Orion Properties Inc. Q4 FY2024 earnings call

• Leasing in 2024 was strong, with 1.1 million square feet leased, more than four times the 2023 amount. Signed 287,000 square feet of new leases in 2024, up from 21,000 square feet in 2023.
• Portfolio weighted average lease term (WALT) increased to 5.2 years from 4 years the prior year. Renewal rent spreads were down 6.6% but positive by over 2% on a GAAP basis.
• Rebranding to Orion Properties to reflect shift towards dedicated use assets. Intends to gradually increase dedicated use property percentage through sales of traditional office and adding DUA properties.
• Gary Landryau, Chief Investment Officer, retiring effective June 30, with responsibilities reallocated. Restructuring charge in 2025 to align G&A costs, with ~$1 million annualized savings expected.
• Extended mortgage loan financing on Art Street joint venture portfolio for one year, and extended Sytemx lease in the portfolio by ten years, making a member loan to the joint venture at 15% annual interest.

In the fourth quarter of 2024, Orion Office REIT Inc. generated total revenues of $38.4 million compared to $43.8 million in the same quarter of the prior year. Core FFO for the quarter was $10.2 million or $0.18 per share, down from $18.5 million or $0.33 per share in the same quarter of 2023. For the full year, total revenues were $164.9 million, with a net loss attributable to common stockholders of $103 million or $1.84 per share, and core FFO of $56.8 million or $1.01 per share. Measured by annualized base rent, approximately 32% of the properties are dedicated use, and by total square footage, 25% are dedicated use.

• Core FFO for 2025 is expected to range from $0.61 to $0.70 per diluted share.
• G&A for 2025 is anticipated to range from $19.5 million to $20.5 million.
• Net debt to adjusted EBITDA is expected to range from 8.0 times to 8.8 times.
• Excluding non-cash compensation, 2025 G&A is expected to be in line or slightly better than 2024, and not significantly rise in outer years.

• Tenant concessions remain high, and rents are pressured on renewals and re-tenanting.
• Impact of new presidential administration on GSA portfolio is uncertain.
• Debt levels are expected to rise on absolute and debt to EBITDA basis in coming years.
• Significant lease expirations and rollover risk, though portfolio occupancy expected to rise after 2025.

Q: What gives you the confidence that 2026 is going to start a rebound?

A: Paul McDowell stated that looking at leasing trends, portfolio stabilization, and disposal of generic office properties, they expect revenues and core FFO to turn the corner in 2025 or 2026.

Q: Is the thought that over the next 36 months, to the extent whether it's vacant or occupied, you're going to be pursuing a pretty significant amount of asset sales?

A: Paul McDowell confirmed that they intend to continue selling traditional office properties, both vacant and stabilized, and adding dedicated use assets to shift the portfolio.

Q: Talk to me about the transaction with the joint venture. What gives confidence about Art Street's commitment to that venture on a longer term?

A: Paul McDowell explained that they have a strong relationship with Art Street, made a loan to the JV at 15% interest, and the assets in the joint venture have a weighted average lease term of about six years and are 100% occupied, so the loan amortizes quickly from cash flows.

Q: Is the restructuring charge in the G&A, or is that going to be smoothed out when you look at the bottom line next year?

A: Gavin Brandon responded that the restructuring charge will be added back into core FFO, so it will be smoothed out throughout the year.