018 from $15.6 million in 2017 from $14.1 million in 2016.2017. The increase was primarily due to an increasereal estate tax expense of $3.6 million associated with the assets acquired in the Combination, partially offset by a decrease associated with the Vornado Included Assets due to decreased tax assessmentassessments and lower capitalized real estate taxes for The Bartlett and increases in the tax assessment for certainsale of our office properties.the Bowen Building.
General and administrative expense decreasedexpense: corporate and other increased by approximately $200,000,$1.1 million, or 1.9%9.5%, to $11.7$12.7 million for 20172018 from $11.9$11.6 million in 2016.2017. The decreaseincrease was due to an increase in general and administrative expenses associated with the operations acquired in the Combination.
General and administrative expense: third-party real estate services increased by approximately $16.7 million, or 372.3%, to $21.2 million in 2018 from $4.5 million in 2017 primarily due to lower payrollthe real estate services business acquired in the Combination.
General and benefits.administrative expense: share-based compensation related to Formation Transaction of $9.1 million in 2018 consists of expense related to share-based compensation issued in connection with the Formation Transaction.
Transaction and other costs of $3.8 million in 2018 and $5.2 million in 2017 consist primarily of professional fees and expenses incurred in connection with the SeparationFormation Transaction, including amounts incurred for transition services provided by our former parent, integration costs and the Combination.severance costs.
Income (loss) from unconsolidated real estate venturesInterest expense increased by approximately $479,000,$3.4 million, or 23.6%, to $105,000$18.0 million for 2018 from $14.6 million in 2017 from a loss of $374,000 in 2016.2017. The increase was primarily due to a reduction$4.5 million of interest expense resulting fromassociated with the refinancingassets acquired in the Combination, partially offset by the repayment of the Warnermortgage associated with the Bowen Building mortgage loan in May 2016 at a lower interest rate and a lower outstanding principal amount.2011 Crystal Drive.
Interest expense increased by approximately $1.1 million, or 7.7%, to $14.6 million for 2017 from $13.5 million in 2016. The increase was primarily due to higher interest expenseGain on the amountsale of real estate of $33.4 million is related to the sale of Summit I and II and the Bowen Building. See Note 3 to the financial statements for additional information.
Loss on extinguishment of debt of $4.5 million is related to our repayment of various mortgages payable to Vornado as aduring the period.
Reduction of gain on bargain purchase of $7.6 million is the result of a higher outstanding balance due to borrowings and lower capitalized interestfinalizing our fair value estimates used in the purchase price allocation related to The Bartlett which was phased into service during the second quarterCombination. We adjusted the fair value of 2016.assets acquired and liabilities assumed consisting of a decrease of $468,000 to investments in and advances to 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.

Comparison of the Six Months Ended June 30, 20172018 to 2016June 30, 2017
The following summarizes certain line items from our unaudited condensed combined statements of incomeoperations that we believe are important in understanding our operations and/or those items which significantly changed in the six months ended June 30, 20172018 as compared to the same period in 2016:2017:
Six Months Ended June 30,Six Months Ended June 30,
2017 2016 % Change2018 2017 % Change
(In thousands)  (In thousands)  
Property rentals revenue$199,771
 $196,232
 1.8 %$251,891
 $199,771
 26.1 %
Tenant reimbursements revenue17,667
 18,197
 (2.9)%18,907
 17,488
 8.1 %
Third-party real estate services revenue
9,923
 12,301
 (19.3)%
Other income6,931
 6,393
 8.4 %
Third-party real estate services revenue, including reimbursements
48,490
 13,919
 248.4 %
Depreciation and amortization expense65,775
 66,914
 (1.7)%97,277
 65,775
 47.9 %
Property operating expense56,466
 56,460
  %61,277
 47,736
 28.4 %
Real estate taxes expense30,754
 29,250
 5.1 %37,119
 30,754
 20.7 %
General and administrative expense25,398
 25,960
 (2.2)%
General and administrative expense:     
Corporate and other25,362
 24,944
 1.7 %
Third-party real estate services43,798
 9,184
 376.9 %
Share-based compensation related to Formation Transaction
18,525
 
 *
Transaction and other costs11,078
 
 NM*
8,008
 11,078
 (27.7)%
Income (loss) from unconsolidated real estate ventures314
 (1,536) NM*
Interest expense28,504
 25,634
 11.2 %37,284
 28,504
 30.8 %
Gain on sale of real estate33,851
 
 *
Loss on extinguishment of debt4,457
 
 *
Reduction of gain on bargain purchase7,606
 
 *
______________
* Not meaningful.
Property rentals revenue increased by approximately $3.6$52.1 million, or 1.8%26.1%, to $251.9 million in 2018 from $199.8 million in 2017 from $196.2 million in 2016.2017. The increase was primarily due to $51.1 million of revenue associated with the assets acquired in the Combination and an increase of $1.0 million in revenue associated with the Vornado Included Assets, primarily due to an increase in occupancy and associated rentals at The Bartlett, multifamily project being phasedwhich was placed into service duringin the second quarter of 2016, partially offset by 1150 17th St and Crystal Square 3, boththe sale of which were taken out of service, and higher straight-line rent.the Bowen Building.
Tenant reimbursements revenue decreasedincreased by approximately $500,000$1.4 million, or 2.9%8.1%, to $17.7$18.9 million in 20172018 from $18.2$17.5 million in 2016.2017. The decreaseincrease was primarily due to lower operating expenses and real estate taxes foran increase of $4.1 million associated with the office portfolio,assets acquired in the Combination, partially offset by an increase in tenant services.a decrease of $2.7 million associated with the Vornado Included Assets primarily due to lower tax assessments and the sale of the Bowen Building.
Third-party real estate services revenue, decreased by approximately $2.4 million, or 19.3%, to $9.9 million in 2017 from $12.3 million in 2016. The decrease was primarily due to lower third-party management fees and leasing commissions.
Other incomeincluding reimbursements, increased by approximately $500,000,$34.6 million, or 8.4%248.4%, to $6.9$48.5 million in 20172018 from $6.4$13.9 million in 2016.2017. The increase was primarily due to lease termination payments from tenants.an increase of $37.0 million associated with the real estate services business acquired in the Combination, partially offset by lower payroll reimbursements related to third-party arrangements that were terminated during 2017 and early 2018.
Depreciation and amortization expense decreasedincreased by approximately $1.1$31.5 million, or 1.7%47.9%, to $97.3 million for 2018 from $65.8 million for 2017 from $66.9 million in 2016.2017. The decreaseincrease was primarily due to 1150 17th Streetdepreciation and 1726 M Street which were taken out of service during 2016 to prepare foramortization expense associated with the development of a new Class A office building, partially offset by phasing The Bartlett into service duringassets acquired in the second quarter of 2016.Combination.
Property operating expense remained relatively constant at $56.5increased by approximately $13.5 million, or 28.4%, to $61.3 million in 2017 and 2016. Activity for2018 from $47.7 million in 2017. The increase was primarily due to property operating expenses of $14.7 million associated with the period included an increaseassets acquired in repairs and maintenance expensethe Combination, partially offset by a reduction in utilities.decrease of $1.2 million associated with the Vornado Included Assets due primarily to the sale of the Bowen Building and lower payroll expenses.
Real estate tax expense increased by approximately $1.5$6.4 million, or 5.1%20.7%, to $37.1 million in 2018 from $30.8 million in 2017 from $29.3 million in 2016.2017. The increase was primarily due to an increasereal estate tax expense of $6.9 million associated with the assets acquired in the Combination, partially offset by a decrease associated with the Vornado Included Assets due to lower tax assessments and lower capitalized real estate taxes for The Bartlett, partially offset by capitalized real estate taxes for 1150 17th Street and 1726 M Street, which were taken outthe sale of service during 2016.the Bowen Building.

General and administrative expense decreasedexpense: corporate and other increased by approximately $600,000,$418,000, or 2.2%1.7%, to $25.4 million for 20172018 from $26.0$24.9 million in 2016.2017. The decrease was due to lower corporate overhead costs in the 2018 period compared to the amount allocated and recorded in the 2017 period, partially offset by an increase in general and administrative expenses associated with the operations acquired in the Combination.
General and administrative expense: third-party real estate services increased by approximately $34.6 million, or 376.9%, to $43.8 million in 2018 from $9.2 million in 2017 primarily due to lower payrollthe real estate services business acquired in the Combination.
General and benefits.administrative expense: share-based compensation related to Formation Transaction of $18.5 million in 2018 consists of expense related to share-based compensation issued in connection with the Formation Transaction.
Transaction and other costs of $8.0 million in 2018 and $11.1 million in 2017 consist primarily of professional fees and expenses incurred in connection with the SeparationFormation Transaction, including amounts incurred for transition services provided by our former parent, integration costs and the Combination.severance costs.


Income from unconsolidated real estate venturesInterest expense increased by approximately $1.8$8.8 million, or 30.8%, to $314,000 in 2017$37.3 million for 2018 from a loss of $1.5$28.5 million in 2016.2017. The increase was primarily due to a reduction$10.5 million of interest expense resulting fromassociated with the refinancingassets acquired in the Combination and the financing of 1235 South Clark Street, partially offset by the repayment of the Warner Building mortgage loan in May 2016 at a lower interest ratemortgages associated with 2011 Crystal Drive and the Bowen Building.
Gain on the sale of real estate of $33.9 million is primarily related to the sale of Summit I and II and the Bowen Building. See Note 3 to the financial statements for a lower outstanding principal amount.additional information.
Interest expense increased by approximately $2.9Loss on extinguishment of debt of $4.5 million or 11.2%,is related to $28.5 million for 2017 from $25.6 million in 2016. The increase was primarily due to lower capitalized interest on The Bartlett which was phased into serviceour repayment of various mortgages payable during the second quarterperiod.
Reduction of 2016.gain on bargain purchase of $7.6 million is the result of finalizing our fair value estimates used in the purchase price allocation related to the Combination. We adjusted the fair value of assets acquired and liabilities assumed consisting of a decrease of $468,000 to investments in and advances to 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.

Property Operating Income, Net Operating Income (NOI("NOI") and Same Store NOI
In this section, we present Property Operating Income andWe utilize NOI, which areis a non-GAAP financial measures.measure, to assess a segment’s performance. The most directly comparable GAAP measure is net income attributable to JBG SMITH Properties, which, to calculate Property Operating Income, is adjusted to add back depreciation and amortization expense, general and administrative expense, interest expense, impairment losses, transaction costs, income tax expense, and to exclude management and leasing fees, equity in income of unconsolidated real estate ventures, and other income. NOI is further adjusted to exclude straight-line rent, amortization of below-market ground lease intangibles, amortization of lease incentives, and accretion of below market lease intangibles (net), and to exclude related party management fee expense recorded at each property based on a percentage of revenue.common shareholders. We use Property Operating Income and NOI internally as a performance measuresmeasure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only property related revenue (which includes base rent, tenant expense recoveriesreimbursements and other operating revenue) less operating expense, before straight-linedeferred rent and related party management fees. We also present our share of NOI, which represents our share of the NOI generated by our consolidated and unconsolidated operating assets based on our percentage ownership of such assets. Management uses NOI as a supplemental performance measure for our assets and believes it provides useful information to investors because it reflects only those revenue and expense items that are incurred at the asset level, excluding non-cash items. In addition, NOI is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. However, because NOI excludes depreciation and amortization and captures neither the changes in the value of our assets that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our assets, all of which have real economic effect and could materially impact the financial performance of our assets, the utility of NOI as a measure of the operating performance of our assets is limited. Property Operating Income and NOI presented by us may not be comparable to Property Operating Income and NOI reported by other REITs that define these measures differently. We believe that to facilitate a clear understanding of our operating results, Property Operating Income and NOI should be examined in conjunction with net income attributable to JBG SMITH Propertiescommon shareholders as presented in our consolidated financial statements. Property Operating Income and NOI should not be considered as an alternative to net income attributable to JBG SMITH Propertiescommon shareholders as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.

We also provide certain information on a “same store”"same store" basis. Information provided on a same store basis includes the results of properties that are a part of the Vornado Included Assets owned, operated and stabilizedin 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. While there is judgment surrounding changes in designations, a property is removed from the same store pool when athe property is considered to be a property under construction because it is undergoing significant redevelopment or renovation pursuant to a formal plan or is being repositioned in the market and such renovation or repositioning is expected to have a significant impact on property operating income. A development property or property under construction is moved to the same store pool once a substantial portion of the growth expected from the development or redevelopment is reflected in both the current and comparable prior year period. Acquisitions are moved into the same store pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment. 


For the three and six months ended June 30, 2017,2018, all of the JBG Assets and two Vornado Included Assets (The Bartlett and 1800 South Bell Street) were not included in the same store comparison as they were out ofnot in service during portions of the periods being compared. Additionally, the Bowen Building was excluded because it was sold during the period.

Same store NOI increased by $758,000,$4.1 million, or 1.1%6.2%, and $2.2$10.4 million, or 1.6%8.0%, for the three and six months ended June 30, 2017, respectively,2018 as compared to the three and six months ended June 30, 2016, respectively.2017. The increase in same store NOI for the threewas largely attributable to a reduction in real estate tax expense resulting from real estate tax refunds and six months ended June 30, 2017 was primarily due toreduced assessments, and the expiration of rent abatements and higher property rental revenue frompayments associated with the assumption of lease commencements.liabilities.

The following table reflects the reconciliation of net income attributable to JBG SMITH Properties, the most directly comparable GAAP measure,common shareholders to Property Operating Income, NOI and same store NOI for the periods presented:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (In thousands)
Net income attributable to common shareholders$20,574
 $11,341
 $16,384
 $17,659
Add:       
Depreciation and amortization expense48,117
 31,993
 97,277
 65,775
General and administrative expense:       
Corporate and other12,651
 11,552
 25,362
 24,944
Third-party real estate services21,189
 4,486
 43,798
 9,184
Share-based compensation related to Formation Transaction
9,097
 
 18,525
 
Transaction and other costs3,787
 5,237
 8,008
 11,078
Interest expense18,027
 14,586
 37,284
 28,504
Loss on extinguishment of debt4,457
 
 4,457
 
Reduction of gain on bargain purchase7,606
 
 7,606
 
Income tax expense (benefit)313
 363
 (595) 717
Net income attributable to redeemable noncontrolling interests3,574
 
 2,980
 
Less:       
Third-party real estate services, including reimbursements
24,160
 6,794
 48,490
 13,919
Other income2,080
 1,532
 3,196
 3,114
Income from unconsolidated real estate ventures, net3,836
 105
 1,934
 314
Interest and other income, net513
 970
 1,086
 1,745
Gain on sale of real estate33,396
 
 33,851
 
Net loss attributable to noncontrolling interests125
 
 127
 
Consolidated NOI85,282
 70,157
 172,402
 138,769
NOI attributable to consolidated JBG Assets (1)

 11,345
 
 22,395
Proportionate NOI attributable to unconsolidated JBG Assets (1)

 4,141
 
 7,856
Proportionate NOI attributable to unconsolidated real
   estate ventures
9,011
 3,157
 18,227
 5,358
Non-cash rent adjustments (2)
(1,237) (2,080) (2,333) (6,097)
Other adjustments (3)
1,579
 (59) 2,786
 1,005
Total adjustments9,353
 16,504
 18,680
 30,517
NOI94,635
 86,661
 191,082
 169,286
Non-same store NOI (4)
24,449
 20,551
 51,578
 40,162
Same store NOI (5)
$70,186
 $66,110
 $139,504
 $129,124
        
Growth in same store NOI6.2%   8.0%  
Number of properties35
   35
  

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
 (In thousands)
Net income attributable to JBG SMITH Properties$11,341
 $16,783
 $17,659
 $28,330
Adjustments:       
Depreciation and amortization31,993
 32,625
 65,775
 66,914
Ground rent585
 372
 1,026
 830
Management and leasing fees(6,863) (7,580) (13,863) (16,447)
Income from unconsolidated real estate ventures(105) 374
 (314) 1,536
Interest and other income, net(970) (760) (1,745) (1,543)
General and administrative expense11,708
 11,939
 25,398
 25,960
Transaction and other costs5,237
 
 11,078
 
Interest expense14,586
 13,549
 28,504
 25,634
Income tax expense363
 318
 717
 582
Unconsolidated real estate venture share of property operating income3,452
 3,282
 6,970
 6,426
Other non-operating loss from incidental operations1,298
 490
 3,772
 1,297
Property Operating Income72,625
 71,392
 144,977
 139,519
Straight-line rent adjustment(2,088) (4,084) (5,804) (7,523)
Related party adjustment (1)
2,568
 2,551
 5,110
 5,090
Ground rent expense(461) (435) (890) (870)
Straight-line rent adjustment for unconsolidated real estate ventures(72) (681) (681) (1,185)
Related party adjustment for unconsolidated real estate ventures (1)
158
 122
 434
 391
NOI72,730
 68,865
 143,146
 135,422
Non-same store NOI (2)
4,142
 1,035
 7,882
 2,317
Same store NOI (3)
$68,588
 $67,830
 $135,264
 $133,105
        
Growth in same store NOI1.1%   1.6%  
Number of properties36
   36
  
___________________________________________________ 
(1) 
To eliminate management fees included in property operating income.Includes financial information for the JBG Assets as if the Combination had been completed as of the beginning of the period presented.
(2) 
Adjustment to exclude straight-line rent, above/below market lease amortization and lease incentive amortization.
(3)
Adjustment to include other income and payments associated with assumed lease liabilities related to operating properties, and exclude incidental income generated by development assets and commercial lease termination revenue.

(4)
Includes the results for properties that are a part of the Vornado Included Assets that were not owned, operated and stabilizedin 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.
(3)(5) 
Includes the results of the properties that are a part of the Vornado Included Assets owned, operated and stabilizedin 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.

Reportable Segments
We review operating and financial data for each property on an individual basis; therefore, each of our individual properties is a separate operating segment. As a result of the Formation Transaction, we redefined our reportable segments to be aligned with our method of internal reporting and the way our Chief Executive Officer, who is also our Chief Operating Decision Maker ("CODM"), makes key operating decisions, evaluates financial results, allocates resources and manages our business. Accordingly, we aggregate our operating segments into three reportable segments (office, multifamily and third-party real estate services) based on the economic characteristics and nature of our assets and services. In connection therewith, we have reclassified the prior period segment financial data to conform to the current period presentation.

The CODM measures and evaluates the performance of our operating segments, with the exception of the third-party real estate services business, based on the NOI of properties within each segment. NOI includes property rental revenues and tenant reimbursements and deducts property operating expenses and real estate taxes.

With respect to the third-party real estate services business, the CODM reviews revenues streams generated by this segment ("Third-party real estate services, including reimbursements"), as well as the expenses attributable to the segment ("General and administrative: third-party real estate services"), which are disclosed separately in the statements of operations and discussed in the preceding pages under "Results of Operations.” The following presents a reconciliation of revenue from our third-party asset management and real estate services business, excluding reimbursements and service revenue, to "Third-party real estate services revenue, including reimbursements":
 Three Months Ended Six Months Ended
 June 30, 2018
 (In thousands)
Property management fees$6,030
 $12,418
Asset management fees3,733
 7,568
Leasing fees1,402
 3,298
Development fees2,412
 4,231
Construction management fees901
 1,486
Other service revenue644
 1,698
Third-party real estate services revenue, excluding reimbursements
   and service revenue
15,122
 30,699
Reimbursements and service revenue9,038
 17,791
Third-party real estate services revenue, including reimbursements$24,160
 $48,490

Consistent with internal reporting presented to our CODM and our definition of NOI, the third-party real estate services operating results are excluded from the NOI data below.

Rental revenue is calculated as property rentals plus tenant reimbursements. Rental expense is calculated as property operating expenses plus real estate taxes. NOI is calculated as rental revenue less rental expense. See Note 14 to the financial statements for the reconciliation of net income attributable to common shareholders to consolidated NOI for the three and six months ended June 30, 2018 and 2017.

 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (In thousands)
Rental revenue:       
Office$103,855
 $86,186
 $214,244
 $172,741
Multifamily26,901
 21,107
 52,692
 40,856
Other2,710
 3,227
 4,360
 5,324
Eliminations of intersegment activity(259) (826) (498) (1,662)
Total rental revenue133,207
 109,694
 270,798
 217,259
        
Rental expense:       
Office38,615
 34,295
 81,546
 67,529
Multifamily11,145
 7,396
 21,737
 14,942
Other3,638
 1,263
 5,841
 2,763
Eliminations of intersegment activity(5,473) (3,417) (10,728) (6,744)
Total rental expense47,925
 39,537
 98,396
 78,490
        
Consolidated NOI:       
Office65,240
 51,891
 132,698
 105,212
Multifamily15,756
 13,711
 30,955
 25,914
Other(928) 1,964
 (1,481) 2,561
Eliminations of intersegment activity5,214
 2,591
 10,230
 5,082
Consolidated NOI$85,282
 $70,157
 $172,402
 $138,769
Comparison of the Three Months Ended June 30, 2018 to June 30, 2017
Office: Rental revenue increased by $17.7 million, or 20.5%, to $103.9 million in 2018 from $86.2 million in 2017. Consolidated NOI increased by $13.3 million, or 25.7%, to $65.2 million in 2018 from $51.9 million in 2017. The increase in rental revenue and consolidated NOI is primarily due to revenue associated with assets acquired in the Combination and higher rents due to rent commencements at 241 18th Street South, 1215 South Clark Street and 1225 South Clark Street, partially offset by a decrease in occupancy at 2345 Crystal Drive.
Multifamily: Rental revenue increased by $5.8 million, or 27.5%, to $26.9 million in 2018 from $21.1 million in 2017. Consolidated NOI increased by $2.0 million, or 14.9%, to $15.8 million in 2018 from $13.7 million in 2017. The increase in rental revenue and consolidated NOI is primarily due to the assets acquired in the Combination and an increase in occupancy and associated rentals at The Bartlett, which was placed into service in the second quarter of 2016.
Other: Rental revenue decreased by $517,000, or 16.0%, to $2.7 million in 2018 from $3.2 million in 2017. Consolidated NOI decreased by $2.9 million to a loss of $0.9 million in 2018 from $2.0 million of income in 2017 due to expenses associated with land assets acquired in the Combination and 501 15th Street being taken out of service.
Comparison of the Six Months Ended June 30, 2018 to June 30, 2017
Office: Rental revenue increased by $41.5 million, or 24.0%, to $214.2 million in 2018 from $172.7 million in 2017. Consolidated NOI increased by $27.5 million, or 26.1%, to $132.7 million in 2018 from $105.2 million in 2017. The increase in rental revenue and consolidated NOI is primarily due to revenue associated with assets acquired in the Combination and higher rents due to rent commencements at 241 18th Street South and 1225 South Clark Street, partially offset by a decrease in occupancy at 2345 Crystal Drive.
Multifamily: Rental revenue increased by $11.8 million, or 29.0%, to $52.7 million in 2018 from $40.9 million in 2017. Consolidated NOI increased by $5.0 million, or 19.5%, to $31.0 million in 2018 from $25.9 million in 2017. The increase in rental revenue and consolidated NOI is primarily due to the assets acquired in the Combination and an increase in occupancy and associated rentals at The Bartlett, which was placed into service in the second quarter of 2016.
Other: Rental revenue decreased by $1.0 million, or 18.1%, to $4.4 million in 2018 from $5.3 million in 2017. Consolidated NOI decreased by $4.0 million to a loss of $1.5 million in 2018 from $2.6 million of income in 2017 due to expenses associated with land assets acquired in the Combination and 501 15th Street being taken out of service.

Liquidity and Capital Resources
Property rental income is our primary source of operating cash flow and is dependent on a number of factors including occupancy levels and rental rates, as well as our tenants’ ability to pay rent. In addition, we have a third-party real estate services business that provides fee-based real estate services to the legacy funds formerly organized by JBG and other third parties. Our assets provide us with a relatively consistent level of cash flow that enables us to pay operating expenses, debt service, recurring capital expenditures, dividends to shareholders and distributions to holders of limited partnership units.OP Units. Other sources of liquidity to fund cash requirements include proceeds from financings, the issuance of equity securities and asset sales. We anticipate that cash flows from continuing operations over the next 12 months and proceeds from financings, recapitalizations and asset sales, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, dividends to shareholders and distributions to holders of limited partnership units.


OP Units over the next 12 months.
Financing Activities and Contractual Obligations
BelowThe following is a summary of our outstanding debt as of June 30, 2017 and December 31, 2016:mortgages payable:
      Interest Rate Balance as of
  Maturity Stated Interest Rate June 30,
2017
 June 30,
2017
 December 31,
2016
First mortgages secured by:       (In thousands)
RiverHouse Apartments 04/01/25 LIBOR + 128 2.50% $307,710
 $307,710
The Bartlett (1)
 06/20/22 LIBOR + 170 2.92% 220,000
 
Universal Buildings 08/12/21 LIBOR + 190 3.12% 185,000
 185,000
2101 L Street 08/15/24 3.97% 3.97% 141,960
 143,415
2121 Crystal Drive 03/01/23 5.51% 5.51% 140,397
 141,625
WestEnd25 06/01/21 4.88% 4.88% 100,078
 100,842
1215 Clark Street, 200 12th Street
  & 251 18th Street
 01/01/25 7.94% 7.94% 89,203
 91,015
2011 Crystal Drive (2)
 08/01/17 7.30% 7.30% 74,338
 75,004
220 20th Street 02/01/18 4.61% 4.61% 67,661
 68,426
1730 M Street and 1150 17th Street (3)
 08/26/17 LIBOR + 125 2.47% 43,581
 43,581
Courthouse Plaza 1 and 2 05/10/20 LIBOR + 160 2.82% 11,000
 11,000
Mortgages payable       1,380,928
 1,167,618
Unamortized deferred financing costs, net and other     (4,851) (2,604)
Mortgages payable, net       $1,376,077
 $1,165,014
Payable to Vornado Realty Trust (4)
   
 3.70% $289,904
 $283,232
  
Weighted Average
Effective
Interest Rate
(1)
 June 30, 2018 December 31, 2017
    (In thousands)
Variable rate (2)
 3.94% $266,615
 $498,253
Fixed rate (3)
 4.15% 1,644,111
 1,537,706
Mortgages payable   1,910,726
 2,035,959
Unamortized deferred financing costs and premium/
  discount, net
   (4,324) (10,267)
Mortgages payable, net   $1,906,402
 $2,025,692
_____________________________________________
(1) 
OnWeighted average effective interest rate as of June 20, 2017, we completed a $220.0 million financing of The Bartlett. The five-year mortgage loan is interest-only at LIBOR plus 1.70% per annum and matures in June 2022. We realized net proceeds of approximately $217.2 million.30, 2018.
(2) 
On July 27, 2017, we repaid the mortgage secured by 2011 Crystal Drive.Includes variable rate mortgages payable with interest rate cap agreements.
(3) 
On July 17,Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.
As of June 30, 2018, the net carrying value of real estate collateralizing our mortgages payable totaled $2.5 billion. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity. Certain of our mortgage loans are recourse to us.
During the six months ended June 30, 2018, aggregate borrowings under mortgages payable totaled $41.3 million related to construction draws. We repaid mortgages payable with an aggregate principal balance of $162.5 million and recognized losses on the extinguishment of debt in conjunction with these repayments of $4.5 million for the three and six months ended June 30, 2018.
As of June 30, 2018 and December 31, 2017, we had various interest rate swap and cap agreements with an aggregate notional value of $1.3 billion and $1.4 billion on certain of our mortgages payable, which mature on various dates concurrent with the maturity of the related mortgages payable. During the six months ended June 30, 2018, we entered into various interest rate swap and cap agreements on certain of our mortgages payable with an aggregate notional value of $374.2 million.
Our $1.4 billion credit facility, consists of a $1.0 billion revolving credit facility maturing in July 2021, with two six-month extension options, a Tranche A-1 Term Loan, a delayed draw $200.0 million unsecured term loan maturing in January 2023, and a Tranche A-2 Term Loan, a delayed draw $200.0 million unsecured term loan maturing in July 2024.
In January 2018, we drew $50.0 million under the Tranche A-1 Term Loan in accordance with the delayed draw provisions of the credit facility, bringing the outstanding borrowings under the term loan facility to $100.0 million. Concurrent with the draw, we entered into an interest rate swap agreement to convert the variable interest rate to a fixed interest rate. As of June 30, 2018 and December 31, 2017, we had interest rate swaps with an aggregate notional value of $100.0 million and $50.0 million to convert the variable interest rate applicable to our Tranche A-1 Term Loan to a fixed interest rate, providing weighted average base interest rates under the facility agreement of 2.12% and 1.97% per annum. The interest rate swaps mature in January 2023, concurrent with the maturity of our Tranche A-1 Term Loan.

The following is a summary of amounts outstanding under the credit facility:
  
Interest Rate (1)
 June 30, 2018 December 31, 2017
    (In thousands)
Revolving credit facility (2) (3) (4)
 3.19% $35,729
 $115,751
       
Tranche A-1 Term Loan 3.32% $100,000
 $50,000
Unamortized deferred financing costs, net   (3,167) (3,463)
Unsecured term loan, net   $96,833
 $46,537
__________________________
(1)
Interest rate as of June 30, 2018.
(2)
As of June 30, 2018 and December 31, 2017, we repaid the mortgages secured by 1730 M Streetletters of credit with an aggregate face amount of $5.7 million for both periods were provided under our revolving credit facility.
(3)
As of June 30, 2018 and 1150 17th Street.December 31, 2017, net deferred financing costs related to our revolving credit facility totaling $5.8 million and $6.7 million were included in "Other assets, net."
(4) 
In June 2016,May 2018, in connection with the mortgage loan forsale of the Bowen Building, waswe repaid with proceeds$115.0 million of a $115.6 million drawthe outstanding balance on Vornado’sour revolving credit facility and is secured by an interest in the property, and, accordingly, has been reflected as a component of “Payable to Vornado Realty Trust” on the combined balance sheets as of June 30, 2017 and December 31, 2016. The mortgage was assigned to JBG SMITH at the Separation, and the note was repaid with amounts drawn under the revolving credit facility (seefacility. See Note 123 to the condensed combined financial statements included as part of this Quarterly Report on Form 10-Q).for additional information.

In July 2018, we borrowed $200.0 million under the Tranche A-2 Term Loan, in accordance with the delayed draw provisions of the credit facility. We also repaid the outstanding revolving credit facility balance of $35.7 million.
In July 2018, we entered into an equity distribution agreement with various financial institutions relating to the issuance of up to $200.0 million of our common shares from time to time. We may use net proceeds from the issuance of common shares under this program for general corporate purposes, which may include paying down our indebtedness and funding our under construction assets and future development opportunities.


In July 2018, we commenced a dividend reinvestment program, whereby shareholders may use their dividends and optional cash payments to purchase common shares. The common shares sold under this program may either be common shares issued by us or common shares purchased in the open market.
Long-term Liquidity Requirements
Our long-term capital requirements consist primarily of maturities under our credit facility and mortgage loans, construction commitments for development and redevelopment projects and costs related to growing our business, including acquisitions. We intend to fund these requirements through a combination of sources including available cash, debt proceeds, proceeds from asset recapitalizations and sales and other financing sources, including issuances of equity.
Contractual Obligations and Commitments

Below is a summaryDuring the six months ended June 30, 2018, there were no material changes to the contractual obligation information presented in Item 7 of Part II of our contractual obligations and commitments as of June 30, 2017:
 Total 2017 2018 2019 2020 2021 2022 Thereafter
Contractual cash obligations
   (principal and interest):
(In thousands)
Mortgages payable$1,635,685
 $149,286
 $141,774
 $238,955
 $49,848
 $139,636
 $260,107
 $656,079
Operating leases576,080
 849
 1,741
 1,788
 1,837
 1,888
 1,943
 566,034
Purchase obligations, primarily
   construction commitments
55,163
 55,163
 
 
 
 
 
 
Total contractual cash
    obligations
$2,266,928
 $205,298
 $143,515
 $240,743
 $51,685
 $141,524
 $262,050
 $1,222,113
Payable to Vornado Realty Trust$289,904
 $289,904
 $
 $
 $
 $
 $
 $
Commitments:               
Capital commitments to
   unconsolidated ventures
$5,258
 $5,258
 $
 $
 $
 $
 $
 $

On July 18, 2017, we entered into a $1.4 billion credit facility, consisting of a $1.0 billion revolving credit facility with a four-year term, with two six-month extension options, a five and a half-year delayed draw $200.0 million unsecured term loan (“Tranche A-1 Term Loan”) and a seven-year delayed draw $200.0 million unsecured term loan (“Tranche A-2 Term Loan”). The interest rateAnnual Report on Form 10-K for the credit facility will vary based onyear ended December 31, 2017. The only significant change was a ratio of our total$155.3 million decrease in outstanding indebtedness to a valuation of certain real property businesses and assets and will range (a) in the case of the revolving credit facility, from LIBOR plus 1.10% to LIBOR plus 1.50%, (b) in the case of the Tranche A-1 Term Loan, from LIBOR plus 1.20% to LIBOR plus 1.70% and (c) in the case of the Tranche A-2 Term Loan, from LIBOR plus 1.55% to LIBOR plus 2.35%. Ondebt. In July 18, 2017, in connection with the Combination,2018, we drew $115.8 million on the revolving credit facility and $50.0borrowed $200.0 million under the Tranche A-2 Term Loan. In connectionLoan, in accordance with the executiondelayed draw provisions of the credit facility,facility.
As of June 30, 2018, we incurred $6.8expect to fund additional capital to certain of our unconsolidated investments totaling approximately $48.6 million, in fees and expenses.which we anticipate will be primarily expended over the next two to three years.
See Note 12 to the condensed combined financial statements included as partIn August 2018, our Board of this Quarterly Report on Form 10-Q forTrustees declared a discussionquarterly dividend of subsequent events.$0.225 per common share.

Summary of Cash Flows

The following summary discussion of our cash flows is based on the condensed combined statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.flows:
 Six Months Ended June 30,
 2017 2016 Change
 (In thousands)
Net cash provided by operating activities$72,658
 $90,920
 $(18,262)
Net cash used in investing activities$(56,629) $(144,741) $88,112
Net cash provided by financing activities$235,584
 $25,118
 $210,466
 Six Months Ended June 30,
 2018 2017 Change
 (In thousands)
Net cash provided by operating activities$93,545
 $72,658
 $20,887
Net cash provided by (used in) investing activities51,296
 (56,157) 107,453
Net cash (used in) provided by financing activities(221,710) 235,584
 (457,294)
Cash Flows for the Six Months Ended June 30, 2018
Cash and cash equivalents and restricted cash decreased $76.9 million to $261.7 million as of June 30, 2018 compared to $338.6 million as of December 31, 2017. This decrease resulted from $221.7 million of net cash used in financing activities, partially offset by $93.5 million of net cash provided by operating activities and $51.3 million of net cash provided by investing activities. Our outstanding debt was $2.0 billion as of June 30, 2018 compared to $2.2 billion as of December 31, 2017. The $155.3 million decrease in outstanding debt is primarily from repayments of mortgages payable and our revolving credit facility, partially offset by an additional draw under the Tranche A-1 Term Loan, and borrowings under mortgages payable and our revolving credit facility.
Net cash provided by operating activities of $93.5 million primarily comprised: (i) $120.0 million of net income (before $134.6 million of non-cash items and a $33.9 million gain on sale of real estate) and (ii) $5.2 million of return on capital from unconsolidated real estate ventures, partially offset by $31.6 million of net change in operating assets and liabilities. Non-cash income adjustments of $134.6 million primarily include depreciation and amortization, share-based compensation expense, deferred rent, net income from unconsolidated real estate ventures and other non-cash items.
Net cash provided by investing activities of $51.3 million primarily comprised: (i) $232.9 million of proceeds from sale of real estate, partially offset by (ii) $165.7 million of development costs, construction in progress and real estate additions and (iii) $16.2 million of investments in and advances to unconsolidated real estate ventures.
Net cash used in financing activities of $221.7 million primarily comprised: (i) $170.0 million repayment of mortgages payable, (ii) $115.0 million repayment of our revolving credit facility, (iii) $53.1 million of dividends paid to common shareholders and (iv) $9.2 million of distributions to redeemable noncontrolling interests, partially offset by (v) $50.0 million of proceeds from borrowings under our unsecured term loan, (vi) $41.3 million of aggregate proceeds from borrowings under mortgages payable and (vii) $35.0 million borrowings under our revolving credit facility.
Cash Flows for the Six Months Ended June 30, 2017
Cash and cash equivalents and restricted cash were $280.6$284.3 million at as of June 30, 2017 compared to $29.032.3 million atas of December 31, 2016, an increase of $251.6 million.$252.1 million. This increase resulted from $72.7 million of net cash provided by operating activities and $235.6 million of net cash provided by financing activities, partially offset by $56.6 million of net cash used in investing activities. Our combined outstanding debt was $1.4 billion at June 30, 2017, a $211.1 million increase from the balance at December 31, 2016.
Net cash provided by operating activities of $72.7 million was comprised of (i) net income of $17.7 million, (ii) $63.1 million of non-cash adjustments, which include depreciation and amortization, income from unconsolidated real estate ventures, straight-line rent and accretion of below-market lease intangibles and (iii) distributions of income from unconsolidated real estate ventures of $628,000, partially offset by (iv) the net change in operating assets and liabilities of $8.8 million.
Net cash used in investing activities of $56.6 million primarily was comprised of (i) $54.7 million of development costs, construction in progress and real estate additions, (ii) $1.4 million of other investments and (iii) an increase of $472,000 in restricted cash.

Net cash provided by financing activities of $235.6 million was comprised of (i) $220.0 million of proceeds from borrowings related to The Bartlett, (ii) $21.2 million of contributions, net, and (iii) $4.0 million of proceeds from borrowings from Vornado, partially offset by (iv) $6.7 million for the repayments of borrowings and (v) $2.9 million of debt issuance costs.
Cash Flows for the Six Months Ended June 30, 2016
Cash and cash equivalents were $46.3 million at June 30, 2016, compared to $75.0 million at December 31, 2015, a decrease of $28.7 million. This decrease resulted from $144.7 million of net cash used in investing activities, partially offset by $90.972.7 million of net cash provided by operating activities and $25.1235.6 million of net cash provided by financing activities, partially offset by $56.2 million of net cash used in investing activities.
Net cash provided by operating activities of $90.9$72.7 million was comprisedprimarily comprised: (i) $80.8 million of (i) net income of $28.3 million, (ii) $68.6(before $63.1 million of non-cash adjustments, which include depreciation and amortization, loss from unconsolidated real estate ventures, straight-line rent and accretion of below-market lease intangibles and (iii) distributions of income from unconsolidated real estate ventures of $777,000,items), partially offset by (iv) the(ii) $8.8 million of net change in operating assets and liabilitiesliabilities. Non-cash income adjustments of $6.8 million.$63.1 million primarily include depreciation and amortization, deferred rent, amortization of lease incentives, share-based compensation expense and other non-cash items.
Net cash used in investing activities of $144.7$56.2 million was comprised ofprimarily comprised: (i) $123.5$54.7 million of development costs, construction in progress and real estate additions and (ii) $20.0 million of investments in unconsolidated real estate ventures and (iii) $1.5$1.4 million of other investments, partially offset by (iv) a decrease of $272,000 in restricted cash.investments.
Net cash provided by financing activities of $25.1$235.6 million primarily was comprisedcomprised: (i) $220.0 million of (i) $28.5proceeds from borrowings under mortgages payable, (ii) $21.2 million of net contributions from our former parent and (iii) $4.0 million of proceeds from borrowings from Vornado and (ii) $1.5 million of net contributions,our former parent, partially offset by (iii) $4.9(iv) $6.7 million for the repaymentsrepayment of borrowings.mortgages payable and (v) $2.9 million of debt issuance costs.


Off-Balance Sheet Arrangements
Unconsolidated Real Estate Ventures
We consolidate entities in which we own less than a 100% equity interest if we have a controlling interest or are the primary beneficiary in a variable interest entity, as defined in the Consolidation Topic of the FASB ASC.entity. From time to time, we may have off-balance-sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.
As of June 30, 2017,2018, we have investments in and advances to unconsolidated real estate ventures totaling $45.5$368.3 million. For the majority of these investments, we exercise significant influence over, but do not control these entities and therefore account for these investments using the equity method of accounting. For a more complete description of our jointreal estate ventures, see Note 34 to the condensed combined financial statementsstatements.
From time to time, we (or ventures in which we have an ownership interest) have agreed, and may in the future agree with respect to unconsolidated real estate ventures, to (1) guarantee portions of the principal, interest and other amounts in connection with their borrowings, (2) provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with their borrowings and (3) provide guarantees to lenders and other third parties for the completion of development projects. We customarily have agreements with our outside partners whereby the partners agree to reimburse the real estate venture or us for their share of any payments made under certain of these guarantees. Amounts that may be required to be paid in future periods in relation to budget overruns or operating losses that are also included as partin some of this Quarterly Report on Form 10-Q.our guarantees are not estimable. Guarantees (excluding environmental) terminate either upon the satisfaction of specified circumstances or repayment of the underlying debt. At times, we have agreements with our outside partners whereby we agree to reimburse our partner for their share of any payments made by them under certain guarantees. As of June 30, 2018, there were no principal payment guarantees for our unconsolidated real estate ventures.
As of June 30, 2017, the aggregate carrying amount of the debt2018, we expect to fund additional capital to certain of our unconsolidated real estate ventures accounted for underinvestments totaling approximately $48.6 million, which we anticipate will be primarily expended over the equity method was approximately $304.0 million.next two to three years.
Reconsideration events could cause us to consolidate these unconsolidated real estate ventures and partnerships in the future.future or deconsolidate a consolidated entity. We evaluate reconsideration events as we become aware of them. Some triggers to be considered are additional contributions required by each partner and each partners’ ability to make those contributions. Under certain of these circumstances, we may purchase our partner’s interest. Our unconsolidated real estate ventures are withheld in entities which appear sufficiently stable to meet their capital requirements; however, if market conditions worsen and our partners are unable to meet their commitments, there is a possibility we may have to consolidate these entities.

Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $200.0 million per occurrence and in the aggregate, and property and rental value insurance coverage with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties. We also maintain coverage, through our wholly owned captive insurance subsidiary, for both terrorist acts and for nuclear, biological, chemical or radiological terrorism events with limits of $2.0 billion per occurrence. These policies are partially reinsured by third-party insurance providers.
We will continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. We cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of the insurance coverage, which could be material.
Our debt, consisting of mortgage loans secured by our properties, revolving credit facility and unsecured term loans contain customary covenants requiring adequate insurance coverage. Although we believe that we currently have adequate insurance coverage, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect the ability to finance or refinance our properties.
Construction Commitments
As of June 30, 2018, we have construction in progress that will require an additional $461.0 million to complete ($362.9 million related to our consolidated entities and $98.1 million related to our unconsolidated real estate ventures at our share), based on our current plans and estimates, which we anticipate will be primarily expended over the next two to three years. These capital expenditures are generally due as the work is performed, and we expect to finance them with debt proceeds, proceeds from asset recapitalizations and sales, and available cash.

Other
There are various legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
AsIn connection with the Formation Transaction, we entered into an agreement with Vornado regarding tax matters (the "Tax Matters Agreement") that provides special rules that allocate tax liabilities if the distribution of June 30, 2017,JBG SMITH shares by Vornado, together with certain related transactions, is not tax-free. Under the Tax Matters Agreement, we expectmay be required to fund additional capital toindemnify Vornado against any taxes and related amounts and costs resulting from a violation by us of the Tax Matters Agreement, or from the taking of certain of our unconsolidated investments totaling approximately $5.3 million.restricted actions by us.
We are obligated under non-cancelable operating leases, primarily for ground leases on certain of our properties through 2084, totaling $576.1 million.




Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership and operation of our assets, we may be potentially liable for such costs. The operations of current and former tenants at our assets have involved, or may have involved, the use of hazardous materials or generated hazardous wastes. The release of such hazardous materials and wastes could result in us incurring liabilities to remediate any resulting contamination if the responsible party is unable or unwilling to do so. In addition, our assets are exposed to the risk of contamination originating from other sources. While a property owner generally ismay not be responsible for remediating contamination that has migrated onsite from an identifiable and viable offsite source, the contaminant’s presence can have adverse effects on operations and the redevelopment of our assets.

Most of our assets have been subject, at some point, to environmental assessments that are intended to evaluate the environmental condition of the subject and surrounding assets. These environmental assessments generally have included a historical review, a public records review, a visual inspection of the site and surrounding assets, screening for the presencevisual or historical evidence of asbestos‑containing materials, polychlorinated biphenyls and underground storage tanks, and the preparation and issuance of a written report. Soil and/or groundwater subsurface testing is conducted at our assets, when necessary, to further investigate any issues raised by the initial assessment that could reasonably be expected to pose a material concern to the property or result in us incurring material environmental liabilities.liabilities as a result of redevelopment. They may not, however, have included extensive sampling or subsurface investigations. In each case where the environmental assessments have identified conditions requiring remedial actions required by law, we have initiated the appropriate actions.

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination that we believe would have a material adverse effect on our overall business, financial condition or results of operations.operations, or that have not been anticipated and remediated during site redevelopment as required by law. Nevertheless, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites or changes in cleanup requirements would not result in significant cost to us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates is summarized in the table below.

 2017 2016
(Amounts in thousands)June 30, 
Weighted
Average
Interest
Rate
 
Effect of 1%
Change in
Base Rates
 December 31, 
Weighted
Average
Interest
Rate
 Balance   Balance 
Consolidated debt (contractual balances):         
Variable rate$767,291
 2.77% $7,673
 $547,291
 2.11%
Fixed rate613,637
 5.52% 
 620,327
 5.52%
 $1,380,928
   $7,673
 $1,167,618
  
Pro rata share of debt of non‑consolidated entities (non‑recourse) (contractual balances):         
Variable rate$17,050
 2.47% $171
 $17,050
 1.87%
Fixed rate150,150
 3.65% 
 150,150
 3.65%
 $167,200
   $171
 $167,200
  
 June 30, 2018 December 31, 2017
   
Weighted
Average
Effective
Interest
Rate
 
Effect of 1%
Change in
Base Rates
   Weighted
Average
Effective
Interest
Rate
 Balance   Balance 
Debt (contractual balances):(Dollars in thousands)
Mortgages payable         
Variable rate (1)
$266,615
 3.94% $2,703
 $498,253
 3.62%
Fixed rate (2)
1,644,111
 4.15% 
 1,537,706
 4.25%
 $1,910,726
   $2,703
 $2,035,959
  
Credit facility (variable rate):         
Revolving credit facility$35,729
 3.19% $362
 $115,751
 2.66%
Tranche A-1 Term Loan (3)
100,000
 3.32% 
 50,000
 3.17%
Pro rata share of debt of unconsolidated entities (contractual balances):         
Variable rate (1)
$148,343
 5.57% $1,504
 $158,154
 4.40%
Fixed rate (2)
293,125
 4.08% 
 238,138
 3.79%
 $441,468
   $1,504
 $396,292
  
________________
(1)
Includes variable rate mortgages payable with interest rate cap agreements.
(2)
Includes variable rate mortgages payable with interest rates fixed by interest rate swap agreements.
(3)
As of June 30, 2018 and December 31, 2017, the outstanding balance was fixed by interest rate swap agreements.

The fair value of our consolidated debt is calculated by discounting the future contractual cash flows of these instruments using current risk‑adjusted rates available to borrowers with similar credit ratings, which are provided by a third‑party specialist.profiles based on market sources. As of June 30, 20172018 and December 31, 20162017, the estimated fair value of our combinedconsolidated debt was $1.4$2.1 billion and $1.2 billion, respectively.

$2.2 billion. These estimates of fair value, which are made at the end of the reporting period, may be different from the amounts that may ultimately be realized upon the disposition of our financial instruments.
Hedging Activities
To manage, or hedge, our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments. We do not enter into derivative financial instruments for speculative purposes.
Derivative Financial Instruments Designated as Cash Flow Hedges - Certain derivative financial instruments, consisting of interest rate swap and cap agreements, are designated as cash flow hedges, and are carried at their estimated fair value on a recurring basis. We assess the effectiveness of our cash flow hedges both at inception and on an ongoing basis. If the hedges are deemed to be effective, the fair value is recorded in accumulated other comprehensive income and is subsequently reclassified into "Interest expense" in the period that the hedged forecasted transactions affect earnings. Our cash flow hedges become less than perfectly effective if the critical terms of the hedging instrument and the forecasted transactions do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and interest rates. In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could materially affect expenses, net income and equity.
As of June 30, 2018, we had interest rate swap and cap agreements with an aggregate notional value of $749.4 million. As of June 30, 2018, the fair value of our interest rate swaps and caps consisted of assets totaling $17.6 million included in "Other assets, net" in our balance sheet, and liabilities totaling $1.3 million included in "Other liabilities, net" in our balance sheet.
Derivative Financial Instruments Not Designated as Hedges - Certain derivative financial instruments, consisting of interest rate swap and cap agreements, are considered economic hedges, but not designated as accounting hedges, and are carried at their estimated fair value on a recurring basis. Realized and unrealized gains are recorded in "Interest expense" in the statements of operations in the period in which the change occurs. As of June 30, 2018, we had various interest rate swap and cap agreements with an aggregate notional value of $638.7 million. As of June 30, 2018, the fair value of our interest rate swaps and caps not designated as hedges consisted of assets totaling $6.4 million included in "Other assets, net" in our balance sheet.


ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2017,2018, our disclosure controls and procedures were effective at the reasonable assurance level such that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are, from time to time, involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS

There werehave been no material changes to the Risk Factorsrisk factors previously disclosed in our Information Statement on Form 10, as amended,Annual Report for the year ended December 31, 2017, filed with the SEC on June 20, 2017.March 12, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable.
(b) Not applicable.
(c) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.   4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION
None.



ITEM 6. EXHIBITS
(a)Exhibits

(a) Exhibit Index
Exhibits
10.1Amended and Restated Employment Agreement, dated as of June 16, 2017, by and between JBG SMITH Properties and W. Matthew Kelly (Filed as Exhibit 10.5 to the Company’s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on June 20, 2017)Description
  
10.23.1Amended and Restated Employment Agreement, dated as
  
10.33.2Amended and Restated Employment Agreement, dated as

  
10.43.3Amended and Restated Employment Agreement, dated as

  
10.53.4Second
  
31.131.1**
  
31.231.2**
  
32.132.1**
  
101.INSXBRL Instance Document
  
101.SCHXBRL Taxonomy Extension Schema
  
101.CALXBRL Extension Calculation Linkbase
  
101.LABXBRL Extension Labels Linkbase
  
101.PREXBRL Taxonomy Extension Presentation Linkbase
  
101.DEFXBRL Taxonomy Extension Definition Linkbase

_______________


**Filed herewith.

SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 JBG SMITH Properties
 
Date:August 15, 20179, 2018/s/ Stephen W. Theriot
 
Stephen W. Theriot

Chief Financial Officer
 (Principal Financial and Accounting Officer)


INDEX TO EXHIBITS
ExhibitsDescription
10.1Amended and Restated Employment Agreement, dated as of June 16, 2017, by and between JBG SMITH Properties and W. Matthew Kelly (Filed as Exhibit 10.5 to the Company’s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on June 20, 2017)
10.2Amended and Restated Employment Agreement, dated as of June 16, 2017, by and between JBG SMITH Properties and James L. Iker (Filed as Exhibit 10.6 to the Company’s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on June 20, 2017)
10.3Amended and Restated Employment Agreement, dated as of June 16, 2017, by and between JBG SMITH Properties and David P. Paul (Filed as Exhibit 10.7 to the Company’s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on June 20, 2017)
10.4Amended and Restated Employment Agreement, dated as of June 16, 2017, by and between JBG SMITH Properties and Robert A. Stewart (Filed as Exhibit 10.10 to the Company’s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on June 20, 2017)
10.5Second Amended and Restated Continuation Agreement, dated as of June 13, 2017, by and between Michael J. Glosserman and JBG/Operating Partners, L.P. (Filed as Exhibit 10.17 to the Company’s Amendment No. 4 to the Registration Statement on Form 10 filed with the SEC on June 20, 2017)
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended and Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended and Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and 18 U.S.C 1350, as created by Section 906 of the Sarbanes- Oxley Act of 2002
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Extension Calculation Linkbase
101.LABXBRL Extension Labels Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase








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