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Orion Office REIT (ONL) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents Orion Properties Inc.'s unaudited financial statements, management's discussion, and related disclosures for the reporting period Item 1. Unaudited Financial Statements This section presents Orion Properties Inc.'s unaudited consolidated financial statements for the quarter ended June 30, 2025, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with detailed notes. A significant concern is raised regarding the Company's ability to continue as a going concern due to the upcoming maturity of its Revolving Facility - Substantial doubt about the Company's ability to continue as a going concern exists for at least one year from the issuance of these consolidated financial statements due to uncertainty with regard to the Company's ability to extend or refinance the Revolving Facility, which matures on May 12, 20262526 Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Total assets | $1,288,188 | $1,336,422 | $(48,234) | -3.61% | | Total liabilities | $558,858 | $571,166 | $(12,308) | -2.16% | | Total stockholders' equity | $728,012 | $763,916 | $(35,904) | -4.70% | | Cash and cash equivalents | $17,384 | $15,600 | $1,784 | 11.44% | | Real estate investments, net | $1,073,927 | $1,104,546 | $(30,619) | -2.77% | | Mortgages payable, net | $371,587 | $371,222 | $365 | 0.10% | | Credit facility revolver | $110,000 | $119,000 | $(9,000) | -7.56% | Consolidated Statements of Operations This section outlines the Company's revenues, expenses, and net loss over specific reporting periods Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Total revenues | $37,305 | $40,124 | $(2,819) | $75,306 | $87,321 | $(12,015) | | Total operating expenses | $55,239 | $64,762 | $(9,523) | $94,380 | $130,009 | $(35,629) | | Net loss | $(25,101) | $(33,801) | $8,700 | $(34,456) | $(60,027) | $25,571 | | Net loss attributable to common stockholders | $(25,103) | $(33,801) | $8,698 | $(34,464) | $(60,033) | $25,569 | | Basic and diluted net loss per share | $(0.45) | $(0.60) | $0.15 | $(0.61) | $(1.07) | $0.46 | Consolidated Statements of Comprehensive Income (Loss) This section presents the Company's net loss and other comprehensive income (loss) components, reflecting total changes in equity from non-owner sources Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Net loss | $(25,101) | $(33,801) | $8,700 | $(34,456) | $(60,027) | $25,571 | | Total other comprehensive (loss) income | $(24) | $31 | $(55) | $(10) | $250 | $(260) | | Total comprehensive loss | $(25,125) | $(33,770) | $8,645 | $(34,466) | $(59,777) | $25,311 | | Total comprehensive loss attributable to common stockholders | $(25,127) | $(33,770) | $8,643 | $(34,474) | $(59,783) | $25,309 | Consolidated Statements of Equity This section details changes in the Company's equity accounts, including net loss, distributions, and equity-based compensation Consolidated Statements of Equity Highlights (in thousands) | Metric | Balance, January 1, 2025 | Balance, June 30, 2025 | Change | | :-------------------------- | :----------------------- | :--------------------- | :----- | | Total Stockholders' Equity | $763,916 | $728,012 | $(35,904) | | Total Equity | $765,256 | $729,330 | $(35,926) | | Metric | Balance, January 1, 2024 | Balance, June 30, 2024 | Change | | :-------------------------- | :----------------------- | :--------------------- | :----- | | Total Stockholders' Equity | $885,623 | $816,105 | $(69,518) | | Total Equity | $887,003 | $817,491 | $(69,512) | - For the six months ended June 30, 2025, net loss attributable to common stockholders was $(34,464) thousand, and distributions totaled $(2,490) thousand. Equity-based compensation, net, added $1,526 thousand14 - For the six months ended June 30, 2024, net loss attributable to common stockholders was $(60,033) thousand, and distributions totaled $(11,298) thousand. Equity-based compensation, net, added $1,725 thousand14 Consolidated Statements of Cash Flows This section summarizes the Company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------- | | Net cash provided by operating activities | $9,316 | $28,009 | $(18,693) | | Net cash provided by (used in) investing activities | $3,489 | $(4,835) | $8,324 | | Net cash used in financing activities | $(16,501) | $(21,409) | $4,908 | | Net change in cash and cash equivalents and restricted cash | $(3,696) | $1,765 | $(5,461) | | Cash and cash equivalents and restricted cash, end of period | $53,474 | $58,963 | $(5,489) | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1 – Organization Orion Properties Inc. is an internally managed REIT focused on owning, acquiring, and managing a diversified portfolio of office properties, primarily single-tenant net lease assets. The Company recently changed its name to reflect a broader strategy shift towards dedicated use assets (government, medical, lab, R&D, flex operations) away from traditional office properties. As of June 30, 2025, Orion owned 66 operating properties and an equity interest in the Arch Street Joint Venture - Orion Properties Inc. changed its name from Orion Office REIT Inc. on March 5, 2025, to reflect a broader investment strategy shifting from traditional office properties to dedicated use assets (e.g., government, medical, laboratory, R&D, flex operations)21 - As of June 30, 2025, the Company owned and operated 66 operating properties (7.6 million leasable square feet across 29 states) and six non-operating properties. It also holds a 20% equity interest in the Arch Street Joint Venture, which owns six properties (1.0 million leasable square feet)24 Note 2 – Summary of Significant Accounting Policies This note outlines Orion's significant accounting policies, including principles of consolidation, use of estimates, and revenue recognition for rental income and joint venture fees. Critically, it discloses substantial doubt about the Company's ability to continue as a going concern due to the uncertainty of refinancing its Revolving Facility, which matures in May 2026 - Substantial doubt about the Company's ability to continue as a going concern exists for at least one year from the issuance of these financial statements due to uncertainty in extending or refinancing the $110.0 million Revolving Facility, which matures on May 12, 2026, and has no remaining extension options2526 - The Company recognizes rental revenue on a straight-line basis for operating leases with scheduled rent increases, and variable lease payments are recognized as they occur. Collectability is continuously assessed, and revenue is recorded on a cash basis if collection is not probable3337 - The Company operates in one business segment: commercial real estate, with the CEO as the chief operating decision maker, reviewing net income (loss) attributable to common stockholders and significant expenses42 Note 3 – Real Estate Investments and Related Intangibles This note details the Company's real estate investment activities, including no acquisitions in H1 2025 but four property dispositions totaling $26.9 million in gross sales price. It also provides a breakdown of intangible lease assets and liabilities, showing a decrease in total net intangible lease assets from $95.9 million to $85.3 million - During the six months ended June 30, 2025, the Company had no property acquisitions. In contrast, during the six months ended June 30, 2024, one parcel of land was acquired for no consideration due to a finance lease maturity4748 Property Dispositions (in thousands) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Total dispositions (count) | 4 | 4 | 1 | 1 | | Aggregate gross sales price | $26,930 | $26,930 | $2,100 | $2,100 | | Gain on disposition of real estate assets | $891 | $891 | $— | $— | | Impairments on disposition of real estate assets | $1,165 | $1,165 | $20 | $20 | Intangible Lease Assets and Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total intangible lease assets, net | $85,270 | $95,944 | | Below-market leases, net | $19,469 | $20,596 | - The Arch Street Joint Venture's non-recourse mortgage notes of $130.2 million mature on November 27, 2025, with one remaining 12-month extension option. The Company's proportionate share is $26.0 million56 - The Company provided an additional $8.3 million member loan to the Arch Street Joint Venture in February 2025 for leasing costs, with $7.6 million receivable as of June 30, 2025, earning 15% interest per annum57 Note 4 – Receivables and Other Assets This note details the composition of accounts receivable and other assets. Accounts receivable, net, increased to $27.0 million from $22.8 million, primarily due to a rise in straight-line rent receivable. Restricted cash, included in other assets, decreased to $36.1 million from $41.6 million Accounts Receivable, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Accounts receivable, net | $4,915 | $5,852 | | Straight-line rent receivable, net | $22,068 | $16,981 | | Total | $26,983 | $22,833 | Other Assets, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Restricted cash | $36,090 | $41,570 | | Right-of-use assets, net | $21,744 | $22,216 | | Investment in unconsolidated joint venture | $11,305 | $11,822 | | Notes receivable | $7,605 | $3,900 | | Deferred costs, net | $3,134 | $4,596 | | Prepaid expenses | $2,826 | $2,133 | | Other assets, net | $1,920 | $1,591 | | Total | $84,624 | $87,828 | - Notes receivable increased significantly from $3.9 million to $7.6 million, primarily due to an additional member loan to the Arch Street Joint Venture62 Note 5 – Fair Value Measures This note outlines the Company's fair value measurements for financial instruments and real estate assets. Derivative liabilities, primarily interest rate collars, increased from $15 thousand to $25 thousand. Impairment provisions for real estate assets decreased to $21.2 million in H1 2025 from $25.4 million in H1 2024, affecting six properties Derivative Liabilities Measured at Fair Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Derivative liabilities | $25 | $15 | Provisions for Impairment (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Number of properties | 6 | 8 | | Carrying value of impaired properties | $64,209 | $62,710 | | Provisions for impairment | $(21,212) | $(25,365) | | Estimated fair value | $42,997 | $37,345 | - For H1 2025, impairment charges of $18.3 million were recorded for held and used properties, and $2.9 million for disposed properties, including $1.7 million for properties classified as held for sale73 Fair Value of Long-Term Financial Instruments (in thousands) | Instrument | Level | Carrying Value at June 30, 2025 | Fair Value at June 30, 2025 | Carrying Value at December 31, 2024 | Fair Value at December 31, 2024 | | :----------------- | :---- | :------------------------------ | :-------------------------- | :---------------------------------- | :-------------------------------- | | Notes receivable | 3 | $7,605 | $7,605 | $3,900 | $3,900 | | Mortgages payable | 2 | $373,000 | $361,275 | $373,000 | $352,476 | | Derivative liabilities | 2 | $25 | $25 | $15 | $15 | | Total | | $373,025 | $361,300 | $373,015 | $352,491 | Note 6 – Debt, Net This note details the Company's debt structure, totaling $481.6 million as of June 30, 2025, with a weighted average maturity of 1.6 years and an effective interest rate of 5.68%. The Revolving Facility, with $110.0 million outstanding, matures on May 12, 2026, and poses a significant going concern risk due to uncertainty in refinancing. The CMBS Loan ($355.0 million) matures in February 2027, and the San Ramon Loan ($18.0 million) matures in December 2031 - As of June 30, 2025, the Company had $481.6 million in debt outstanding, with a weighted average maturity of 1.6 years and a weighted average effective interest rate of 5.68% for the six months ended June 30, 202580 Debt Outstanding and Activity (in thousands) | Debt Type | Balance as of Dec 31, 2024 | Debt Issuances | Repayments, Extinguishment and Assumptions | Accretion and Amortization | Balance as of June 30, 2025 | | :-------------------- | :------------------------- | :------------- | :--------------------------------------- | :------------------------- | :-------------------------- | | Mortgages payable, net | $371,222 | $— | $— | $365 | $371,587 | | Credit facility revolver | $119,000 | $13,000 | $(22,000) | $— | $110,000 | | Total debt | $490,222 | $13,000 | $(22,000) | $365 | $481,587 | - The Revolving Facility, with $110.0 million outstanding, matures on May 12, 2026, and has no remaining extension options. Substantial doubt about the Company's ability to continue as a going concern due to the uncertainty of refinancing this facility86 - The CMBS Loan of $355.0 million bears a fixed interest rate of 4.971% and matures on February 11, 2027. The San Ramon Loan of $18.0 million bears a fixed interest rate of 5.90% and matures on December 1, 2031100108 - The Company entered into a new interest rate collar agreement effective May 12, 2025, to hedge $75.0 million of the Revolving Facility, capping the benchmark rate between 3.28% and 4.29% until May 12, 202690 Note 7 – Derivatives and Hedging Activities This note details the Company's use of interest rate collar agreements as cash flow hedges to mitigate interest rate volatility on its Revolving Facility. As of June 30, 2025, these derivatives had an aggregate notional amount of $75.0 million, resulting in net liabilities of $25 thousand - As of June 30, 2025, the Company had interest rate collar agreements with an aggregate notional amount of $75.0 million, designated as cash flow hedges for the Revolving Facility, with a fair value of $(25) thousand114115 - The new interest rate collar agreement, effective May 12, 2025, hedges $75.0 million of the Revolving Facility, with the benchmark rate floating between 3.28% and 4.29% per annum until May 12, 2026114 - During the three and six months ended June 30, 2025, the Company recorded net unrealized losses of less than $0.1 million for changes in the fair value of its cash flow hedge in accumulated other comprehensive loss115 Note 8 – Supplemental Cash Flow Disclosures This note provides supplemental cash flow information, including cash paid for interest and income taxes, and non-cash investing and financing activities. Accrued capital expenditures and leasing costs significantly increased to $14.4 million in H1 2025 from $5.3 million in H1 2024 Supplemental Cash Flow Information (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Cash paid for interest, net | $14,399 | $14,540 | | Cash paid for income taxes, net of refunds | $214 | $213 | | Accrued capital expenditures and leasing costs | $14,401 | $5,307 | | Distributions declared and unpaid | $1,126 | $5,595 | | Land acquired upon finance lease termination | $— | $3,470 | Note 9 – Accounts Payable and Accrued Expenses This note details the components of accounts payable and accrued expenses, which increased to $36.0 million as of June 30, 2025, from $31.6 million at December 31, 2024. The primary driver was a significant increase in accrued capital expenditures and leasing costs Accounts Payable and Accrued Expenses (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Accrued capital expenditures and leasing costs | $16,127 | $8,040 | | Accrued real estate and other taxes | $8,638 | $11,228 | | Accrued operating and other | $7,613 | $9,141 | | Accrued interest | $1,906 | $2,017 | | Accounts payable | $1,747 | $1,159 | | Total | $36,031 | $31,585 | Note 10 – Commitments and Contingencies This note outlines the Company's commitments related to leasing activities, including tenant improvement allowances and landlord work, totaling $69.2 million as of June 30, 2025. It also addresses routine litigation and environmental matters, which are not expected to have a material adverse effect Estimated Total Outstanding Leasing Costs Commitments (in thousands) | Category | Total | | :-------------------------- | :------ | | Tenant improvement allowances | $43,225 | | Reimbursable landlord work | $11,070 | | Non-reimbursable landlord work | $14,929 | | Total | $69,224 | - As of June 30, 2025, $35.8 million in restricted cash was reserved for outstanding leasing costs under the CMBS Loan, including $29.1 million for tenant improvement allowances and $6.7 million for rent concession commitments132 - The Company does not believe any current legal proceedings or environmental conditions will have a material adverse effect on its consolidated position or results of operations133134 Note 11 – Leases This note details the Company's role as both a lessor and lessee. As a lessor, total rental revenue decreased to $37.1 million for Q2 2025 from $39.9 million for Q2 2024. Future minimum base rent payments total $603.9 million. As a lessee, operating lease costs remained consistent at $0.3 million for Q2 2025 Components of Rental Revenue from Operating Leases (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total fixed rental revenue | $27,926 | $31,816 | $57,661 | $66,941 | | Total variable rental revenue | $9,176 | $8,107 | $17,238 | $19,977 | | Total rental revenue | $37,102 | $39,923 | $74,899 | $86,918 | Future Minimum Base Rent Payments (Lessor) (in thousands) | Period | Future Minimum Base Rent Payments | | :-------------------------- | :------------------------------ | | July 1, 2025 - December 31, 2025 | $41,990 | | 2026 | $86,793 | | 2027 | $75,528 | | 2028 | $66,362 | | 2029 | $50,275 | | 2030 | $48,275 | | Thereafter | $234,654 | | Total | $603,877 | - As a lessee, the Company's operating lease costs were $0.3 million for both the three months ended June 30, 2025 and 2024, and $0.6 million for both the six months ended June 30, 2025 and 2024141 Note 12 – Stockholders' Equity This note details changes in stockholders' equity, including common stock issuances and dividend declarations. The Company declared quarterly cash dividends of $0.02 per share for Q1 and Q2 2025, a significant decrease from $0.10 per share in Q1 and Q2 2024. The Share Repurchase Program has $45.0 million remaining available as of June 30, 2025, with no repurchases made in H1 2025 or H1 2024 Quarterly Cash Dividends Declared | Declaration Date | Record Date | Paid Date | Distributions Per Share | | :---------------- | :---------- | :-------- | :---------------------- | | March 4, 2025 | March 31, 2025 | April 15, 2025 | $0.02 | | May 6, 2025 | June 30, 2025 | July 15, 2025 | $0.02 | | February 27, 2024 | March 29, 2024 | April 15, 2024 | $0.10 | | May 7, 2024 | June 28, 2024 | July 15, 2024 | $0.10 | - On August 5, 2025, the Board declared a quarterly cash dividend of $0.02 per share for Q3 2025146158 - The Company's Share Repurchase Program, authorized for up to $50.0 million until December 31, 2025, had $45.0 million remaining as of June 30, 2025. No shares were repurchased in H1 2025 or H1 2024147149 Note 13 – Equity-Based Compensation This note describes the Company's Equity Plan, which grants Time-Based RSUs and Performance-Based RSUs to officers, employees, and directors. Equity-based compensation expense for H1 2025 was $1.5 million, down from $1.7 million in H1 2024. Total unrecognized compensation expense was approximately $4.8 million as of June 30, 2025 - Equity-based compensation expense for Time-Based RSUs and Performance-Based RSUs was $0.8 million for Q2 2025 (vs. $0.9 million in Q2 2024) and $1.5 million for H1 2025 (vs. $1.7 million in H1 2024)153 - As of June 30, 2025, total unrecognized compensation expense related to equity awards was approximately $4.8 million, with a weighted average remaining term of 1.8 years153 Note 14 – Net Loss Per Share This note provides the computation of basic and diluted net loss per share. For H1 2025, the net loss per share attributable to common stockholders was $(0.61), an improvement from $(1.07) in H1 2024. All potentially dilutive securities were excluded as their effect would have been antidilutive Net Loss Per Share Attributable to Common Stockholders | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(25,103) | $(33,801) | $(34,464) | $(60,033) | | Weighted average shares outstanding - basic and diluted | 56,254 | 55,910 | 56,149 | 55,857 | | Basic and diluted net loss per share | $(0.45) | $(0.60) | $(0.61) | $(1.07) | - Potentially dilutive securities, including unvested Time-Based RSUs, Performance-Based RSUs, and stock warrants, were excluded from diluted EPS calculations as their effect would have been antidilutive157 Note 15 – Subsequent Events This note reports subsequent events, including the declaration of a $0.02 per share cash dividend for Q3 2025 and a new 5.4-year, 80,000 square foot lease signed in Kennesaw, Georgia, scheduled to commence in April 2028 - On August 5, 2025, the Board of Directors declared a quarterly cash dividend of $0.02 per share for Q3 2025, payable on October 15, 2025158 - In July 2025, the Company completed a new 5.4-year, 80,000 square foot lease at its Kennesaw, Georgia property, set to commence in April 2028, with a sublease to the new tenant starting September 2025159 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Orion Properties Inc.'s financial condition and operational results for the quarter ended June 30, 2025. It highlights the Company's strategic shift towards dedicated use assets, ongoing challenges in the office leasing market, and the critical uncertainty surrounding the refinancing of its Revolving Facility, which raises substantial doubt about its ability to continue as a going concern. The discussion also covers key financial metrics, leasing activities, capital expenditures, and liquidity management - Substantial doubt about the Company's ability to continue as a going concern exists due to the uncertainty of extending or refinancing the Revolving Facility, which matures on May 12, 2026, and has no remaining extension options177254 - The Company is actively evaluating strategies including alternative debt/equity instruments, property dispositions, and continued leasing efforts to address the Revolving Facility maturity177254 - The Company is shifting its portfolio concentration from traditional office properties to more dedicated use assets (e.g., government, medical, laboratory, R&D, flex operations) and plans to selectively dispose of non-core assets166178 Forward-Looking Statements This section outlines the inherent uncertainties and risks associated with future events, financial condition, and operations discussed in the report - The report contains forward-looking statements regarding future events, financial condition, and operations, which are subject to known and unknown risks and uncertainties162 - Key risks include rising interest rates, inflation, global market conditions, oversupply of office space, tenant credit risk, impact of remote work, ability to acquire/dispose of properties, and the ability to extend or refinance debt obligations, particularly the Revolving Facility163 Overview This section provides a high-level summary of Orion Properties Inc.'s business, strategic focus, and current portfolio composition - Orion Properties Inc. is an internally managed REIT focused on diversified office properties, shifting its strategy from traditional office to dedicated use assets (government, medical, lab, R&D, flex operations)166 - As of June 30, 2025, the Company owned 66 operating properties (7.6 million leasable sq ft, 76.8% occupancy, 5.5 years weighted average lease term) and a 20% equity interest in the Arch Street Joint Venture (1.0 million leasable sq ft, 100% occupancy, 6.8 years weighted average lease term)170 Factors That May Influence Our Operating Results and Financial Condition This section discusses key internal and external factors, including market conditions and debt refinancing, that significantly impact the Company's financial performance and stability - Operating results are primarily influenced by rental revenue, which depends on occupancy levels and the ability to re-lease expiring space at favorable rates, alongside significant lease expirations (5.6% of ABR in H2 2025, 10.7% in 2026)171172 - The office leasing market faces headwinds from remote/hybrid work, tenant consolidation, higher interest rates, and inflation, impacting demand and increasing leasing costs, particularly for Class B and Class C properties (65.9% Class A, 28.8% Class B, 5.3% Class C by rentable square feet)172173175 - Substantial doubt about the Company's ability to continue as a going concern due to the uncertainty of refinancing the $110.0 million Revolving Facility, which matures on May 12, 2026, and has no remaining extension options177 - The Company intends to shift its portfolio towards dedicated use assets and selectively dispose of non-core traditional office properties, with proceeds funding capital investments, acquisitions, and general corporate purposes178 Significant Transactions Summary This section summarizes major business activities, including leasing, property dispositions, dividend declarations, and acquisition proposals during the reporting period - The Company completed 559,000 square feet of lease renewals and new leases across eight properties in H1 2025, with a weighted average lease term of 6.5 years195 - Four vacant properties totaling 434,000 square feet were sold for $26.9 million in H1 2025. Five traditional office properties are currently under pending sale agreements for $56.9 million195 - The Board of Directors declared quarterly cash dividends of $0.02 per share for Q1, Q2, and Q3 2025195 - The Company rejected two unsolicited, non-binding acquisition proposals from Kawa Capital Management, Inc. ($2.50 and $2.75 per share), concluding they undervalued the Company192193 Portfolio Overview This section provides key metrics and characteristics of the Company's real estate portfolio, including property count, square footage, and occupancy rates Real Estate Portfolio Metrics | Metric | June 30, 2025 | December 31, 2024 | Change | | :------------------------------------ | :------------ | :---------------- | :----- | | Operating properties | 66 | 69 | -3 | | Rentable square feet (in thousands) | 7,780 | 8,112 | -332 | | Annualized base rent (in thousands) | $118,884 | $120,293 | $(1,409) | | Occupancy rate | 77.4% | 73.7% | 3.7% | | Leased rate | 79.1% | 74.7% | 4.4% | | Investment-grade tenants | 68.5% | 74.4% | -5.9% | | Weighted average remaining lease term (in years) | 5.5 | 5.2 | 0.3 | Operating Performance This section presents a summary of the Company's financial results, including revenues, net loss, and key non-GAAP metrics like FFO and Core FFO Key Financial Metrics (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Total revenues | $37,305 | $40,124 | $(2,819) | $75,306 | $87,321 | $(12,015) | | Net loss attributable to common stockholders | $(25,103) | $(33,801) | $8,698 | $(34,464) | $(60,033) | $25,569 | | Basic and diluted net loss per share | $(0.45) | $(0.60) | $0.15 | $(0.61) | $(1.07) | $0.46 | | FFO attributable to common stockholders | $8,881 | $10,925 | $(2,044) | $17,686 | $29,314 | $(11,628) | | FFO attributable to common stockholders per diluted share | $0.16 | $0.20 | $(0.04) | $0.31 | $0.52 | $(0.21) | | Core FFO attributable to common stockholders | $11,458 | $14,171 | $(2,713) | $22,111 | $34,536 | $(12,425) | | Core FFO attributable to common stockholders per diluted share | $0.20 | $0.25 | $(0.05) | $0.39 | $0.62 | $(0.23) | Leasing Activity and Capital Expenditures This section details the Company's leasing efforts, including new leases and renewals, along with associated capital investments and tenant improvement costs - The Company remains highly focused on leasing due to a 5.5-year weighted average remaining lease term and significant upcoming lease maturities. Challenges include re-leasing vacant space, potential less favorable terms, and the need for substantial capital improvements201 Leasing Activity Summary (Three Months Ended June 30) | Metric | 2025 New Leases | 2025 Renewals | 2025 Total | 2024 New Leases | 2024 Renewals | 2024 Total | | :------------------------------------------------ | :-------------- | :------------ | :--------- | :-------------- | :------------ | :--------- | | Number of leases | 2 | 2 | 4 | 2 | 1 | 3 | | Rentable square feet leased (in thousands) | 69 | 110 | 179 | 57 | 413 | 470 | | Weighted average rental rate change (cash basis) | N/A | 6.2% | 6.2% | N/A | 1.1% | 1.1% | | Tenant rent concessions and leasing costs (in thousands) | $9,251 | $373 | $9,624 | $11,510 | $791 | $12,301 | | Weighted average lease term (years) | 13.0 | 1.6 | 6.0 | 15.1 | 4.0 | 5.3 | Leasing Activity Summary (Six Months Ended June 30) | Metric | 2025 New Leases | 2025 Renewals | 2025 Total | 2024 New Leases | 2024 Renewals | 2024 Total | | :------------------------------------------------ | :-------------- | :------------ | :--------- | :-------------- | :------------ | :--------- | | Number of leases | 3 | 5 | 8 | 4 | 4 | 8 | | Rentable square feet leased (in thousands) | 229 | 330 | 559 | 149 | 429 | 578 | | Weighted average rental rate change (cash basis) | N/A | (14.2)% | (14.2)% | N/A | 2.2% | 2.2% | | Tenant rent concessions and leasing costs (in thousands) | $23,343 | $4,761 | $28,104 | $19,942 | $1,479 | $21,421 | | Weighted average lease term (years) | 10.9 | 3.4 | 6.5 | 10.2 | 4.3 | 5.8 | Capital Expenditures (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lease related costs | $2,512 | $3,104 | $4,623 | $3,755 | | Lease incentives | $883 | $— | $1,030 | $77 | | Building, fixtures and improvements | $12,177 | $3,215 | $18,260 | $5,932 | | Total capital expenditures | $15,572 | $6,319 | $23,913 | $9,764 | Results of Operations This section provides a detailed analysis of the Company's revenues, operating expenses, and other income/expense items for the reporting periods Revenue Information (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Rental | $37,102 | $39,923 | $(2,821) | $74,899 | $86,918 | $(12,019) | | Fee income from unconsolidated joint venture | $203 | $201 | $2 | $407 | $403 | $4 | | Total revenues | $37,305 | $40,124 | $(2,819) | $75,306 | $87,321 | $(12,015) | - Rental revenues decreased by $2.8 million (QoQ) and $12.0 million (YoY) primarily due to decreasing occupied square footage from lease expirations and a reduction in reimbursements from previous tenants229 Operating Expenses (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :-------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Property operating | $15,895 | $15,757 | $138 | $32,345 | $31,756 | $589 | | General and administrative | $4,838 | $4,544 | $294 | $9,734 | $9,493 | $241 | | Depreciation and amortization | $14,928 | $38,614 | $(23,686) | $30,950 | $63,118 | $(32,168) | | Impairments | $19,503 | $5,680 | $13,823 | $21,212 | $25,365 | $(4,153) | | Transaction related | $75 | $167 | $(92) | $139 | $277 | $(138) | | Total operating expenses | $55,239 | $64,762 | $(9,523) | $94,380 | $130,009 | $(35,629) | - Depreciation and amortization expenses significantly decreased by $23.7 million (QoQ) and $32.2 million (YoY) due to the full depreciation of buildings on the Deerfield, Illinois campus and full amortization of certain intangible assets235 - Impairments increased by $13.8 million (QoQ) but decreased by $4.2 million (YoY), primarily related to real estate assets sold or expected to be sold, reflecting management's estimates of lease renewal probability and sale proceeds236 Other (Expense) Income and Provision for Income Taxes (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Interest expense, net | $(8,016) | $(8,058) | $42 | $(16,172) | $(16,204) | $32 | | Gain on disposition of real estate assets | $891 | $— | $891 | $891 | $— | $891 | | Loss on extinguishment of debt, net | $— | $(1,078) | $(1,078) | $— | $(1,078) | $(1,078) | | Equity in loss of unconsolidated joint venture, net | $(271) | $(163) | $108 | $(517) | $(279) | $238 | | Provision for income taxes | $(67) | $(73) | $(6) | $(133) | $(150) | $(17) | - Gain on disposition of real estate assets was $0.9 million for H1 2025, compared to no gains in H1 2024, related to three property dispositions that had prior cumulative impairment losses of $12.2 million239 - Equity in loss of unconsolidated joint venture, net, increased by $0.2 million (YoY) due to higher interest expense following the expiration of an interest rate swap agreement on the Arch Street Joint Venture mortgage notes241 Non-GAAP Measures This section explains the Company's use of non-GAAP financial measures like FFO and Core FFO to supplement GAAP results and aid performance evaluation - The Company uses Funds From Operations (FFO) and Core FFO, as defined by Nareit and the Company respectively, as supplemental non-GAAP performance measures to evaluate operating performance and compare with other REITs243245246 Reconciliation of FFO and Core FFO to Net Loss Attributable to Common Stockholders (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(25,103) | $(33,801) | $(34,464) | $(60,033) | | FFO attributable to common stockholders | $8,881 | $10,925 | $17,686 | $29,314 | | FFO attributable to common stockholders per diluted share | $0.16 | $0.20 | $0.31 | $0.52 | | Core FFO attributable to common stockholders | $11,458 | $14,171 | $22,111 | $34,536 | | Core FFO attributable to common stockholders per diluted share | $0.20 | $0.25 | $0.39 | $0.62 | Liquidity and Capital Resources This section discusses the Company's ability to meet its financial obligations, manage cash flows, and fund future operations and investments, highlighting debt maturities and available capital - Principal liquidity needs for the next 12 months include funding operations, debt interest, dividends, capital expenditures, joint venture contributions, acquisitions, and debt refinancing. Short-term liquidity sources include cash on hand ($17.4 million), cash flows from operations, disposition proceeds, and Revolving Facility borrowings ($240.0 million available)250 - Substantial doubt about the Company's ability to continue as a going concern exists due to the uncertainty of extending or refinancing the Revolving Facility ($110.0 million outstanding), which matures on May 12, 2026, and has no remaining extension options254 Consolidated Debt Obligations as of June 30, 2025 (in thousands) | Debt Type | Weighted Average Interest Rate | Weighted Average Years to Maturity | Total Outstanding | Principal Amounts Due 2026 | Principal Amounts Due 2027 | Principal Amounts Due Thereafter | | :-------------------- | :----------------------------- | :------------------------------- | :---------------- | :------------------------- | :------------------------- | :------------------------------- | | Credit facility revolver | 7.64% | 0.9 | $110,000 | $110,000 | $— | $— | | Mortgages payable | 5.02% | 1.9 | $373,000 | $— | $355,000 | $18,000 | | Total | | | $483,000 | $110,000 | $355,000 | $18,000 | - The Company was in compliance with all Revolving Facility financial covenants as of June 30, 2025, including a total indebtedness to total asset value ratio of 41.8% (required ≤ 60%) and unencumbered asset value of $704.0 million (required ≥ $500.0 million)272273 - The Company's dividend policy is discretionary and subject to change, with recent quarterly cash dividends reduced to $0.02 per share292 - The Company has a Universal Shelf registration statement for up to $750.0 million in securities and an 'at the market' (ATM) offering program for up to $100.0 million of common stock, though no shares have been sold under the ATM program as of June 30, 2025293294 Cash Flow Analysis This section analyzes the changes in cash flows from operating, investing, and financing activities, explaining the drivers behind these movements Changes in Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net cash provided by operating activities | $9,316 | $28,009 | $(18,693) | | Net cash provided by (used in) investing activities | $3,489 | $(4,835) | $8,324 | | Net cash used in financing activities | $(16,501) | $(21,409) | $4,908 | - Net cash from operating activities decreased by $18.7 million (YoY) primarily due to a $6.1 million decrease in cash revenue from a tenant's rent concession period and increased property vacancies298 - Net cash from investing activities increased by $8.3 million (YoY), driven by $22.8 million from real estate dispositions and loan repayments, partially offset by $15.6 million in capital expenditures and a new $8.3 million member loan to the Arch Street Joint Venture299 - Net cash used in financing activities decreased by $4.9 million (YoY) due to a $4.4 million reduction in distributions paid to stockholders, resulting from a change in cash dividend policy300 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily interest rate risk and credit risk. It details the impact of hypothetical interest rate changes on fixed and variable-rate debt and highlights concentrations of credit risk from tenants, geographic regions, and industries - The Company's primary market risk arises from interest rate risk related to variable-rate borrowings, which it mitigates through interest rate hedge contracts like collars302 - A 100 basis point increase in market interest rates would decrease the fair value of fixed-rate debt by $6.0 million and increase annual interest expense on variable-rate debt by $1.1 million (excluding derivatives)303304 - The Company is subject to tenant, geographic, and industry concentrations of credit risk, with New York properties representing 9.2% of total portfolio annualized base rent as of June 30, 2025309 Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, at a reasonable assurance level. It also states that there were no material changes in internal control over financial reporting during the three months ended June 30, 2025 - The Company's disclosure controls and procedures were evaluated and concluded to be effective at a reasonable assurance level as of June 30, 2025312 - There were no material changes in internal control over financial reporting during the three months ended June 30, 2025313 PART II - OTHER INFORMATION This section provides additional non-financial information, including legal proceedings, risk factors, equity security details, and other required disclosures Item 1. Legal Proceedings As of June 30, 2025, the Company is not a party to any material pending legal proceedings, nor are any of its properties subject to such proceedings - The Company is not a party to any material pending legal proceedings as of June 30, 2025314 Item 1A. Risk Factors This section updates the Company's risk factors, emphasizing significant debt and refinancing risks. It reiterates the substantial doubt about the Company's ability to continue as a going concern due to the uncertainty of extending or refinancing the Revolving Facility, which matures in May 2026. Inability to refinance could force asset sales on unfavorable terms or lead to default - Substantial doubt about the Company's ability to continue as a going concern due to uncertainty in extending or refinancing the Revolving Facility, which matures on May 12, 2026, and has no remaining extension options316 - Failure to extend or refinance the Revolving Facility could force asset sales on unfavorable terms, lead to default on debt payments, foreclosure on assets, and materially adversely affect financial condition and stock price317 - The Arch Street Joint Venture's non-recourse mortgage notes ($131.6 million as of Dec 31, 2024) mature on November 27, 2025, with one remaining extension option. Inability to extend or refinance could materially adversely affect the Company's investment318319 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms that there were no unregistered sales of equity securities, no use of proceeds from registered securities sales, and no issuer purchases of equity securities during the reporting period - No unregistered sales of equity securities, no use of proceeds from registered securities sales, or no issuer purchases of equity securities occurred during the period321322323 Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the reporting period324 Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to Orion Properties Inc325 Item 5. Other Information This section states that none of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025326 Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and Inline XBRL Taxonomy Extension documents - The report includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL Taxonomy Extension documents (Exhibits 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)328 Signatures The Quarterly Report on Form 10-Q was duly signed on behalf of Orion Properties Inc. by Gavin B. Brandon, Chief Financial Officer, Executive Vice President, and Treasurer, on August 6, 2025 - The Quarterly Report on Form 10-Q was signed by Gavin B. Brandon, Chief Financial Officer, Executive Vice President and Treasurer, on August 6, 2025332