Orion Office REIT (ONL) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Unaudited Financial Statements Presents Orion Properties Inc.'s unaudited consolidated financial statements for Q1 2025 and 2024, covering balance sheets, operations, cash flows, and notes Consolidated Balance Sheets Total assets decreased to $1.328 billion as of March 31, 2025, with liabilities increasing and equity decreasing Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total real estate investments, net | $1,095,910 | $1,104,546 | | Cash and cash equivalents | $9,384 | $15,600 | | Total assets | $1,327,866 | $1,336,422 | | Mortgages payable, net | $371,403 | $371,222 | | Credit facility revolver | $132,000 | $119,000 | | Total liabilities | $573,070 | $571,166 | | Total equity | $754,796 | $765,256 | Consolidated Statements of Operations Net loss improved to $9.4 million in Q1 2025, primarily due to reduced impairment charges despite lower revenues Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total revenues | $38,001 | $47,197 | | Total operating expenses | $39,141 | $65,247 | | Impairments | $1,709 | $19,685 | | Net loss attributable to common stockholders | $(9,361) | $(26,232) | | Basic and diluted net loss per share | $(0.17) | $(0.47) | Consolidated Statements of Cash Flows Q1 2025 saw net cash used in operations of $2.2 million, a shift from Q1 2024, with increased investing and financing activities Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,247) | $11,022 | | Net cash used in investing activities | $(13,113) | $(3,751) | | Net cash provided by (used in) financing activities | $6,667 | $(5,826) | | Net change in cash and cash equivalents | $(8,693) | $1,445 | Notes to Consolidated Financial Statements Detailed notes cover organization, accounting policies, real estate portfolio, debt, and leasing commitments, highlighting a strategic shift - Name changed to Orion Properties Inc., reflecting a strategic shift to dedicated use assets (government, medical, lab, flex)[18] - As of March 31, 2025, the company owned 68 operating properties (7.8 million sq. ft.) and a 20% equity interest in a 6-property joint venture[21] - Subsequent to quarter-end in April 2025, the company sold three vacant properties for a gross price of $19.1 million[44][151] Debt Summary as of March 31, 2025 (in thousands) | Debt Instrument | Outstanding Balance (in thousands) | Maturity | | :--- | :--- | :--- | | Mortgages payable, net | $371,403 | 2027 & Thereafter | | Credit facility revolver | $132,000 | 2026 | | Total Debt | $503,403 | | Estimated Outstanding Leasing Cost Commitments as of March 31, 2025 (in thousands) | Commitment Type | Amount (in thousands) | | :--- | :--- | | Tenant improvement allowances | $49,241 | | Reimbursable landlord work | $11,077 | | Non-reimbursable landlord work | $14,310 | | Total | $74,628 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, highlighting a strategic shift, tenant retention challenges, Q1 2025 revenue decrease, and reduced net loss Overview and Strategy Orion Properties, an internally managed REIT, is strategically shifting its portfolio from traditional office to dedicated use assets, with 74.3% occupancy in Q1 2025 - The company is strategically shifting from traditional office properties to dedicated use assets (government, medical, lab, R&D, flex)[158][168] - Key challenges include tenant retention (11.3% of ABR expiring in 2025), hybrid work impacts, and indebtedness risks[164][167] Portfolio and Operating Performance Q1 2025 portfolio occupancy was 74.3%, with total revenues of $38.0 million and Core FFO per diluted share at $0.19 Portfolio Metrics as of March 31, 2025 | Metric | Value | | :--- | :--- | | Rentable square feet (in thousands) | 8,037 | | Occupancy rate | 74.3% | | Leased rate | 77.4% | | Investment-grade tenants (by ABR) | 72.3% | | Weighted average remaining lease term (years) | 5.2 | Q1 2025 Leasing Activity | Metric | New Leases | Renewals | Total | | :--- | :--- | :--- | :--- | | Rentable square feet leased (in thousands) | 160 | 220 | 380 | | Weighted avg. rental rate change (cash, in percent) | N/A | (17.9)% | (17.9)% | | Weighted avg. lease term (years) | 10.0 | 4.3 | 6.7 | Key Financial Metrics (in thousands, except per share) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Total revenues | $38,001 | $47,197 | | Net loss attributable to common stockholders | $(9,361) | $(26,232) | | Core FFO attributable to common stockholders | $10,653 | $20,365 | | Core FFO per diluted share | $0.19 | $0.36 | Results of Operations Analysis Q1 2025 rental revenue decreased by $9.2 million due to lease expirations, while operating expenses decreased by $26.1 million, primarily from reduced impairment charges - Rental revenue decreased by $9.2 million YoY, primarily due to $7.1 million from expired leases and a non-recurring $2.7 million reimbursement[209] - Depreciation and amortization expenses decreased by $8.5 million YoY as certain intangible assets related to expired leases became fully amortized[215] - Impairment charges dropped significantly to $1.7 million in Q1 2025 from $19.7 million in Q1 2024, driving the reduced net loss[216] Liquidity and Capital Resources As of March 31, 2025, the company had $9.4 million cash, $218.0 million available credit, and $505.0 million total debt, maintaining covenant compliance - Primary liquidity sources include $9.4 million cash, cash from operations, dispositions, and $218.0 million borrowing capacity under the Revolving Facility[227] Consolidated Debt Summary as of March 31, 2025 (in thousands) | Debt Type | Principal Amount (in thousands) | Weighted Avg. Interest Rate (in percent) | Maturity | | :--- | :--- | :--- | :--- | | Credit facility revolver | $132,000 | 7.66% | 2026 | | Mortgages payable | $373,000 | 5.02% | 2027 & Thereafter | | Total | $505,000 | | | - The company was in compliance with all financial covenants for its Revolving Facility as of March 31, 2025[248] - The Board authorized a $50.0 million share repurchase program, with $45.0 million remaining, though no shares were repurchased in Q1 2025[271] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from $132.0 million in variable-rate debt, partially mitigated by interest rate collars - The company's main market risk is interest rate risk from $132.0 million of variable-rate debt under the Revolving Facility[276][279] - A 100 basis point increase in variable interest rates would increase annual interest expense by approximately $1.3 million[279] - To manage interest rate risk, the company has interest rate collar agreements on a notional amount of $60.0 million, effective until May 12, 2025[280] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2025[287] - No material changes occurred during the quarter affecting the company's internal control over financial reporting[288] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not a party to any material pending legal proceedings as of the end of the quarter - As of March 31, 2025, the company is not involved in any material pending legal proceedings[290] Item 1A. Risk Factors No material changes to risk factors, except for expanded discussion on risks from government tenants and potential lease impacts from DOGE and GSA initiatives - A key risk is government tenants reducing leased space due to initiatives like DOGE, aiming to shrink the federal real estate portfolio[292] - GSA could exercise termination options or not renew leases, with a recent suspension of funded obligations causing delays in negotiations and landlord work[292] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company reported no unregistered sales or issuer purchases of equity securities during the period - The company did not conduct any unregistered sales or repurchase its own equity securities during Q1 2025[293][295] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[298]