Orion Office REIT (ONL) - 2024 Q4 - Earnings Call Transcript

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]