Financial Data and Key Metrics Changes - Orion Office REIT Inc. reported total revenues of $38.4 million in Q4 2024, down from $43.8 million in Q4 2023 [31] - The net loss attributable to common stockholders was $32.8 million or $0.59 per share, compared to a net loss of $16.2 million or $0.29 per share in the same quarter of the previous year [32] - Core FFO for Q4 was $10.2 million or $0.18 per share, down from $18.5 million or $0.33 per share in Q4 2023 [32] - For the full year, revenues were $164.9 million, with a net loss of $103 million or $1.84 per share, and core FFO of $56.8 million or $1.01 per share [33] Business Line Data and Key Metrics Changes - The company signed 287,000 square feet of new leases in 2024, significantly up from 21,000 square feet in 2023 [11] - Renewal rent spreads for 2024 leasing activity decreased by 6.6%, but renewal rent spreads on a GAAP basis showed a positive increase of just over 2% [12] - The weighted average lease term (WALT) increased to 5.2 years from 4 years year-over-year, indicating a stabilizing portfolio [11] Market Data and Key Metrics Changes - The overall market tone improved, reflected in the leasing performance which totaled approximately 1.1 million square feet, more than four times the leasing delivered in 2023 [8] - The company faced significant competition to retain and find new tenants in specific markets, impacting renewal rent spreads [12] Company Strategy and Development Direction - The company plans to shift focus from traditional office properties to dedicated use assets (DUA), which include medical, lab, R&D, and non-CBD government properties [16] - Approximately 32% of properties by annualized base rent are now dedicated use, with plans to increase this percentage over time through property sales and selective acquisitions [17] - The company is rebranding to Orion Properties to better reflect its current portfolio mix and strategic direction [17] Management's Comments on Operating Environment and Future Outlook - Management believes that 2025 and into 2026 will be the nadir of revenue and core FFO earnings declines, followed by growth starting in 2027 [14] - The company recognizes the need to maintain liquidity and expects to see rising debt levels, offset by anticipated earnings growth in the future [24] - Management remains cautiously optimistic about the impact of the new presidential administration on the GSA portfolio, as most properties are not in the immediate Washington, D.C. area [23] Other Important Information - The company will incur a restructuring charge in 2025 related to changes in G&A costs, with expected annualized savings of approximately $1 million following the retirement of the Chief Investment Officer [19][21] - The board of directors declared a quarterly cash dividend of $0.02 per share for Q1 2025, reflecting the strategic shift towards maintaining and growing existing tenancy [40] Q&A Session Summary Question: What gives you the confidence that 2026 is going to start a rebound? - Management cited intensive portfolio analysis and leasing trends, indicating stabilization and expected revenue growth in 2025 or 2026 [46][47] Question: Is the thought that over the next 36 months, you'll pursue significant asset sales? - Management confirmed the strategy to sell outdated office properties and replace them with dedicated use assets, aiming for a longer weighted average lease term [48][51] Question: What is happening with the joint venture and its capital situation? - Management reassured that they maintain a strong relationship with the joint venture partner and have structured a loan to mitigate risks associated with capital access [52][55] Question: Will the restructuring charge be included in G&A or smoothed out in the bottom line next year? - The restructuring charge will be added back into core FFO, smoothing its impact throughout the year [58]

Debt and Financial Obligations - The company has incurred debt under the Revolving Facility and the CMBS Loan, with a minimum debt yield test of 8.0% that must be satisfied to avoid cash flow diversion to the lender[79]. - As of September 30, 2024, the company satisfied the minimum debt yield test, but future compliance will depend on lease extensions and re-leasing pace[79]. - The company is dependent on external capital sources for significant investments in its portfolio, as cash flows from operations are insufficient to fund future capital needs[81]. - The company’s ability to pay dividends is limited by the credit agreement governing its Revolving Facility, which may negatively impact its REIT status[103]. - The company must maintain its REIT qualification by distributing at least 90% of its taxable income annually, or face significant tax consequences[116]. - The company is subject to a 4% non-deductible excise tax if it fails to distribute at least 85% of its ordinary income and 95% of its capital gain net income for the calendar year[117]. - The company intends to continue making distributions to stockholders to comply with tax requirements and reduce exposure to federal income taxes[118]. - Distributions may be made in cash and/or common stock, which could lead to stockholders selling shares to pay taxes, potentially putting downward pressure on the stock price[119]. - The company may face a 100% penalty tax on net income from prohibited transactions, which could limit its ability to engage in certain sales[120]. - The ability to pay dividends is limited by Maryland law, which may affect the market price of common stock if dividends cannot be paid[131]. - Future dividends will be at the discretion of the Board of Directors and may change based on various factors, potentially impacting stockholder interest[132]. Risks and Compliance - The company faces risks of increased expenses that may not decrease even if revenues decline, potentially adversely affecting financial condition[83]. - Property taxes may increase unexpectedly, impacting financial condition and cash flows, especially for vacant properties[84]. - Compliance with various regulatory requirements, including environmental laws, may incur significant costs and affect financial condition[87]. - The company is subject to risks associated with climate change, which could impact property demand and operating costs[90]. - Increased scrutiny regarding sustainability practices may lead to additional costs and affect investor interest and tenant retention[91]. - The company carries comprehensive insurance coverage on all properties, but may face uninsured losses from events like riots or acts of God, which could materially affect its financial condition[95]. - The company is exposed to risks from cyber-attacks and security breaches, which could lead to operational interruptions and increased costs, adversely impacting its business[96]. - The company faces risks related to deficiencies in its disclosure controls and procedures, which could harm its financial reporting and market confidence[99]. - Legislative changes affecting REITs could negatively impact the company and its investors, including changes to tax laws that may affect REIT qualification[121]. - The company has ownership limits in its charter to maintain REIT qualification, which may inhibit acquisition proposals and change of control[122]. Investment and Market Risks - Real estate investments are illiquid, limiting the company's ability to sell properties quickly or at favorable terms, which could adversely affect financial results[85]. - The market price of the company's common stock may fluctuate widely due to various factors, including changes in revenues or earnings estimates[106]. - Future offerings of debt or equity securities may adversely affect the per share trading price of common stock and dilute existing stockholders[130]. Interest Rate Management - The company manages interest rate risk through a combination of fixed and variable rate borrowings and may enter into interest rate hedge contracts[305]. - As of December 31, 2024, the company had fixed-rate debt with a fair value of $352.5 million and a carrying value of $373.0 million[306]. - A 100 basis point increase in market interest rates would decrease the fair value of the fixed-rate debt by $7.2 million, while a decrease would increase it by $7.5 million[306]. - The company had variable-rate debt with a fair value and carrying value of $119.0 million, which is subject to interest rate fluctuations[307]. - A 100 basis point change in variable interest rates would affect the fair value of the variable-rate debt by less than $0.1 million and increase or decrease annual interest expense by $1.2 million[307]. - The company has interest rate collar agreements on a total notional amount of $60.0 million to hedge against interest rate volatility[308]. - Outstanding derivative agreements had a fair value resulting in net liabilities of less than $0.1 million as of December 31, 2024[308]. Tenant and Credit Risk - Credit risk concentrations arise from tenants engaged in similar business activities or located in the same geographic region, which could impact cash flows[311]. - Factors determining tenant credit risk include payment history, credit status, and economic conditions in specific regions[312]. - The company believes credit risk is mitigated by a high-quality and diverse tenant base and consistent monitoring of the portfolio[312]. Management and Personnel - The company’s success is significantly dependent on retaining key personnel, such as its CEO, with potential adverse effects on operations if key employees leave[100]. - The company may amend its investment strategy without stockholder approval, which could increase exposure to various risks and adversely affect its financial condition[102]. - Failure to hedge effectively against interest rate changes may have a material adverse effect on the company's financial condition and results of operations[101]. - As of the filing date, the company qualifies as an "emerging growth company," allowing it to take advantage of certain reporting exemptions until December 31, 2026, after which compliance costs may increase[98].

Financial Performance - Total revenues for Q4 2024 were $38.4 million, down from $43.8 million in Q4 2023[7] - Net loss attributable to common stockholders for Q4 2024 was $(32.8) million, or $(0.59) per share, compared to $(16.2) million, or $(0.29) per share in Q4 2023[7] - Core FFO for Q4 2024 was $10.2 million, or $0.18 per diluted share, down from $18.5 million, or $0.33 per diluted share in Q4 2023[7] - For the full year 2024, total revenues were $164.9 million, compared to $195.0 million in 2023[8] - Total revenues for the year ended December 31, 2024, were $164,862, a decrease of 15.4% compared to $195,041 in 2023[79] - Net loss attributable to common stockholders for the year ended December 31, 2024, was $103,012, compared to a net loss of $57,302 in 2023, representing an increase of 79.8%[79] - Funds from Operations (FFO) attributable to common stockholders decreased to $7,642,000 in Q4 2024 from $16,447,000 in Q4 2023, a decline of 53.6%[84] - Core FFO attributable to common stockholders for Q4 2024 was $10,192,000, down from $18,499,000 in Q4 2023, reflecting a 44.9% decrease[84] - Adjusted EBITDA for Q4 2024 was $16,579,000, compared to $24,647,000 in Q4 2023, indicating a decline of 32.8%[84] - Full Year Adjusted EBITDA decreased from $118,542 million in 2023 to $82,849 million in 2024, a decline of about 30.2%[90] Leasing and Property Management - The company completed 1.1 million square feet of leasing in 2024, which is four times the leasing volume of 261,000 square feet in 2023[3] - The occupancy rate as of December 31, 2024, was 73.7%, with 74.4% of Annualized Base Rent derived from Investment-Grade Tenants[14] - The company acquired a 97,000 square foot property for $34.6 million in 2024, fully leased to a single tenant with a remaining term of 15 years[11] - The company sold two vacant properties in 2024 for a total gross sales price of $5.3 million[12] Financial Metrics and Ratios - The Company utilizes Adjusted EBITDA as a non-GAAP measure to evaluate operating performance, which excludes non-routine items and certain non-cash items[38] - Funds Available for Distribution (FAD) is defined as Core FFO modified to exclude capital expenditures and leasing costs, providing insight into the Company's ability to fund its dividend[41] - The Company calculates Net Debt as Adjusted Principal Outstanding minus cash and cash equivalents, which aids in assessing financial flexibility and capital structure[60] - The Net Debt Leverage Ratio equals Net Debt divided by Gross Real Estate Investments, providing a measure of leverage[61] - The Company reported a Fixed Charge Coverage Ratio, which is Adjusted EBITDA divided by the sum of Interest Expense and secured debt principal amortization, indicating its ability to meet fixed financing obligations[39] - The Company defines Cash NOI as total revenues less property operating expenses, excluding certain GAAP adjustments, providing a clearer view of property-level performance[62] - The Interest Coverage Ratio decreased to 2.13x in Q4 2024 from 3.35x in Q4 2023, indicating a decline in the company's ability to cover interest expenses[86] - Net Debt to Annualized Most Recent Quarter Adjusted EBITDA Ratio rose significantly from 4.82x in 2023 to 7.57x in 2024[90] - Net Debt to Full Year Adjusted EBITDA Ratio increased from 4.01x in 2023 to 6.06x in 2024[90] Expenses and Liabilities - Property operating expenses for the year ended December 31, 2024, increased to $65,151, up 7.3% from $60,783 in 2023[79] - The Company reported a net interest expense of $32,637 for the year ended December 31, 2024, compared to $29,669 in 2023, indicating an increase of 9.9%[79] - The Company experienced impairments totaling $47,552 for the year ended December 31, 2024, compared to $33,112 in 2023, an increase of 43.8%[79] - Total debt as reported increased to $490,222,000 as of December 31, 2024, from $468,856,000 in the previous year, marking a 4.5% rise[88] - Net Debt rose to $502,304,000 in Q4 2024, up from $475,209,000 in Q4 2023, an increase of 5.5%[88] Company Changes and Future Outlook - The Company changed its name from Orion Office REIT Inc. to Orion Properties Inc. on March 5, 2025, to reflect a broader investment strategy[31] - The Company anticipates potential risks from rising interest rates and inflation affecting future financial performance and operational costs[72] - The Company expects 2025 Core FFO per diluted share to range between $0.61 and $0.70[92] - General & Administrative Expenses are projected to be between $19.5 million and $20.5 million[95]

Financial Data and Key Metrics Changes - Revenues for Q3 2024 were $39.2 million, down from $49.1 million in Q3 2023 [33] - Net loss attributable to common stockholders was $10.2 million or $0.18 per share, compared to a loss of $16.5 million or $0.29 per share in the previous year [33] - Core funds from operations (FFO) decreased to $12 million or $0.21 per share from $24.1 million or $0.43 per share [33] - Adjusted EBITDA fell to $19.1 million from $30 million year-over-year [33] Business Line Data and Key Metrics Changes - The company signed four leases totaling 254,000 square feet during the quarter, with a weighted average lease term of 8.9 years [7] - Year-to-date leasing efforts resulted in over 830,000 square feet leased, more than three times the total for the entire year of 2023 [8] - Portfolio weighted average lease term (WALT) increased to five years from 3.9 years year-over-year [8] Market Data and Key Metrics Changes - Net office absorption turned positive in Q2 2024 for the first time in two years, indicating a potential recovery in the office market [11] - The availability of space in the newest and highest quality buildings is declining rapidly, now below pre-pandemic levels [11] - 79% of CEOs polled in September expect a full-time return to work over the next three years, up from 34% in April [12] Company Strategy and Development Direction - The company is focusing on extending existing leases and improving the quality of its portfolio by selling non-core assets [14][19] - A total of 18 properties, representing about 1.9 million square feet, have been sold, amounting to over 15% of the portfolio [14] - The company aims to maintain a low leverage balance sheet while investing in capital expenditures to enhance asset competitiveness [26] Management's Comments on Operating Environment and Future Outlook - The company anticipates fluctuations in leasing activity and expects to carry substantial vacancy for the foreseeable future [13] - Management expects cumulative impacts on core FFO could be as much as $20 million to $24 million lower in 2025 compared to 2024 [29] - Despite challenges, the company remains profitable on an FFO and core FFO basis and expects to stabilize and grow in the future [31] Other Important Information - The company declared a quarterly cash dividend of $0.10 per share for Q4 2024, payable on January 15, 2025 [40] - Total liquidity at quarter end was $237.3 million, including $17.3 million in cash and $220 million available on the revolving credit facility [37] Q&A Session Summary Question: Can a new buyer leverage the work done from the previous buyer for the Walgreens property? - Management confirmed that a new buyer can leverage the previous redevelopment work and tax increment financing established [42] Question: Was there anything unique about the seller in the recent acquisition? - Management indicated that the seller was not under distress, and the ability to purchase the property for an all-cash transaction provided additional pricing power [44] Question: How does the company balance investment opportunities against cash requirements for CapEx? - Management emphasized that the primary focus is on existing assets, using capital to lease up vacancies, which is seen as the most accretive use of capital [49]

Property Portfolio - As of September 30, 2024, the company owned and operated 70 office properties with an aggregate of 8.1 million leasable square feet and an occupancy rate of 74.0%[138] - The occupancy rate, including the company's pro rata share from the Arch Street Joint Venture, is 74.6%, or 76.9% adjusted for properties under agreement to be sold[138] - As of September 30, 2024, 63.3% of the company's office buildings by square feet were classified as class A, while class B and class C properties accounted for 31.7% and 5.0%, respectively[143] - As of September 30, 2024, the company had 70 operating properties, down from 75 as of December 31, 2023, with a total rentable square footage of 8,299,000 square feet[161] - The portfolio occupancy rate was 74.0% with 70 operating properties and 8.1 million leasable square feet as of September 30, 2024, compared to 80.1% with 79 properties and 9.3 million leasable square feet as of September 30, 2023[179] Financial Performance - Total revenues for the three months ended September 30, 2024, were $39.2 million, compared to $49.1 million for the same period in 2023, representing a decrease of approximately 20%[162] - The net loss attributable to common stockholders for the three months ended September 30, 2024, was $10.2 million, compared to a loss of $16.5 million for the same period in 2023[162] - The annualized base rent as of September 30, 2024, was $124.0 million, a decrease from $141.3 million as of December 31, 2023[161] - The occupancy rate as of September 30, 2024, was 74.6%, down from 80.4% as of December 31, 2023[161] - Rental revenues decreased by $9.9 million and $24.8 million for the three and nine months ended September 30, 2024, respectively, primarily due to a decrease in occupied square footage and property dispositions[178][179] Debt and Financing - The company has incurred significant indebtedness, with non-recourse mortgage notes associated with the Arch Street Joint Venture amounting to $135.7 million, maturing on November 27, 2024[144] - The company extended the maturity date of its Revolving Facility for 18 months, now set to mature on May 12, 2026[144] - Total consolidated debt outstanding as of September 30, 2024, was $485.0 million, consisting of a $355.0 million CMBS Loan and $130.0 million under the Revolving Facility[210] - The company entered into a Third Amendment to the Credit Agreement, reducing the borrowing capacity of the Revolving Facility to $350.0 million from $425.0 million[203] - The company maintained a total indebtedness to total asset value ratio of 39.2%, well below the required maximum of 60%[220] Lease and Tenant Activity - Approximately 2.8% and 13.0% of the company's annualized base rent are scheduled to expire during the remainder of 2024 and in 2025, respectively[142] - The weighted-average remaining lease term for the company's properties is 5.0 years as of September 30, 2024[138] - The weighted-average remaining lease term for the company's properties increased to 5.0 years as of September 30, 2024, from 4.0 years as of December 31, 2023[161] - The company completed approximately 832,000 square feet of lease renewals and new leases across 10 different properties during the nine months ended September 30, 2024[158] - During the nine months ended September 30, 2024, seven leases across six properties expired, totaling 1.1 million square feet[174] Cash and Liquidity - As of September 30, 2024, the company had $220.0 million of borrowing capacity under the Revolving Facility, with $130.0 million of outstanding borrowings[159] - As of September 30, 2024, the company had $16.6 million in cash and cash equivalents and $220.0 million of borrowing capacity under the Revolving Facility[201] - The company had restricted cash reserves of $34.7 million as of September 30, 2024, allocated for tenant improvement allowances and rent concessions[169] Expenses and Costs - Property operating expenses increased by $1.1 million and $2.1 million during the three and nine months ended September 30, 2024, respectively, due to property vacancies[182] - General and administrative expenses rose by $0.1 million and $0.7 million during the three and nine months ended September 30, 2024, respectively, primarily due to increased stock compensation expenses[183] - Depreciation and amortization expenses decreased by $7.1 million during the three months ended September 30, 2024, due to the full amortization of certain intangible assets[184] Dividends and Shareholder Returns - The company declared a quarterly cash dividend of $0.10 per share for the first three quarters of 2024, with the fourth quarter dividend also set at $0.10 per share[160] - The company declared quarterly cash dividends of $0.10 per share during the nine months ended September 30, 2024, with a fourth quarter dividend also declared for January 15, 2025[238] - The Company had approximately $45.0 million available under the Share Repurchase Program[244] Market Conditions and Risks - The company anticipates continued challenges in tenant retention due to significant lease expirations and changing office space utilization trends[142] - The company faces risks associated with rising interest rates and inflation, which may impact operating costs and borrowing[133] - The company anticipates that tenant improvement allowances may increase in future periods due to competitive market conditions[165] Impairments and Charges - Impairment charges totaled $25.4 million for the nine months ended September 30, 2024, related to eight properties, a decrease from $27.0 million for the same period in 2023[185] Interest Rate Management - The company entered into interest rate swap agreements totaling $175.0 million to hedge interest rate volatility, fixing the interest rate at 3.92% per annum until November 12, 2023[213] - Following the expiration of the interest rate swap agreements, the company established interest rate collar agreements on a total notional amount of $60.0 million, with rates floating between 5.50% and 4.20% per annum[213]

Financial Data and Key Metrics Changes - Orion generated total revenues of $40.1 million in Q2 2024, down from $52 million in the same quarter of the prior year [15] - The company reported a net loss attributable to common stockholders of $33.8 million or $0.60 per share, compared to a net loss of $15.7 million or $0.28 per share in Q2 2023 [15] - Core funds from operations (Core FFO) for the quarter was $14.2 million or $0.25 per share, down from $26.9 million or $0.48 per share in the same quarter of 2023 [16] - Adjusted EBITDA was $20.5 million versus $32.7 million in Q2 2023 [16] - The company ended the quarter with $489.3 million of outstanding debt, with a net debt to annualized year-to-date adjusted EBITDA ratio of 4.92 times [17] Business Line Data and Key Metrics Changes - At the end of Q2 2024, the company owned 69 operating properties and 6 unconsolidated joint venture properties, comprising 8.2 million rentable square feet that were 79.7% occupied [4] - Adjusted for one operating property under agreement to be sold, the occupancy rate was 80.9% [5] - 72.3% of tenants were investment grade as of June 30, 2024 [5] - The company completed 633,000 square feet of lease transactions in 2024, more than double the total for all of 2023 [5] Market Data and Key Metrics Changes - Over 35% of annualized base rent is derived from Sun Belt markets [5] - The largest tenant by annualized base rent is the United States government, with the two largest tenant industries being government and health care [5] Company Strategy and Development Direction - The company is focused on repositioning its portfolio and has sold 18 properties totaling 1.9 million square feet, which is over 15% of the portfolio [10] - The strategy includes maintaining a low leverage balance sheet to retain financial flexibility for future investments [14] - The company intends to invest approximately $3 million in improvements to adapt properties for multi-tenant usage and upgrade amenities [6] Management's Comments on Operating Environment and Future Outlook - Management anticipates that leasing will remain challenging, with substantial vacancy expected for the foreseeable future [9] - The company is optimistic about its forward leasing pipeline, which includes over 1 million square feet in various stages of discussion and negotiation [8] - Management has narrowed the range of guidance expectations for Core FFO and net debt to adjusted EBITDA for 2024 [20] Other Important Information - The company declared a quarterly cash dividend of $0.10 per share for Q3 2024, payable on October 15, 2024 [20] - The company has strong total liquidity of $267.9 million, which includes $24.9 million in cash and $243 million of available capacity on its revolving credit facility [18] Q&A Session Summary Question: What drove the decision to accelerate work on the Walgreens Campus? - Management indicated that the project took longer than expected, and the developer has made progress, prompting the decision to demolish buildings to reduce carry costs [21] Question: Will capital projects align more with leasing efforts going forward? - Management confirmed that capital projects will be more aligned with leasing efforts, as upgrades are expected to attract tenants [23] Question: What is the outlook for net debt to EBITDA as vacancies are absorbed? - Management acknowledged that declining revenue and increased expenses would push the debt-to-EBITDA ratio up, but additional property sales could help mitigate this [25] Question: What is the sensitivity to the top and bottom end of the guidance? - Management stated that the guidance range is relatively tight, with tenant reimbursements potentially pushing results towards the top end and unexpected expenditures towards the lower end [28]

Company Overview - Orion Office REIT was spun off from Realty Income following the merger of VEREIT with Realty Income[5] - The company focuses on single-tenant net lease office properties in attractive suburban markets[5] - The investment objectives include stabilizing and reducing exposure to generic office space while recycling capital into target sectors[5] Portfolio Highlights - The portfolio's annualized base rent (ABR) is $129790000[15, 16] - ABR per rentable square foot is $1582[15] - Investment-grade tenancy accounts for 723% of ABR[15, 16] - The weighted average remaining lease term is 42 years[15, 16] Diversification - Government & Public Services represent 155% of the top 10 tenant industries by ABR[17] - Health Care Equipment & Services account for 140% of the top 10 tenant industries by ABR[17] - Texas accounts for 162% of the top 10 states by ABR[20] - New Jersey and New York each account for 111% of the top 10 states by ABR[20] Balance Sheet - As of June 30, 2024, the company had $2679 million of liquidity, including $249 million in cash and cash equivalents[35] - The company has $243 million available capacity on its credit facility revolver as of June 30, 2024[35] - The Net Debt Leverage Ratio was 291% as of June 30, 2024[31] Recent Activity - The company leased approximately 578000 square feet of renewals and new leases during the first half of 2024, with a weighted average rental rate change of approximately 22%[35] - The company sold one vacant property with 96000 square feet at a gross sales price of $21 million during the first half of 2024[37] - Since inception, the company has sold 18 total properties, totaling 19 million square feet and an aggregate gross sales price of $606 million[37]

Property Portfolio and Occupancy - As of June 30, 2024, the company owned and operated 69 office properties with an aggregate of 8.0 million leasable square feet and an occupancy rate of 79.2%[111]. - The occupancy rate, including the pro rata share from the Arch Street Joint Venture, is 79.7%, or 80.9% adjusted for one operating property currently under agreement to be sold[111]. - As of June 30, 2024, the occupancy rate of operating properties was 79.7%, down from 80.4% as of December 31, 2023[133]. - The portfolio occupancy rate dropped to 79.2% with 69 operating properties and 8.0 million leasable square feet as of June 30, 2024, down from 86.2% and 81 properties with 9.5 million leasable square feet as of June 30, 2023[151]. - As of June 30, 2024, 64.1% of the company's office buildings by square feet were classified as class A, 30.9% as class B, and 5.0% as class C[116]. Financial Performance - For the six months ended June 30, 2024, total revenues were $87.321 million, a decrease of 14.6% compared to $102.214 million for the same period in 2023[135]. - Total revenues for the three and six months ended June 30, 2024 were $40.1 million and $87.3 million, respectively, representing decreases of $11.9 million (29.1%) and $14.9 million (14.4%) compared to the same periods in 2023[150]. - The net loss attributable to common stockholders for the three months ended June 30, 2024, was $33.801 million, or $(0.60) per diluted share, compared to a net loss of $15.730 million, or $(0.28) per diluted share, for the same period in 2023[135]. - Net loss attributable to common stockholders for Q2 2024 was $33.8 million, compared to a loss of $15.7 million in Q2 2023, representing a 115% increase in losses year-over-year[171]. - Funds from Operations (FFO) attributable to common stockholders for Q2 2024 was $10.9 million, down from $24.4 million in Q2 2023, a decline of 55%[171]. - Core FFO attributable to common stockholders for Q2 2024 was $14.2 million, compared to $26.9 million in Q2 2023, reflecting a decrease of 47%[171]. Debt and Financing - The company has incurred significant amounts of indebtedness, with non-recourse mortgage notes associated with the Arch Street Joint Venture totaling $136.4 million, maturing on November 27, 2024[117]. - The company has extended the maturity date of its Revolving Facility for 18 months, now set to mature on May 12, 2026[117]. - The company may face increased borrowing costs and challenges in refinancing its debt obligations due to rising interest rates and market conditions[106]. - Total consolidated debt outstanding as of June 30, 2024, was $462.0 million, consisting of a $355.0 million CMBS Loan and $107.0 million under the Revolving Facility[180]. - The company reduced the borrowing capacity of the Revolving Facility from $425.0 million to $350.0 million, effective May 3, 2024[173]. - The interest rate for the Revolving Facility is SOFR + 3.35%, with a maturity date extended to May 12, 2026[176]. - The average debt outstanding was $471.0 million and $466.5 million for the three and six months ended June 30, 2024, compared to $530.0 million for the same periods in 2023[161]. Asset Management and Dispositions - The company expects to continue its non-core asset disposition strategy through the remainder of 2024, focusing on selling vacant and identified non-core assets[120]. - Pending agreements are in place to sell one operating property and six non-operating properties for an aggregate gross sales price of $39.0 million, subject to various conditions[129]. - The company completed approximately 578,000 square feet of lease renewals and new leases during the six months ended June 30, 2024, including a new lease with the U.S. Government for approximately 86,000 square feet[130]. - The company had a total of nine fully vacant operating properties as of June 30, 2024, with five leases expiring consisting of 597,000 square feet during the same period[130]. Cash Flow and Liquidity - As of June 30, 2024, the company had $24.2 million in cash and cash equivalents and $243.0 million of borrowing capacity under the Revolving Facility[172]. - Net cash provided by operating activities decreased by $15.9 million to $28.0 million for the six months ended June 30, 2024, compared to $43.9 million in the same period of 2023[208]. - Net cash used in investing activities decreased by $0.3 million to $(4.8) million for the six months ended June 30, 2024, primarily due to proceeds from the sale of a real estate asset of $2.1 million[209]. - Net cash used in financing activities increased by $4.2 million to $(21.4) million for the six months ended June 30, 2024, primarily due to repayments on the Revolving Facility of $9.0 million[209]. Dividends and Shareholder Returns - The company declared a quarterly cash dividend of $0.10 per share for the first and second quarters of 2024, with the third quarter dividend also set at $0.10 per share[131]. - The Company authorized a Share Repurchase Program of up to $50.0 million until December 31, 2025, with approximately $45.0 million available as of June 30, 2024[207]. Market Conditions and Risks - The company anticipates continued challenges in tenant retention due to significant lease expirations and changing office space utilization trends[115]. - The Company is subject to credit risk concentrations due to tenants engaged in similar business activities or geographic regions, which could materially affect cash flows[215]. - The Company believes credit risk is mitigated by the high quality and diversity of its tenant base and consistent monitoring of potential problem tenants[216].

Portfolio Overview - As of June 30, 2024, Orion owned and operated a portfolio of 69 office properties totaling approximately 8.0 million leasable square feet across 29 states[6]. - The company has a 20% equity interest in an Unconsolidated Joint Venture that owns six office properties totaling approximately 1.0 million leasable square feet[6]. - The company had a total of 69 operating properties and 6 unconsolidated joint venture properties, with a total rentable square footage of 8,202,000[32]. - The company operates a total of 75 properties, with a total rentable square footage of 8,202 thousand square feet[38]. - The company maintains a diverse portfolio with properties located in multiple states across the U.S.[40]. Financial Performance - Total revenues for Q2 2024 were $40,124,000, a decrease of 15% compared to $47,197,000 in the previous quarter[10]. - Rental income for Q2 2024 was $39,923,000, down from $46,995,000 in Q1 2024, representing a decline of approximately 15%[10]. - Net loss attributable to common stockholders for Q2 2024 was $33,801,000, compared to a net loss of $26,232,000 in Q1 2024, reflecting an increase in losses of approximately 29%[10]. - Basic and diluted net loss per share attributable to common stockholders was $(0.60) for Q2 2024, compared to $(0.47) in the previous quarter[10]. - Total operating expenses for Q2 2024 were $64,762,000, slightly down from $65,247,000 in Q1 2024[10]. Assets and Liabilities - Total assets as of June 30, 2024, were $1,339,853,000, a decrease of 3.3% from $1,385,519,000 at the end of Q1 2024[9]. - Total liabilities decreased to $522,362,000 as of June 30, 2024, down from $529,568,000 at the end of Q1 2024[9]. - Cash and cash equivalents increased to $24,224,000 in Q2 2024, up from $23,618,000 in Q1 2024[9]. - Accumulated deficit increased to $(330,136,000) as of June 30, 2024, compared to $(290,710,000) at the end of Q1 2024[9]. Debt and Financing - Total secured debt as of June 30, 2024, was $382,286 thousand, with a weighted average interest rate of 5.11%[13]. - The company’s debt composition includes 72.6% fixed-rate debt and 27.4% variable-rate debt, with a weighted-average interest rate of 5.89%[17]. - The interest coverage ratio decreased to 2.71x as of June 30, 2024, down from 3.52x in the previous quarter[18]. - The company has entered into interest rate collar agreements on a total notional amount of $60.0 million to hedge against interest rate volatility on the credit facility revolver[16]. Operational Metrics - The company reported impairments of $5,680,000 in Q2 2024, a significant decrease from $19,685,000 in the previous quarter[10]. - Funds From Operations (FFO) attributable to common stockholders decreased to $10,925 thousand in Q2 2024 from $18,389 thousand in Q1 2024, a decline of 40.5%[11]. - Core FFO attributable to common stockholders was $14,171 thousand in Q2 2024, down from $20,365 thousand in Q1 2024, representing a decrease of 30.4%[11]. - The company's net operating income (NOI) for Q2 2024 was $24.2 million, down from $31.0 million in Q1 2024, reflecting a decrease of approximately 22.4%[22]. Tenant and Lease Information - Approximately 72.3% of the Annualized Base Rent was from Investment-Grade Tenants, with an Occupancy Rate of 79.7%[6]. - The weighted average lease term (by rentable square feet) for new leases was 15.1 years, indicating a long-term commitment from tenants[23]. - The company reported an occupancy rate of 79.7% and a leased rate of 81.4% as of June 30, 2024[32]. - The company has 51 leases with a credit rating of BBB or higher, indicating strong tenant quality[33]. Market and Economic Conditions - The company faces risks including rising interest rates, inflation, and changes in workplace practices affecting demand for office space[4]. - Future performance is subject to various risks and uncertainties, and historical rent collections may not indicate future performance[2]. Strategic Initiatives - The company has classified certain properties as Non-Operating Properties to enhance transparency in its portfolio[3]. - The company has rightsized its credit facility revolver to $350.0 million, reducing capacity by $75.0 million[16].

Core Viewpoint - Orion Office REIT has underperformed significantly in 2024, but the current market cap rate of 14% suggests that the poor operating performance is already priced in, indicating a potential buying opportunity despite risks related to leverage and declining occupancy [1][12]. Company Overview - Orion Office REIT is a double net lease office REIT managing single-tenant properties across 29 states, with Texas being the largest market, contributing 18.4% of annualized base rent (ABR) [2]. - The company’s tenant base is primarily concentrated in Health Care Equipment & Services (16.4% of ABR), Government & Public Services (14.9%), and Financial Institutions (11.8%) [3]. Operational Overview - As of Q1 2024, Orion Office's occupancy rate was 75.8%, a decline of 11.7% year-over-year, indicating distress within the REIT [3]. - Adjusting for properties under sale agreements, the occupancy rate stands at 83.2% [3]. - Funds from Operations (FFO) for Q1 2024 was $0.33 per share, down 19.5% year-over-year, while Core FFO was $0.36 per share, down 20% year-over-year, primarily due to lower revenues and higher interest expenses [4]. 2024 Outlook - The company reaffirmed its 2024 expectations, projecting Core FFO to decline to approximately $0.97 per share, a 42% decrease from $1.68 per share in 2023 [5]. - General and Administrative expenses are expected to range from $19.5 million to $20.5 million, with a net debt to adjusted EBITDA ratio projected between 6.2x and 7.0x [5]. Debt Position - As of Q1 2024, Orion Office had a net debt of $474 million, representing 70% of the company's enterprise value, with a weighted average cost of debt at 5.84% and an average maturity of 2.6 years [6]. - The debt structure includes 71% mortgages and 23% borrowed under a floating rate revolver at 8.66% [6]. - The company has made progress in addressing its 2026 revolver maturity by securing an amendment to its credit facility [7]. Market Implied Cap Rate - In Q1 2024, the company generated $18.4 million in FFO and incurred $8.1 million in interest expenses, leading to annual cash flows of approximately $95 million, resulting in an attractive market cap rate of 14% [9]. Progress on Disposals - Orion Office anticipates generating $48.1 million in gross proceeds from the sale of eight properties, although these transactions are subject to various conditions [10].