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DATE

Thursday, August 7, 2025, at 10 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Paul McDowell
  • Chief Financial Officer — Gavin Brandon

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TAKEAWAYS

  • Total Revenue-- $37,300,000 in total revenue reported for the second quarter, down from $40,100,000 in the prior-year period reflecting portfolio size reduction and higher vacancy.
  • Core FFO-- $11,500,000 or $0.20 per share, versus $14,200,000 or $0.25 per share in the prior-year period, attributed to vacancies and timing of lease activity.
  • Adjusted EBITDA-- Adjusted EBITDA was $18,000,000, compared to $20,500,000 in the prior-year period, driven by vacancies and a smaller portfolio.
  • Leasing Activity-- 639,000 square feet of leasing completed as of July 31, 2025, including new and renewal transactions, with a 6.4-year weighted average lease term at that date.
  • Short-term Lease Extensions-- 110,000 square feet signed at over 6% positive lease spreads on average.
  • Leased Rate-- 79.1% operating property leased rate, an increase of 170 basis points sequentially in the second quarter; operating property occupancy rate was 77.4%, an increase of 30 basis points sequentially at quarter-end.
  • Weighted Average Lease Term (WALT)-- 5.5 years weighted average lease term at quarter-end, up from 5.2 years last quarter and 4.2 years a year ago.
  • Asset Dispositions-- Four vacant properties totaling 434,000 square feet sold for $26,900,000 ($62 per square foot).
  • CapEx and Leasing Costs-- $15,600,000, up from $6,300,000 in the prior-year period, driven by accelerated leasing activity.
  • Liquidity-- $257,700,000, comprising $17,700,000 in cash and $240,000,000 in available credit facility capacity as of quarter-end.
  • Net Debt to Annualized Adjusted EBITDA-- 6.93 times net debt to annualized year-to-date adjusted EBITDA at period end, expected by management to rise modestly over the coming year.
  • Net Debt to Gross Real Estate Assets-- 32% net debt to gross real estate assets at quarter-end.
  • Dividend-- Quarterly cash dividend of $0.02 per share declared on August 5, 2025.
  • 2025 Core FFO Guidance-- Raised to $0.67-$0.71 per diluted share for 2025 core FFO from $0.61-$0.70, attributed to one-time items and improved leasing performance.
  • 2025 Net Debt to Adjusted EBITDA Guidance-- Lowered to a range of 7.3-8.3 times from the prior 8.0-8.8 times outlook for 2025 net debt to adjusted EBITDA.
  • G&A-- $4,800,000; full-year 2025 G&A guidance reaffirmed at $19,500,000-$20,500,000.
  • Diversification to DUA Properties-- 32.2% of portfolio annualized base rent and 25.3% by square feet were dedicated-use assets at quarter-end, with ongoing shift expected through additional dispositions and acquisitions.
  • Debt Maturities and Refinancing-- $110,000,000 of floating rate credit facility debt matures May 2026; discussions with lenders underway for extension or refinancing, stated as a top priority by management.

SUMMARY

Realty Income (O 0.32%) management identified a sequential improvement in leased and occupancy rates, driven by active leasing and a focus on longer lease terms, while also amplifying asset disposition activity to reallocate capital. Additional commentary outlined the company's transition towards dedicated use assets, supported by explicit metrics on portfolio breakdown and associated expected improvements in cash flow durability. The CFO reported increased capital expenditures of $15.6 million, linked to higher leasing volume, paired with steady liquidity and a modestly rising leverage outlook, with refinancing of upcoming maturities making the lender dialogue a company focus.

  • Management stated, "Our disciplined approach to capital allocation, including maintaining a low leverage balance sheet over the past several years, has positioned us to navigate the current environment even as we face continued cash flow pressure from higher interest rates, elevated vacancy from recent lease roll, and the impact of the 23 properties we have sold since the spin."
  • Guidance revisions for 2025 were specifically attributed to "one-time items such as lease termination income, property tax appeals, and refunds, as well as improved leasing compared to our initial expectations."
  • Shifts in property type concentration toward medical, lab, R&D flex, and government assets were highlighted, with management anticipating this mix will continue to rise as core office assets are sold.
  • The company confirmed it is "in discussions with our lenders about extending or refinancing this debt obligation, which is among management's highest priorities."

INDUSTRY GLOSSARY

  • Core FFO: Core funds from operations, a REIT earnings measure excluding gains/losses on sale and certain one-time items.
  • DUA: Dedicated Use Assets; properties with tenant-specific uses such as medical, lab, R&D flex, and government buildings, not generic office uses.
  • CMBS loan: Commercial Mortgage-Backed Securities loan; debt securitized by commercial property mortgages.
  • WALT: Weighted Average Lease Term; metric showing the average remaining lease term across the portfolio, weighted by rent or square footage.

Full Conference Call Transcript

Paul McDowell: Good morning, everyone. And thank you for joining us on Orion Properties second quarter earnings call. Today, I will highlight the continued progress we are making on our new business strategy and discuss our second quarter performance and operations. Importantly, leasing momentum continues, and we are energized that the marketplace has been receptive to our accelerated asset sales. Following my remarks, Gavin will review our financial results and provide our improved outlook for the rest of the year. With 639,000 square feet of leasing completed as of July 31, we are successfully building on last year's strong momentum that saw Orion lease 1,100,000 square feet.

Specifically, 639,000 square feet of leasing is a combination of new and renewal transactions with a weighted average lease term of 6.4 years. Included in this total for the second quarter and shortly thereafter, are three new leases: a 15.7-year agreement for 46,000 square feet at our Parsippany, New Jersey property, a 5.4-year agreement for 80,000 square feet at our Kennesaw, Georgia property, and a 7.6-year agreement for 23,000 square feet at our Plano, Texas property. The Kennesaw, Georgia property is currently leased to Home Depot for almost three more years, making the combined lease term more than eight years.

Additionally, we signed 110,000 square feet of short-term lease extensions at two properties during the quarter at over 6% positive lease spreads on average. We are encouraged by our strong leasing activity to date and the momentum that has continued to build in our future pipeline, including various longer-duration renewals and new leases with terms greater than the average of our portfolio. We are working hard to get a substantial portion of this more than 800,000 square foot pipeline of leasing activity, which includes transactions in both the discussion and documentation stage, to the finish line by year-end. Orion's operating property occupancy rate was 77.4% at quarter-end, an increase of 30 basis points sequentially.

The operating property leased rate was 79.1%, an increase of 170 basis points sequentially. The weighted average lease term increased to 5.5 years from 5.2 years last quarter and 4.2 years this time last year. We do anticipate tenant retention will continue to fluctuate due to the smaller size of our portfolio and the timing of certain expected move-outs in the remainder of the year. We continue to expect that our portfolio occupancy will rise after 2025 as we lease vacant space, sell vacant properties that do not meet our long-term goals, and generally labor to overcome the significant lease expirations and rollovers of the past few years.

This will be important as we continue to work to reduce property operating costs. One area that is particularly noteworthy is the increasing pace of property dispositions we have been able to achieve this year at strong prices when compared to previous years. During the second quarter, we closed on the sale of four vacant properties totaling 434,000 square feet for a gross sales price of $26,900,000, approximately $62 per square foot. Additionally, we have agreements in place to sell five traditional office properties, three near-term vacant properties, and one stabilized property, totaling 540,000 square feet for $57,000,000 or $106 per square foot, and are expected to close in the second half of the year.

For comparison, we sold just two properties last year totaling 164,000 square feet for about $5,300,000. All four properties sold so far this year have been vacant non-core buildings, and we believe the additional sale transactions we are working on will provide very attractive exits and avoid the uncertainty and significant capital investment and carrying cost to retenant the assets. These transactions demonstrate our continued ability to monetize non-core assets and redeploy capital while improving the overall quality and durability of our remaining portfolio as demonstrated by our increasing WALT. We expect to have additional dispositions throughout the remainder of the year and into next.

Finally, the demolition of the outdated buildings on our former Walgreens campus in Deerfield, Illinois is well underway and should be completed before the year-end, which will allow us to lower carrying costs materially and make the property more attractive to potential investors while we continue to evaluate our alternatives for this approximately 37.4-acre site. As we shared on our year-end 2024 results call, we are continuing to shift our portfolio concentration away from traditional generic suburban office properties and towards dedicated use assets or DUA properties, where our tenants perform work that cannot be replicated from home or relocated to a generic office setting.

These property types include medical, lab, R&D flex, and non-CBD government properties, all of which we already own. Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investment, and more durable cash flows. As we continue to recycle capital, we are continuing to look carefully at DUA acquisition opportunities. At quarter-end, approximately 32.2% of our portfolio by annualized base rent and approximately 25.3% by square footage were DUA properties, and this percentage will increase over time through disposition activity and targeted acquisitions. Turning to the balance sheet, Orion has been very proactive in maintaining significant liquidity to support our ongoing leasing efforts.

To do so, we have sold vacant properties, used sale proceeds and cash flow to pay down debt, managed G&A, been highly selective and targeted on acquisitions, and aligned our dividend policy. As a result, our net debt to annualized year-to-date adjusted EBITDA was 6.93 times at quarter-end. We do expect this ratio to rise modestly in the coming year, which we expect to be offset by anticipated earnings growth in subsequent years. As we head into the third quarter, we have a solid leasing pipeline and remain focused on investing in our well-located properties within target markets.

To support this, we will continue to fund capital expenditures that enhance asset value, enable us to lease space, retain tenants, and attract new ones. Our disciplined approach to capital allocation, including maintaining a low leverage balance sheet over the past several years, has positioned us to navigate the current environment even as we face continued cash flow pressure from higher interest rates, elevated vacancy from recent lease roll, and the impact of the 23 properties we have sold since the spin. With another strong quarter of leasing and asset sales behind us, and a healthy leasing and disposition pipeline ahead of us, we are encouraged that Orion's transformation is accelerating.

I want to take a moment to reiterate and emphasize that our approach to unlocking value has not wavered. We remain committed to disciplined execution, continued portfolio stabilization, and enhancement. It takes time to evolve a net lease office portfolio, but we have made incredibly strong progress. As we look ahead, beyond repositioning the portfolio, management and the board will continuously evaluate the best path forward to maximize value for all our shareholders. With that, I will turn the call over to Gavin. Gavin?

Gavin Brandon: Thanks, Paul. Orion generated total revenues of $37,300,000 in the second quarter as compared to $40,100,000 in the same quarter of the prior year. Core FFO for the quarter was $11,500,000 or $0.20 per share as compared to $14,200,000 or $0.25 per share in the same quarter of 2024. Adjusted EBITDA was $18,000,000 versus $20,500,000 in the same quarter of 2024. The changes year over year are primarily related to vacancies, a smaller portfolio, and the timing of leasing activity. G&A in the second quarter came in as expected at $4,800,000 compared to $4,500,000 in the same quarter of 2024.

As mentioned on prior calls, savings to G&A brought on by our restructuring efforts, including headcount reductions, will begin to contribute in the third and fourth quarters of this year. CapEx and leasing costs in the second quarter were $15,600,000 compared to $6,300,000 in the same quarter of 2024. The increase in CapEx in the 2025 period was driven by the acceleration of leasing activity. As we have previously discussed, CapEx timing is dependent on when leases are executed and work is completed on properties. We expect to allocate more capital to CapEx over time as leases roll and new and existing tenants draw upon their tenant improvement allowances.

Turning to the balance sheet, at quarter-end, we had total liquidity of $257,700,000 comprised of $17,700,000 in cash and cash equivalents, including the company's pro-rata share of cash from the RStreet joint venture and $240,000,000 of available capacity on the credit facility revolver. We intend to maintain significant liquidity on the balance sheet for the foreseeable future to fund expected capital commitments, support our future leasing efforts, and provide the financial flexibility needed to execute on our business plan for the next several years.

We ended the quarter with $509,000,000 of outstanding debt, including our non-recourse $355,000,000 CMBS loan, which is a securitized mortgage loan collateralized by 19 properties maturing in February 2027, $110,000,000 of floating rate debt on the credit facility revolver maturing in May 2026, $18,000,000 under the mortgage loan for our San Ramon property maturing in December 2031, and $26,000,000 representing our share of the Arch Street joint venture mortgage debt maturing in November 2025 with a borrower option to extend for an additional twelve months until November 2026. Our net debt to gross real estate assets was 32% at the end of the quarter.

Regarding our credit facility revolver, as mentioned, the scheduled maturity date for this obligation is in May 2026. We have no remaining extension options. We are in discussions with our lenders about extending and/or refinancing this debt obligation. In keeping with our current business plan, extending this debt obligation is among our highest priorities, and we expect to be successful. We will share more information about our progress on this front in future quarters. There are additional disclosures regarding our credit facility in our Form 10-Q. On August 5, 2025, Orion's Board declared a quarterly cash dividend of $0.02 per share for 2025.

Moving to our outlook for 2025, we are now narrowing and raising the range for our core FFO and lowering the range for our net debt to adjusted EBITDA and reaffirming our expectations for G&A. Core FFO is now expected to range from $0.67 to $0.71 per diluted share, up from $0.61 to $0.70 per diluted share. Net debt to adjusted EBITDA is now expected to range from 7.3 times to 8.3 times, down from 8.0 times to 8.8 times. These improvements in our guidance for the year are driven by a number of factors, including one-time items such as lease termination income, property tax appeals, and refunds, as well as improved leasing versus our initial expectations.

Our G&A range of $19,500,000 to $20,500,000 is unchanged. Excluding non-cash compensation, we expect 2025 G&A will be in line or slightly better than 2024. With that, we will open the line for questions. Operator?

Operator: Thank you. As a reminder, it was star one. We will just pause for a brief moment. There are no questions at this time. I would like to turn the call back over to Paul McDowell for closing remarks.

Paul McDowell: Okay. Well, thank you very much. We appreciate everyone joining today, and we look forward to updating you next quarter.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.