Orion Office REIT Inc.® Announces Fourth Quarter and Full Year 2022 Results

– 2022 Total Revenues of $208.1 million –

– 2022 Net Loss Attributable to Common Stockholders of $(97.5) million, or $(1.72) Per Share –

– 2022 Core Funds From Operations of $101.8 million, or $1.80 Per Share, Exceeding Guidance by $0.02 Per Share –

– Completed 0.8 million Square Feet of Lease Renewals, Expansions and New Leases –

– Sold 11 Properties for $33.1 million –

PHOENIX–(BUSINESS WIRE)–Orion Office REIT Inc. (NYSE: ONL) (“Orion” or the “Company”), a fully-integrated real estate investment trust focused on the ownership, acquisition and management of single-tenant net lease mission-critical suburban office properties located across the U.S., announced today its operating results for the fourth quarter and full year ended December 31, 2022. Orion commenced operations on November 12, 2021 after being spun-off by Realty Income Corporation (“Realty Income”).

Paul McDowell, Orion’s Chief Executive Officer and President, commented, “We are proud of the significant progress we have made in our ongoing portfolio optimization efforts that focus on owning mission-critical and corporate headquarter suburban office properties in well-located markets. While the evolving and challenging economic environment, particularly in the office sector, is certainly impacting both our sale and leasing activity, we still completed 0.8 million square feet of lease renewals, expansions and new leases across 11 different properties and closed on the disposition of 11 non-core properties for $33.1 million, this past year. As we execute on our plans in the coming years, we will work to effectively navigate the prolonged uncertainty around the return to the office across the country, while managing our balance sheet and financial flexibility to build sustainable long-term value.”

Full Year 2022 Financial and Operating Highlights

• Total revenues of $208.1 million
• Net Loss Attributable to Common Stockholders of $(97.5) million, or $(1.72) per share
• Funds from Operations (“FFO”) of $99.7 million, or $1.76 per share
• Core FFO of $101.8 million, or $1.80 per share
• EBITDA of $67.2 million, EBITDAre of $131.2 million and Adjusted EBITDA of $132.2 million
• Sold 11 properties for $33.1 million, which will save an estimated $7.5 million of annual carrying costs

Fourth Quarter 2022 Financial and Operating Highlights

• Total revenues of $50.3 million
• Net Loss Attributable to Common Stockholders of $(19.0) million, or $(0.33) per share
• FFO of $22.9 million, or $0.40 per share
• Core FFO of $23.2 million, or $0.41 per share
• EBITDA of $19.7 million, EBITDAre of $30.6 million and Adjusted EBITDA of $30.7 million
• Sold six properties for $10.0 million

Real Estate Portfolio

As of December 31, 2022, Orion’s real estate portfolio consisted of 81 properties as well as a 20% ownership interest in the Arch Street Joint Venture, Orion’s Unconsolidated Joint Venture with an affiliate of Arch Street Capital Partners, LLC, comprising six properties. As of December 31, 2022, the Company’s portfolio occupancy rate was 89.0%, with 73.3% of annualized base rent derived from Investment Grade Tenants, and the portfolio’s weighted average remaining lease term was 4.1 years.

Orion’s 20% interest in the Unconsolidated Joint Venture was assumed from Realty Income as part of the Company’s spin-off. As of December 31, 2022, the Unconsolidated Joint Venture owned six real estate assets for total Gross Real Estate Investments of approximately $227.1 million. Orion is continuing to review a number of potential property acquisitions for both its balance sheet and the Unconsolidated Joint Venture.

Leasing and Disposition Activity

Orion employs active asset management strategies to attract new tenants while working to retain high-quality creditworthy tenants, and to maximize tenant retention rates and future cash flow. Orion continues to believe that lease maturities and vacant assets may represent an ongoing value creation opportunity in the coming years.

During the quarter ended December 31, 2022, the Company entered into two 10.0-year lease renewals for a total of 213,000 square feet at two of the Company’s properties in New York, one 5.0-year lease renewal for 90,000 square feet at one of the Company’s properties in Lawrence, Kansas, and one 5.4-year lease renewal for 4,000 square feet at one of the Company’s properties in The Woodlands, Texas.

Including leasing activity during the nine months ended September 30, 2022, the Company entered into new leases or lease renewals for 764,000 square feet of office space across 10 different properties during 2022 and has entered into a lease expansion with an existing tenant at one property covering an additional 41,000 square feet. Additionally, Orion is in various stages of negotiation and documentation for additional leases and renewals at multiple properties.

During the fourth quarter, the Company closed six dispositions, representing a total of 412,000 square feet, for an aggregate sale price of approximately $10.0 million. The Company also has agreements currently in place to sell seven additional properties, representing 584,000 square feet, for an aggregate sale price of $36.6 million, including the six property Walgreens campus in Deerfield, IL.

Including disposition activity during the nine months ended September 30, 2022, the Company closed 11 dispositions representing a total of 909,000 square feet, for an aggregate sale price of approximately $33.1 million.

Balance Sheet

As of December 31, 2022, the Company has total debt of $557.3 million, comprised of $175.0 million under the credit facility term loan, $355.0 million under the Company’s securitized mortgage loan (the “CMBS Loan”), and $27.3 million which represents Orion’s pro rata share of indebtedness of the Unconsolidated Joint Venture. As of December 31, 2022, the Company had no outstanding draws under its $425.0 million capacity credit facility revolver. During the fourth quarter and full year ended December 31, 2022, the Company made net repayments of $31.0 million and $90.0 million, respectively, on its credit facility revolver.

As of December 31, 2022, Orion had $446.2 million of liquidity, comprised of $21.2 million cash on hand, including the Company’s pro rata share of cash from the Unconsolidated Joint Venture, as well as $425.0 million of available capacity on Orion’s $425.0 million-capacity credit facility revolver.

Dividend

On March 7, 2023, Orion’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first quarter of 2023, payable on April 17, 2023, to stockholders of record as of March 31, 2023. The dividend was sized to permit future growth while preserving meaningful free cash flow for reinvestment into the current portfolio and for accretive investments.

2023 Outlook

Based on current economic conditions and the Company’s financial condition, Orion is providing the following guidance for fiscal year 2023:

Webcast and Conference Call Information

Orion will host a webcast and conference call to review its financial results at 10:00 a.m. ET on Thursday, March 9, 2023. The webcast and call will be hosted by Paul McDowell, Chief Executive Officer and President, and Gavin Brandon, Chief Financial Officer, Executive Vice President and Treasurer. To participate, the webcast may be accessed live by visiting the “Investors” section of Orion’s website at https://www.onlreit.com/investors. To join the conference call, callers from the United States and Canada should dial 1-877-407-3982, and international callers should dial 1-201-493-6780, ten minutes prior to the scheduled call time.

Replay Information

A replay of the webcast may be accessed via the web by visiting the “Investors” section of Orion’s website at https://www.onlreit.com/investors. The conference call replay will be available after 1:00 p.m. ET on Thursday, March 9, 2023 through 11:59 a.m. ET on Thursday, March 23, 2023. To access the replay, callers may dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and use passcode, 13734696.

Non-GAAP Financial Measures

To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release and the accompanying quarterly supplemental information as of and for the quarter and year ended December 31, 2022 contain certain financial measures that are not prepared in accordance with GAAP, including Funds from Operations (“FFO”), Core Funds from Operations (“Core FFO”), Funds Available for Distribution (“FAD”), Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), and Adjusted EBITDA. Please see the attachments to this press release for how Orion defines these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure.

About Orion Office REIT Inc.

Orion Office REIT Inc. (NYSE: ONL) is an internally-managed real estate investment trust engaged in the ownership, acquisition and management of a diversified portfolio of mission-critical and headquarters office buildings located in high-quality suburban markets across the U.S. and leased primarily on a single-tenant net lease basis to creditworthy tenants. The company was founded on July 1, 2021, spun-off from Realty Income (NYSE: O) on November 12, 2021 and began trading on the New York Stock Exchange on November 15, 2021. The company is headquartered in Phoenix, Arizona and has an office in New York, New York. For additional information on the company and its properties, please visit onlreit.com.

About the Data

This data and other information described herein are as of and for the quarter and year ended December 31, 2022, unless otherwise indicated. Future performance may not be consistent with past performance and is subject to change and inherent risks and uncertainties. This information should be read in conjunction with the consolidated and combined financial statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections contained in Orion Office REIT Inc.’s (the “Company,” “Orion,” “us,” “our” and “we”) Annual Report on Form 10-K for the year ended December 31, 2022 and Quarterly Reports on Form 10-Q for the periods ended September 30, 2022, June 30, 2022, and March 31, 2022.

Definitions

Annualized Base Rent is the monthly aggregate cash amount charged to tenants under our leases (including monthly base rent receivables and certain contractually obligated reimbursements by our tenants), as of the final date of the applicable period, multiplied by 12, including the Company’s pro rata share of such amounts related to the Unconsolidated Joint Venture. Annualized Base Rent is not indicative of future performance.

CPI refers to a lease in which base rent is adjusted based on changes in a consumer price index.

Credit Rating of a tenant refers to the Standard & Poor’s or Moody’s credit rating and such rating also may reflect the rating assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company as applicable.

Double Net Lease (“NN”) is a lease under which the tenant agrees to pay all operating expenses associated with the property (e.g., real estate taxes, insurance, maintenance), but excludes some or all major repairs (e.g., roof, structure, parking lot, in each case, as further defined in the applicable lease).

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”) and Adjusted EBITDA

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“Nareit”), an industry trade group, has promulgated a supplemental performance measure known as Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate. Nareit defines EBITDAre as net income or loss computed in accordance with GAAP, adjusted for interest expense, income tax expense (benefit), depreciation and amortization, impairment write-downs on real estate, gains or losses from disposition of property and our pro rata share of EBITDAre adjustments related to the Unconsolidated Joint Venture. We calculated EBITDAre in accordance with Nareit’s definition described above.

In addition to EBITDAre, we use Adjusted EBITDA as a non-GAAP supplemental performance measure to evaluate the operating performance of the Company. Adjusted EBITDA, as defined by the Company, represents EBITDAre, modified to exclude non-routine items such as transaction related expenses and spin related expenses. We also exclude certain non-cash items such as impairments of intangible and right of use assets, gains or losses on derivatives, gains or losses on the extinguishment or forgiveness of debt, amortization of intangibles, above-market lease assets and deferred lease incentives, net of amortization of below-market lease liabilities and our pro rata share of Adjusted EBITDA adjustments related to the Unconsolidated Joint Venture. Management believes that excluding these costs from EBITDAre provides investors with supplemental performance information that is consistent with the performance models and analysis used by management, and provides investors a view of the performance of our portfolio over time. Therefore, EBITDAre and Adjusted EBITDA should not be considered as an alternative to net income, as computed in accordance with GAAP. The Company uses Adjusted EBITDA as one measure of its operating performance when formulating corporate goals and evaluating the effectiveness of the Company’s strategies. EBITDAre and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Enterprise Value equals the sum of the Implied Equity Market Capitalization and Net Debt, in each case, as of an applicable date.

Fixed Charge Coverage Ratio is (a) Adjusted EBITDA divided by (b) the sum of (i) Interest Expense, excluding non-cash amortization and (ii) secured debt principal amortization on Adjusted Principal Outstanding. Management believes that Fixed Charge Coverage Ratio is a useful supplemental measure of our ability to satisfy fixed financing obligations.

Fixed Dollar or Percent Increase refers to a lease that requires contractual rent increases during the term of the lease agreement. A Fixed Dollar or Percent Increase lease may include a period of free rent at the beginning or end of the lease.

Flat refers to a lease that requires equal rent payments, with no contractual increases, throughout the term of the lease agreement. A Flat Lease may include a period of free rent at the beginning or end of the lease.

Funds Available for Distribution (“FAD”)

Funds available for distribution, as defined by the Company, represents Core FFO, as defined below, modified to exclude capital expenditures, as well as certain non-cash items such as amortization of deferred financing costs, amortization of above market leases and deferred lease incentives, net of amortization of below market lease liabilities, straight-line rental revenue, equity-based compensation, equity in income or losses of the Unconsolidated Joint Venture and our pro rata share of FAD adjustments related to the Unconsolidated Joint Venture. Management believes that adjusting these items from Core FFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management and provides useful information regarding the Company’s ability to fund its dividend. Beginning in 2023, the Company’s definition of FAD will not adjust for the following items, which will already be an adjustment in calculating Core FFO: (i) amortization of deferred lease incentives, (ii) amortization of deferred financing costs, (iii) equity-based compensation, and (iv) amortization of premiums and discounts on debt, net. Additionally, the Company will revise the FAD adjustment for equity in income (loss) of unconsolidated joint venture to only exclude the non-cash amortization related to the joint venture investment basis difference. If this definitional change had been made in 2022, the impact would have been an increase to FAD for the year-ended December 31, 2022 of $0.5 million, or $0.01 per share. This change in definition will be applied retrospectively beginning January 1, 2023.

However, not all REITs calculate FAD and those that do may not calculate FAD the same way, so comparisons with other REITs may not be meaningful. FAD should not be considered as an alternative to net income (loss) or cash flow provided by (used in) operating activities as determined under GAAP.

Nareit Funds from Operations (“Nareit FFO” or “FFO”) and Core Funds from Operations (“Core FFO”)

Due to certain unique operating characteristics of real estate companies, as discussed below, Nareit has promulgated a supplemental performance measure known as FFO, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. FFO is not equivalent to our net income or loss as determined under GAAP.

Nareit defines FFO as net income or loss computed in accordance with GAAP adjusted for gains or losses from disposition of real estate assets, depreciation and amortization of real estate assets, impairment write-downs on real estate, and our pro rata share of FFO adjustments related to the Unconsolidated Joint Venture. We calculate FFO in accordance with Nareit’s definition described above.

In addition to FFO, we use Core FFO as a non-GAAP supplemental financial performance measure to evaluate the operating performance of the Company. Core FFO, as defined by the Company, excludes from FFO items that we believe do not reflect the ongoing operating performance of our business such as transaction related expenses, spin related expenses and gains or losses on extinguishment of swaps and/or debt, and our pro rata share of Core FFO adjustments related to the Unconsolidated Joint Venture. Beginning in 2023, the Company will be revising its definition of Core FFO to also exclude the following non-cash charges which management believes do not reflect the ongoing operating performance of our business: (i) amortization of deferred lease incentives, (ii) amortization of deferred financing costs, (iii) equity-based compensation, and (iv) amortization of premiums and discounts on debt, net. If this definitional change had been made in 2022, the impact would have been an increase to Core FFO for the year-ended December 31, 2022 of $6.4 million, or $0.11 per share. This change in definition will be applied retrospectively beginning January 1, 2023.

We believe that FFO and Core FFO allow for a comparison of the performance of our operations with other publicly-traded REITs, as FFO and Core FFO, or an equivalent measure, are routinely reported by publicly-traded REITs, each adjust for items that we believe do not reflect the ongoing operating performance of our business and we believe are often used by analysts and investors for comparison purposes.

For all of these reasons, we believe FFO and Core FFO, in addition to net income (loss), as defined by GAAP, are helpful supplemental performance measures and useful in understanding the various ways in which our management evaluates the performance of the Company over time. However, not all REITs calculate FFO and Core FFO the same way, so comparisons with other REITs may not be meaningful. FFO and Core FFO should not be considered as alternatives to net income (loss) and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. Neither the SEC, Nareit, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate Core FFO and its use as a non-GAAP financial performance measure.

GAAP is an abbreviation for generally accepted accounting principles in the United States.

Gross Lease is a lease under which the landlord is responsible for all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs).

Gross Real Estate Investments represent total gross real estate and related assets of Operating Properties and the Company’s pro rata share of such amounts related to properties owned by the Unconsolidated Joint Venture, net of gross intangible lease liabilities. Gross Real Estate Investments should not be considered as an alternative to the Company’s real estate investments balance as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with, and as a supplement to, the Company’s financial information prepared in accordance with GAAP.

GSA CPI refers to a General Services Administration (“GSA”) lease that includes a contractually obligated operating cost component of rent which is adjusted annually based on changes in a consumer price index.

Implied Equity Market Capitalization equals shares of common stock outstanding as of an applicable date, multiplied by the closing sale price of the Company’s stock as reported on the New York Stock Exchange on such date.

Industry is derived from the Global Industry Classification Standard (“GICS”) Methodology that was developed by Morgan Stanley Capital International (“MSCI”) in collaboration with S&P Dow Jones Indices to establish a global, accurate, complete and widely accepted approach to defining industries and classifying securities by industry.

Interest Coverage Ratio equals Adjusted EBITDA divided by Interest Expense, excluding non-cash amortization. Management believes that Interest Coverage Ratio is a useful supplemental measure of our ability to service our debt obligations.

Interest Expense, excluding non-cash amortization is a non-GAAP measure that represents interest expense incurred on the outstanding principal balance of our debt and the Company’s pro rata share of the Unconsolidated Joint Venture’s interest expense incurred on its outstanding principal balance. This measure excludes the amortization of deferred financing costs, premiums and discounts, which is included in interest expense in accordance with GAAP. Interest Expense, excluding non-cash amortization should not be considered as an alternative to the Company’s interest expense as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.

Investment-Grade Tenants are those with a Credit Rating of BBB- or higher from Standard & Poor’s or a Credit Rating of Baa3 or higher from Moody’s. The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable.

Leased Square Feet is Rentable Square Feet leased and includes such amounts related to the Unconsolidated Joint Venture.

Modified Gross Lease is a lease under which the landlord is responsible for most expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs), but passes through some operating expenses to the tenant.

Contacts

Investor Relations:
Email: [email protected]
Phone: 602-675-0338

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