Orion Office REIT (US:ONL)2023-03-08 21:18Property Portfolio - As of December 31, 2022, the company owned 81 office properties with a total of 9.5 million leasable square feet and an occupancy rate of 88.8%[159] - The company completed approximately 0.8 million square feet of lease renewals, expansions, and new leases during the year ended December 31, 2022, with a decline in occupancy from 91.9% to 89.0%[162] - As of December 31, 2022, the company had 81 operating properties with a total of 9,732 thousand rentable square feet and an occupancy rate of 89.0%[182] - The weighted-average remaining lease term was consistent at 4.1 years as of December 31, 2022[162] Financial Performance - Total revenues for the year ended December 31, 2022, were $208.1 million, a significant increase of $128.4 million compared to $79.7 million in 2021[201] - The company reported a net loss of $97.5 million for 2022, compared to a net loss of $47.5 million in 2021[187] - Funds from operations (FFO) attributable to common stockholders for 2022 were $99.7 million, translating to $1.76 per diluted share, up from $46.6 million or $0.82 per diluted share in 2021[187] - Core Funds from Operations (Core FFO) will be redefined starting in 2023, with an expected increase of $6.4 million for 2022 if the new definition had been applied[222] - For the year ended December 31, 2022, the net loss attributable to common stockholders was $97.494 million, compared to a loss of $47.481 million in 2021[225] - Funds from Operations (FFO) attributable to common stockholders for 2022 was $99.657 million, up from $46.572 million in 2021, representing a 113% increase[225] - Core FFO attributable to common stockholders for 2022 was $101.764 million, compared to $58.263 million in 2021, reflecting a 74% increase[225] Expenses and Costs - General and administrative expenses were modestly below budget for 2022 but are expected to increase in 2023 due to expiring subsidies and rising compliance costs[160] - Total operating expenses surged by $157.9 million to $276.8 million in 2022, driven by increases in property operating expenses, general and administrative expenses, and depreciation[205] - Property operating expenses increased by $48.1 million in 2022, mainly due to the expanded portfolio size[206] - General and administrative expenses rose by $12.1 million in 2022, reflecting the costs of operating as a standalone business post-distribution[207] - Depreciation and amortization expenses increased by $87.4 million in 2022, primarily due to the larger portfolio size following the mergers[208] - Impairments recorded were $66.4 million in 2022, up from $49.9 million in 2021, affecting 18 properties[209] Debt and Financing - Interest expense was in line with budget, as increases in interest rates were offset by lower debt outstanding due to cash utilization from operations and real estate dispositions[161] - The company refinanced a $355.0 million Bridge Facility with a CMBS Loan at a fixed rate of 4.971%, maturing on February 11, 2027[185] - As of December 31, 2022, the company had $425.0 million available under its Revolving Facility, with no borrowings outstanding[185] - Total consolidated debt outstanding as of December 31, 2022, was approximately $530.0 million, consisting of a $355.0 million CMBS Loan and $175.0 million borrowed under the Term Loan Facility[233] - The Term Loan Facility is scheduled to mature on November 12, 2023, with a current outstanding principal of $175.0 million[229] - The company maintained a total indebtedness to total asset value ratio of 29.0%, well below the required maximum of 60%[240] - The ratio of adjusted EBITDA to fixed charges was 4.94x, exceeding the required minimum of 1.5x[240] Cash Flow - Net cash provided by operating activities increased by $58.1 million to $114.2 million for the year ended December 31, 2022, compared to $56.1 million in 2021, primarily due to an increase in portfolio size from mergers[267] - Net cash provided by investing activities increased by $34.7 million to $22.5 million for the year ended December 31, 2022, compared to $(12.3) million in 2021, mainly due to proceeds from real estate dispositions[268] - Net cash used in financing activities increased by $92.3 million to $(110.7) million for the year ended December 31, 2022, compared to $(18.4) million in 2021, primarily due to net repayments on the Revolving Facility and dividend payments[269] Dividends and Shareholder Returns - The company declared quarterly cash dividends of $0.10 per share for four quarters in 2022, totaling $0.40 per share for the year[260] - A Share Repurchase Program was authorized for up to $50.0 million of the company's outstanding common stock until December 31, 2025, although no shares were repurchased under this program as of March 8, 2023[265][266] Market Conditions and Future Outlook - The company anticipates continued challenges in leasing due to economic conditions, including rising interest rates and inflation[162] - The company did not acquire any new properties during 2022, primarily due to rising interest rates and disruptions in financing markets[161] - The company plans to fund new acquisitions, including those related to the Arch Street Joint Venture, through cash flows from operations and proceeds from real estate dispositions[228] Risk Management - The company entered into interest rate swap agreements with an aggregate notional amount of $175.0 million to hedge interest rate volatility, effective December 1, 2022[257] - The company’s interest rate risk management includes entering into interest rate hedge contracts to mitigate risks associated with variable-rate borrowings[284] - As of December 31, 2022, fixed-rate debt had a fair value of $332.3 million and a carrying value of $355.0 million, with a sensitivity analysis indicating a potential decrease in fair value of $11.6 million with a 100 basis point increase in interest rates[285]