Orion Office REIT: Value To Be Found After Recent Stock Slump

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$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$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$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].