8-K: Orion Properties Inc. Announces Corporate Name Change and Reports Fourth Quarter and Full Year 2024 Results

Orion Properties Inc., formerly Orion Office REIT Inc., reported its fourth quarter and full year 2024 results, highlighting a strategic shift towards dedicated use assets and a corporate name change.

Summary

• Orion Office REIT Inc. changed its corporate name to Orion Properties Inc. to reflect a broader investment strategy.
• The company aims to shift its portfolio concentration from traditional office properties to dedicated use assets.
• In 2024, Orion completed 1.1 million square feet of leasing, including 0.3 million in the fourth quarter.
• One property was acquired in 2024 for $34.6 million, and two vacant properties were sold for $5.3 million.
• A dividend for the first quarter of 2025 was declared at $0.02 per share, representing an annualized rate of $0.08 per share.
• Fourth quarter 2024 total revenues were $38.4 million, compared to $43.8 million in the same quarter of 2023.
• The net loss attributable to common stockholders for the fourth quarter was $(32.8) million, or $(0.59) per share.
• Full year 2024 total revenues were $164.9 million, compared to $195.0 million in 2023.
• The net loss attributable to common stockholders for the full year was $(103.0) million, or $(1.84) per share.
• Core FFO for the fourth quarter of 2024 was $10.2 million, or $0.18 per diluted share, compared to $18.5 million, or $0.33 per diluted share in the same quarter of 2023.
• Core FFO for the full year 2024 was $56.8 million, or $1.01 per diluted share, compared to $94.8 million, or $1.68 per diluted share in 2023.
• As of December 31, 2024, the company's real estate portfolio consisted of 69 operating properties and a 20% interest in the Arch Street Joint Venture.
• The company's occupancy rate was 73.7%, with 74.4% of annualized base rent derived from investment-grade tenants.
• The portfolio's weighted average remaining lease term was 5.2 years.
• The company expects to deliver approximately $1.0 million of annualized savings that will start to contribute in the second half of this year.
• The company financed the San Ramon, California property with an $18.0 million, seven-year, 5.90% per annum fixed rate mortgage loan.
• As of December 31, 2024, the company had total debt of $518.3 million and liquidity of $247.0 million.
• The company is providing 2025 guidance with Core FFO per share between $0.61 and $0.70, G&A expenses between $19.5 million and $20.5 million, and Net Debt to Adjusted EBITDA between 8.0x and 8.8x.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company is making strategic shifts and has seen some success in leasing, the financial results show a net loss and a decrease in revenue and Core FFO compared to the previous year. The outlook is cautiously optimistic.

Positives

• The company is shifting its strategy to increase its portfolio concentration toward more dedicated use assets, which are believed to result in a more stable portfolio with higher renewal prospects.
• The company completed 1.1 million square feet of leasing in 2024, which was four times the leasing volume achieved in the prior year.
• The company expects to deliver approximately $1.0 million of annualized savings that will start to contribute in the second half of this year.
• The company's occupancy rate was 73.7%, with 74.4% of annualized base rent derived from investment-grade tenants.
• The company has agreements in place to sell two Operating Properties and one Non-Operating Property for an aggregate gross sales price of $35.9 million.

Negatives

• The company reported a net loss attributable to common stockholders of $(32.8) million, or $(0.59) per share, during the fourth quarter of 2024.
• The company reported a net loss attributable to common stockholders of $(103.0) million, or $(1.84) per share, during the full year 2024.
• Core FFO for the fourth quarter of 2024 was $10.2 million, or $0.18 per diluted share, as compared to $18.5 million, or $0.33 per diluted share in the same quarter of 2023.
• Core FFO during the full year 2024 was $56.8 million, or $1.01 per diluted share, as compared to $94.8 million, or $1.68 per diluted share in 2023.
• Total revenues decreased from $43.8 million in Q4 2023 to $38.4 million in Q4 2024.
• Total revenues decreased from $195.0 million in 2023 to $164.9 million in 2024.

Risks

• Rising interest rates could increase borrowing costs and make it difficult to refinance debt.
• Inflation could increase operating costs, such as insurance premiums, utilities, and real estate taxes.
• Changes in workplace practices and office space utilization, including remote and hybrid work arrangements, could impact demand for office space.
• The company's ability to acquire new properties and sell non-core assets on favorable terms is uncertain.
• Tenants defaulting on their lease obligations is a risk, heightened by the focus on single-tenant properties.
• The company's ability to renew leases with existing tenants or re-let vacant space to new tenants on favorable terms is uncertain.
• The company may change its dividend policy at any time, and therefore the amount, timing and continued payment of dividends are not assured.
• The company's properties may be subject to impairment charges.
• The company may fail to maintain its income tax qualification as a real estate investment trust.

Future Outlook

Orion is providing 2025 guidance with Core FFO per share between $0.61 and $0.70, G&A expenses between $19.5 million and $20.5 million, and Net Debt to Adjusted EBITDA between 8.0x and 8.8x.

Management Comments

• Paul McDowell, Orion's Chief Executive Officer, commented, 'We are proud of the teams success in leasing 1.1 million square feet across 12 different properties in 2024, which was four times the leasing volume we achieved in the prior year, and importantly, our leasing pipeline for 2025 continues to be robust.'
• Paul McDowell stated, 'We are energized by the shift in strategy to increase our portfolio concentration over time toward more dedicated use assets such as flex, laboratory, medical and governmental.'
• Paul McDowell stated, 'We believe this strategy will result in a more stable portfolio with higher renewal prospects, as tenants need the space to operate their business, therefore requiring employees to be in person at the property.'
• Paul McDowell stated, 'As we look to execute on this strategy in the coming years, we intend to continue to execute on asset sale activity, adding to the almost 2.0 million square feet sold since our spin off.'
• Paul McDowell stated, 'We have also made various changes to reduce G&A growth and expect to deliver approximately $1.0 million of annualized savings that will start to contribute in the second half of this year.'
• Paul McDowell stated, 'We believe these savings, along with our ongoing efforts to reduce property carrying costs and a realigned dividend, will enable us to maintain the liquidity necessary to support our stabilized well-located portfolio with future leasing and required capital expenditures.'
• Paul McDowell stated, 'As we look ahead, the improving leasing environment and the meaningful actions we have taken should enable Orion to stabilize Core FFO earnings this year and next with meaningful earnings and value growth in future years.'

Industry Context

The shift towards dedicated use assets reflects a broader trend in the REIT industry to diversify portfolios and reduce exposure to traditional office spaces, which have been impacted by remote work trends. This strategy aims to create a more stable and resilient portfolio with higher renewal prospects.

Comparison to Industry Standards

• Comparing Orion's performance to peers like City Office REIT (CIO) and Office Properties Income Trust (OPI) reveals a similar focus on suburban office markets, but with varying degrees of success in maintaining occupancy and managing debt.
• While CIO has also faced challenges in occupancy, its focus on high-growth secondary markets has shown some resilience.
• OPI, with a larger portfolio, has struggled with similar headwinds, including lease expirations and tenant credit concerns.
• Orion's strategic shift towards dedicated use assets mirrors efforts by other REITs to adapt to changing market dynamics, but its smaller size and higher leverage may present unique challenges.
• Compared to Boston Properties (BXP) or SL Green Realty Corp (SLG), which focus on premier urban office properties, Orion's suburban strategy offers a different risk-reward profile, potentially less susceptible to downturns in major city centers but also lacking the upside of trophy assets.

Management Changes

Stakeholder Impact

• Shareholders will be impacted by the dividend reduction and the company's strategic shift.
• Employees will be impacted by the restructuring and reallocation of responsibilities.
• Tenants may be impacted by the company's focus on dedicated use assets.
• Creditors will be impacted by the company's debt management and refinancing activities.

Next Steps

• The company intends to continue executing on asset sale activity.
• The company plans to make additional changes to further streamline efficiency and team through the year.
• The company will host a webcast and conference call to review its results at 10:00 a.m. ET on Thursday, March 6, 2025.

Key Dates