Orion Office REIT Stock

Thank you. earnings call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel. Thank you. You may begin.

Thank you and good morning everyone. Yesterday, Orion released its results for the quarter ended June 30th, 2026. its Form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website at onlreit.com. During the call today, we will be discussing Orion's guidance estimates for calendar year 2026 and other forward-looking statements, which are based on management's current expectations are subject to certain risks that could cause actual results to differ materially from our estimates. These risks are discussed in our earnings release, as well as in our Form 10-Q and other SEC filings. Ryan undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures, such as funds from operations or FFO and core funds from operations. or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, And Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure.

Hosting the call today are Orion's Chief Executive Officer, Paul McDowell, and Chief Financial Officer, Gavin Brandon. Joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I will turn the call over to Paul McDowell.

Good morning, everyone, and thank you for joining us on Orion's second quarter earnings call. I will start with a few words on our continuing strategic options process that began in late January. Since that announcement, in concert with our financial advisors at Wells Fargo and J.P. Morgan, we have conducted a robust effort, including broad outreach to solicit proposals from interested parties. Those efforts have been supported by a virtual data room containing comprehensive property and corporate data for those participants that sign nondisclosure agreements. With several parties continuing to conduct diligence, we believe it is in shareholders' interest to see that work through to its reasonable conclusion rather than set arbitrary deadlines. Rest assured, we are moving as expeditiously as possible, although we can offer no assurance that this process will result in Orion concluding any particular transaction.

Beyond the ongoing strategic review efforts, the team has continued to execute and deliver strong results against our business plan, which is reflected in our second quarter results. Our strategy remains centered on four priorities. Stabilizing the portfolio through increased leasing activity, the timely disposition of non-core assets, prudent leverage management, and selective capital recycling into dedicated use assets. As we have consistently communicated, we expect these efforts to drive core FFO per share growth in 2026 and beyond, while maintaining prudent levels of leverage. So far this year, we have been successful on each of those priorities. From a leasing perspective, we've completed 673,000 square feet of leasing, including 202,000 square feet completed in the second quarter. 116,000 square feet after quarter end, including our first new lease at our Tulsa property. The weighted average lease term for the consolidated portfolio stands at 6.2 years at the end of the second quarter, up from 5.5 years at the end of the second quarter last year, continuing our steady improvement of this crucial metric.

Cash rent spreads on second quarter renewals were down 7.7% when comparing ending rents in the current term to starting rents in the new term. However, rent spreads are up 2.1% when comparing current ending rents to new ending rents. driven by escalations over the new lease term. For the year-to-date period, cash rent spreads are very slightly down by 0.2% on renewals and up 7.1% when comparing current ending rents to new ending rents. Although volatile, leasing concessions are so far trending lower this year than last on a per square foot basis. Due to a few scheduled move outs and select opportunistic dispositions offset to some extent by our leasing efforts, our consolidated portfolio occupancy rate of 78.1% at the end of the second quarter was down as expected from the end of the first quarter. but up from 76.8% at the end of the second quarter of last year. As we have said many times, rent spreads and occupancy rates can and will be volatile from quarter to quarter, given our largely single-tenant portfolio, though we remain positive about the overall trends, which continue to see steady improvement. Beyond the leasing completed year to date, our pipeline remains quite strong despite our smaller size at over 1.1 million square feet, or over 17% of the total portfolio that is in either discussion or documentation stage, including a substantial number of new long-term leases for currently vacant space and some full building renewals.

And as we look out, we continue to see improving demand for our assets, and we are working hard to move forward on executing as much leasing as possible. The key message is that we continue to be quite pleased with our leasing velocity so far this year. Turning to dispositions, we have been very successful this year and we have primarily utilized proceeds from opportunistic asset sale activity to continue to deleverage, ending the quarter with net debt to annualized adjusted EBITDA at 5.4 times, almost a full-term bet of $1. than last quarter and the same quarter a year ago. Specifically, during the first half of the year, we generated gross proceeds of almost $84 million on the sale of four properties, plus the 37.4 acre Deerfield, Illinois campus. The second quarter sales activity generated an aggregate gross sales price of 70.6 million and included two strategic dispositions. one of which was sold to the existing tenant at a 5.6% cash capitalization rate. And the other was a recently vacated asset sold to an adjacent user at an implied 5% cash capitalization rate on expiring rent. These sales have allowed us to repay roughly $61 million of debt. including over 35 million on our CMBS loan in the second quarter.

Our debt repayment and refinance efforts have also allowed us to steadily reduce interest expense by $700,000 for the second quarter and $1.6 million for the year-to-date period compared to the same period in 2025. On another very positive note, the average sale price per square foot has steadily increased on the sale of vacant properties over the past year or so. These transactions continue to demonstrate our ability to monetize non-core assets and redeploy capital while improving the overall quality and durability of our remaining portfolio. Our continued focus on selling properties with difficult releasing prospects and high carrying costs. allowed us to continue to materially reduce property operating expenses. For example, our 2025 and 2026 vacant or near-term vacant property sales are estimated to save more than $12 million in annual carrying costs. These efforts have already contributed to an improvement in property operating costs of $3.4 million for the second quarter and $5.1 million for the year to date period compared to the same periods in 2025. We remain committed to shifting our portfolio concentration toward dedicated use assets where our tenants perform work that cannot be replicated from home or relocated to a generic office setting and away from traditional suburban office properties.

These property types include medical, lab, R&D, flex, and government properties, all of which we already own. At quarter end, these dedicated use assets, or DUA, represent 38.7% of annualized base rent of our consolidated portfolio, compared to 37.1% at the end of last quarter, and 32.6% at the end of the second quarter of last quarter. of 2025, reflecting our sales of traditional office assets and our purchase earlier this year of the Barilla DUA property. We expect this percentage to continue increasing over time through continued disposition activity of traditional office and targeted acquisitions of DUA properties. Before I close, I do want to take a moment to reflect on the very significant progress we have made at Orion. Over the past two years, we have averaged about one million square feet of leasing per year. and are on track to lease about that much again this year. We have sold 39 properties since our spin, totaling more than 4.2 million square feet, reducing property operating expenses by millions per year. We continue to work to manage overhead, significantly reducing headcount over the past two years, including at the executive level.

We successfully refinanced and extended both our revolving debt and our CMBS debt this year. We continue to manage leverage and have steadily reduced debt by $183 million since the spin. These combined efforts are showing up in our key metrics, such as WALT, occupancy, net debt to adjusted EBITDA, and G&A, all of which are improved over the same period a year ago. Finally, we have significant confidence in our ability to meaningfully grow core FFO from here. For the balance of 2026, our operational focus remains on improving portfolio quality, lengthening wall, renewing tenants, filling or selling vacant space, and prudently managing expenses and leverage as we work to maximize Orion's value for investors and potential strategic partners. I firmly believe that if we continue to execute on our business plan, the market will finally begin to recognize the meaningful, intrinsic value of this company that is not reflected in our current discounted valuation. With that, I will turn the call over to Gavin.

Thank you.

Thanks, Paul. For the second quarter of 2026 compared to the second quarter of 2025, Orion had total revenues of $34.3 million compared to $37.3 million. Net income was $24.6 million or $0.43 per share in the second quarter of 2026. and included a gain of $28.8 million, primarily related from the opportunistic sell of two of our operating properties during the quarter. This non-recurring gain does not impact our core FFO results, which were $11.8 million, or $0.20 per share, basically flat compared to the same quarter in 2025. Adjusted EBITDA was $17.2 million versus $18 million in the same quarter of 2025. G&A in the second quarter improved to $4.6 million compared to $4.8 million in the same quarter of 2025 as we benefited from the decision to continue to lower headcount through attrition and other means. The G&A expense includes the ongoing cost related to the strategic review, which we equate to approximately $100,000 in the second quarter of 2026 and $200,000 year-to-date. CapEx and leasing costs in the second quarter were $8.9 million compared to $15.6 million in the same quarter of 2025.

As we have previously discussed, CapEx timing is dependent on when leases are executed and work is completed on properties. Turning to the balance sheet, our net debt to annualize adjusted EBITDA was 5.4 times at quarter end compared to 6.4 times at the end of the second quarter of 2025. As of June 30th, we had total liquidity of approximately $177 million, comprised of $63.5 million of capital. cash and cash equivalents and restricted cash, and $113 million of available capacity under our credit facility revolver. Given our strong efforts to sell non-core and select operating properties, we have significantly lowered debt outstanding and extended maturities. We ended the quarter with $436.6 million of outstanding debt compared to $483 million a year ago, excluding a proportionate share of the unconsumable. consolidated joint ventures debt. Our next significant maturity is not until February of 2028, which we have an option to extend until February 2029. Our net debt to gross real estate assets was 27.9% at the end of the quarter compared to 29.5% a year ago.

On August 5th, Orion's Board of Directors declared a quarterly cash dividend of $0.02 per share for the third quarter of 2026, payable on October 15th, 2026, to stockholders on record as of September 30, 2026. Moving to our outlook for 2026, we are narrowing and raising the range for our core FFO, lowering the range for our net debt to adjusted EBITDA, and reaffirming our expectations for G&A. Core FFO for the year is now expected to range from 72 cents to 77 cents per diluted share, up from our previously affirmed range of 69 cents to 76 cents per diluted share. Net debt to adjusted EBITDA is now expected to range from 6 to 6.8%. times down from our previous range of 6.5 to 7.3 times. These improvements in our guidance for the year are driven by several factors, including recurring items, such as actively reducing operating expenses and improved leasing expectations, as well as one time items such as lease termination income and property tax appeals and refunds. G&A range is $19.8 million, the $20.8 million is unchanged.

With that, we'll open the line for questions. Operator? Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Mitch Germain with Citizens JMP. Please proceed.

Congrats on the quarter. One asset for sale today, it seems like. I'm curious about your decision to potentially sell an asset, at least to the government, which kind of meets your criteria for the existing portfolio. Yes.

Hey, Mitch, this is Chris. Thanks for dialing in. The asset that we're under contract to sell, it's one where the government's looking to downsize on that asset. So there is some risk around the government tenancy in that one asset. Plus, it's in a... very remote area. And it's one that, you know, we analyzed the disposition of it and thought that that's the best overall outcome for that asset.

That's super helpful. There are four vacant assets in the portfolio. It's pretty amazing. I think at one point you had 11 or 12. Tell me about the decision and process that you guys go through regarding a email.

either to sell or to release? Yes, I mean, Mitch, it's been a pretty consistent process. That is, you know, and it's involved over time, as you might imagine. But, you know, we sort of look really hard at the asset and say, is this an asset that we think it's worth putting money into and leasing up over time? Or is this an asset that's going to cost us either a lot of money? to retenant or really just doesn't have, in our view, the long-term demand factors present. So, you know, we've obviously sold a lot of vacant assets, but we've also been pretty successful in leasing some assets up. You know, for example, we thought it made sense to put money into our asset in Parsippany, New Jersey. We put that money in. that asset is leasing up pretty well. I think the same is true with our Buffalo property.

We looked at that property and thought that's a Class A building in downtown Buffalo. We think we can lease that up. We We've migrated our tenant, Ingram Micro, into that building, and we've got some strong momentum on leasing in the building from other tenants. So we feel good about that. So it's sort of an ongoing and dynamic process, but we're fortunate in that we have moved most of the vacant properties off our balance sheet. And we have a few left. Some we have quite a bit of confidence about leasing up.

For example, the Tulsa property, we just put our first lease into that property. And others, we're sort of evaluating whether we think in the long term, we're going to get leasing momentum or not.

Got you. 57 assets, 6.4 million square feet. What percentage would you characterize to be, you know, kind of non-core at this point?.

So it's hard to sort of, you know, we make that judgment based upon, you know, our expectations for long-term leases. I would say, you know, it's just a few percent at this stage. You know, we feel pretty confident about the assets we have left. Right. and our ability to keep those properties leased or to lease them up if they are vacant or become vacant. You know, we're always going to look at it. We may have some vacant sales. over the course of the year, but, you know, we just have to see how leasing shapes up.

Great. Last one for me, Paul, I really truly appreciate the color and perspective you're providing regarding your research. strategic review, not so many management teams are as transparent regarding the process. To that end, will there be a formal announcement I mean, obviously if something happens, we'll know, but will there be a formal announcement if you decide to continue to operate? Is that a plan here?.

Yes, I mean, look, Rich, I mean, look, Mitch, thank you very much for, you know, for the transparency. We want to be as transparent as we possibly can be. We know this process has been going on for a long time. You know, we don't control a lot of the timing. Right. interacting with third parties and they control the timing to some degree. So we're trying to move as expeditiously as possible. when we come to a conclusion of the process, whatever that is, we will make an announcement, uh, We're just not there yet. And when we do get there, we'll let everyone know.

And that includes if we decide to move forward with our independent business plan.

Thank you. As a reminder, to star 1 on your telephone keypad if you would like to ask a question, we will just pause for a brief moment to poll for questions. There are no further questions at this time. I would like to turn the floor back over to Paul McDowell. Actually, we do have a question. I'm sorry. From Matthew Erdner with Jones Trading. Please proceed.

Hey guys, apologies, I thought I had dialed in. Thanks for taking the question. Congrats on the continued progress. You know, I thought you guys had a really good quarter. So I guess following up on kind of the portfolio, you said you had a few percentage left. You know, kind of piggybacking on that, you know, what percentage are you looking to get those dedicated used assets to in kind of the near term and then over the long term, call it, you know, three to five years out? Yes.

It's a good question. And I think a lot of it, when you think about the longer term component, that is the three to five years out, you know, that will be dependent to some degree on our access to outside, you know, to outside capital. At the moment, our share price doesn't support that, so we have to work within our existing portfolio. So to the extent we're working within our existing portfolio, the progress will be steady but incremental. as we recycle capital, we sell assets and we might occasionally buy DUA assets. So we'll slowly build that up over time. to the extent we get access to outside capital, we would expect that transition to occur much more rapidly. So, you know, the longer term goals, of course, are to have well more than a majority of the portfolio in DUA assets. The timing of that is yet to be determined.

Perfect. I appreciate the color there. And then, you know, I know that the CapEx is kind of a chunky number and can bounce around from quarter to quarter. But do you guys have any idea of what you are expecting kind of across the remainder of the year?.

Yes, just hang on just one second. Okay. Yes. So, so far this year, You know, we've spent about, call it $27 million in CapEx. And that's, you know, we use that term broadly, meaning that includes building and site updates, you know, that we've done to, you know, update our buildings, tenant improvements and lease incentives, and then leasing commissions. Right. it's a pretty volatile number because we don't know when tenants are going to draw down on existing, obligations that we have, which is disclosed in our 10Q. We expect for the remainder of the year, that number could range, that total number of additional CapEx from here could range from anywhere from $30 to $40 million. Okay, got it, that's helpful. And we've modeled that in. So this is an expectation. So our guidance incorporates those expectations.

Okay, perfect. That's very helpful. And then you talked a little bit about Tulsa starting to lease up. It's good to see somebody go in there. You know, how are discussions going for the remainder of that building? And, you know, what's your confidence level there to kind of, you know,.

strengthen the occupancy at that specific site? Yes. I mean, I think our confidence is relatively high. It's a, it's a very high quality building. Um, It's a very high quality building in downtown Tulsa. There's not a lot of competing product of that quality. So sort of if you're looking for Class A space, we're the ones you go to look to. We've got one lease done, and we're in discussion on at least one more of relative significant size.

So, you know, we sort of feel pretty good about that over time.

Awesome. That's great. Well, thank you guys for taking the questions and sneaking me in last minute. No problem. Thank you very much.

I would now like to turn the floor back over to Paul McDowell for closing comments.

Thank you, everyone, for joining us on the call, and we look forward to updating you again at our third quarter call in the fall.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings. Welcome to Orion Properties First Quarter 2026 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel. Thank you. You may begin.

Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter ended March 31, 2026, filed its Form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website at onlreit.com.

During the call today, we will be discussing Orion's guidance estimates for calendar year 2026 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates.

The risks are discussed in our earnings release as well as in our Form 10-Q and other SEC filings, and Orion undertakes no duty to update any forward-looking statements made during this call. We will be discussing non-GAAP financial measures such as funds from operations, or FFO, and core funds from operations or core FFO.

These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure.

Hosting the call today are Orion's Chief Executive Officer, Paul McDowell; and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer.

With that, I am now going to turn the call over to Paul McDowell.

Good morning, everyone, and thank you for joining us. I would like to start the call today with a few comments about Orion's strategic options review process, which is ongoing and progressing well. The Board and management continue to work closely and diligently with Orion's financial advisers at Wells Fargo and JPMorgan, and we remain open and fully committed to pursuing any actionable proposals that maximize shareholder value.

We are conducting this process in a customary and thorough manner, and it will take time to conclude. While we have made significant progress so far, we are not yet in a position to comment on any specifics. We also can't comment on when the process will conclude, though we are working as expeditiously as possible. I also want to emphasize that the execution of our business plan continues to be positive. Our improving results reflect ongoing confidence in our stand-alone prospects should the strategic review determine that is the best path forward.

We appreciate your patience while we work through the strategic options process, and we'll have more to say at the appropriate time. The remainder of today's call will focus on our operating performance and the meaningful progress we continue to make on our business plan. Our strategy remains centered on the stabilization of the portfolio through increased leasing activity, the timely disposition of non-core assets, managing leverage and very selective capital recycling into new DUA assets. We expect these efforts to result in core FFO per share growth in 2026 and beyond.

During the first quarter, we continued to build on the 2 million square feet we leased over the past 2 years by completing 355,000 square feet of leasing activity. The leasing highlight for this quarter is a 172,000 square foot full building lease of 12 years at our previously vacant Irving, Texas property.

During 2024 and '25, we strategically invested capital of about $5 per square foot to enhance the common areas and improve the overall appearance of this core property, enabling us to launch an aggressive leasing effort and secure a full building tenant. Importantly, our weighted average lease term or WALT averaged nearly 12 years on new leases signed during the quarter. Overall, the average WALT for the consolidated portfolio continues to move in the right direction and is approaching 6 years.

Cash rent spreads on the first quarter renewals were up for the fourth consecutive quarter at 2.5. As we have said many times before, rent spreads can and will be volatile quarter-over-quarter, though we feel positive about current trends overall. Our leasing efforts and non-core asset dispositions have resulted in our consolidated portfolio occupancy rate rising to 83.1% at the end of the first quarter, up from 73.7% in the first quarter of last year. Like rent spreads, our occupancy will show some volatility quarter-to-quarter as we have leases roll in our largely single-tenant portfolio, though we see occupancy continuing to improve overall in coming years. Beyond the leasing completed year-to-date, our pipeline remains in excess of 1 million square feet that is in either discussion or documentation stages. This includes several full building leases as well as some possible longer duration renewals and new leases with terms materially greater than the average of our portfolio.

Overall, we are quite pleased with leasing velocity to start the year. A second part of our strategy towards stabilization has been through the timely and strategic sale of non-core properties. Since our spin-off, we have sold 38 properties totaling 4.1 million square feet. This includes first quarter sales of 2 vacant Northeast properties, one in Massachusetts and one in Pennsylvania for aggregate gross proceeds of $13.1 million as well as the second quarter sales of the 37.4 acre Deerfield, Illinois properties for $13.1 million and the 120,000 square foot property in Glen Burnie, Maryland for $22.5 million. Regarding the Glen Burnie disposition, this was a very successful and accretive disposition for Orion as the tenant's lease was terminated a few days prior to the sale and pricing represented a 5% capitalization rate on expiring rent or $188 per square foot.

In addition, we are currently under contract to sell an additional 3 properties for gross proceeds of $46 million, nearly all of which will be used to reduce debt. Our overall focus on selling properties primarily with difficult re-leasing prospects and high carrying costs has proven very effective. These sale transactions continue to substantially reduce the carrying costs associated with vacant properties.

Our 2025 and 2026 vacant or near-term vacant property sales are estimated to save more than $12 million in annual carrying costs. Our ongoing targeted disposition efforts are expected to enable us to continue to reduce debt levels while still funding vital tenant improvement allowances, leasing commissions and other capital expenditures in support of our strong leasing activity. Beyond continuing to reduce leverage, we also continue to search for and actively evaluate opportunities to recycle a modest percentage of asset sale proceeds into accretive cash flowing acquisitions.

We employed this targeted approach with the $15 million acquisition of the Barilla America headquarters and R&D facility in Northbrook, Illinois during the first quarter. It remains our intention to continue shifting our portfolio concentration towards dedicated use assets where our tenants perform work that cannot be replicated from home or relocated to a generic office setting and away from traditional suburban office properties. These property types include medical, lab, R&D, flex and government properties, all of which we already own.

Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investments and more durable cash flows. At quarter end, approximately 37.1% of our consolidated portfolio by annualized base rent consisted of dedicated use assets versus 32.2% at the end of the first quarter 2025. And we expect this percentage will continue to increase over time through disposition activity of traditional office and targeted acquisitions of DUA properties.

We continue to evolve the portfolio toward stabilization and have positioned the company for meaningful per share core FFO growth in the coming years. For the balance of 2026, our benchmarks will be to remain focused on improving portfolio quality, length and WALT, renew tenants and fill or sell vacant space, all while prudently managing expenses and leverage as we work to maximize Orion's value for investors and potential strategic partners.

With that, I'll turn the call over to Gavin.

Thanks, Paul. For the first quarter of 2026 compared to the first quarter of 2025, Orion had total revenues of $36.3 million compared to $38 million. Net loss of $0.24 per share compared to $0.17 per share. Core FFO of $0.21 per share compared to $0.19 per share. The $0.21 per share of this quarter's core FFO includes a one-time expected lease termination payment of $1.9 million associated with our East Syracuse, New York property. Adjusted EBITDA was $17.2 million compared to $17.4 million.

G&A came in as expected at $5.1 million compared to $4.9 million, with the increase primarily driven by approximately $100,000 of legal expenses related to the ongoing strategic option review process and activist shareholder relations costs. CapEx and leasing costs were $18.7 million compared to $8.3 million. The increase in CapEx in the first quarter of 2026 was primarily due to the completion of landlord and tenant improvement work relating to the acceleration in our leasing activity. As we have previously discussed, CapEx timing is dependent on when leases are signed 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.

Our net debt to annualized most recent quarter adjusted EBITDA was a relatively conservative 6.36x at quarter end. As of March 31, we had total liquidity of $148.5 million, including $60.5 million of cash and cash equivalents and restricted cash and $88 million of available revolver capacity.

Orion continues to manage leverage while maintaining significant liquidity to support our ongoing leasing efforts and provide the financial flexibility needed to execute on our business plan for the next several years. Since our spin and including a recent repayment, we have repaid a net $166 million of outstanding debt. As previously announced, during the first quarter, we entered into a new senior secured credit facility revolver, which refinances our original credit facility revolver and extends the maturity date until February 2029, inclusive of two 6-month borrower extension options. The updated terms of the agreement have also rightsized our borrowing capacity and lowered the interest rate on our borrowings.

As of March 31, we had $127 million outstanding and $88 million of borrowing capacity under our new credit facility revolver. Subsequent to the quarter, we repaid $25 million and now have $113 million of available borrowing capacity. As communicated previously, we also successfully amended our CMBS loan in the first quarter. The loan modification agreement extends the maturity to August 2030, inclusive of 2 borrower extension options for a total of 18 months. During all extension periods, the fixed interest rate on the CMBS loan remains at 4.971% and excess cash flows will be used by the lender to prepay the outstanding principal balance of the loan and to fund an all-purpose reserve, which we can access to pay leasing costs and capital expenditures. As of March 31, we had $352.3 million outstanding under the CMBS loan and $46.1 million in reserves.

Turning to our unconsolidated joint venture. While we have written our investment in the JV down to 0 and recorded a loan loss reserve for the full amount of our member loan due to the uncertainty around the mortgage debt financing. We continue to believe that the portfolio, which is performing with an occupancy rate of 100% and a weighted average lease term of 6.1 years has positive equity net of the mortgage debt and our outstanding member loan.

We intend to continue to work with our partner and lenders to maximize the value of the portfolio and recover both our member loan and as much equity as possible. As part of these efforts, we are working on a disposition plan with our partner and the lenders and continue to explore refinancing options. The joint venture has entered into an agreement to sell one of the properties in the portfolio. And if it closes, we intend to use the net proceeds from the sale to reduce the principal balance of the mortgage debt.

As for the dividend, on May 5, Orion's Board of Directors declared a quarterly cash dividend of $0.02 per share for the second quarter of 2026. Turning to our 2026 outlook. As our recent leasing and capital initiatives begin to translate into improved recurring earnings power for 2026 and beyond, we believe the positive trajectory will continue to take hold as we move ahead.

Accordingly, we are affirming our previously announced guidance. Core FFO for the year is expected to range from $0.69 to $0.76 per diluted share. G&A is expected to range from $19.8 million to $20.8 million. Excluding non-cash compensation, we expect 2026 G&A will be in line or slightly better than 2025. We also do not expect G&A to rise significantly in future periods, including non-cash compensation. As a percentage of revenue and total assets, our G&A remains in line with other similarly sized public REITs. Net debt to adjusted EBITDA is expected to range from 6.5x to 7.3x.

With that, we will open the line for questions. Operator?

[Operator Instructions] Our first question comes from the line of Matthew Erdner with JonesTrading.

So you touched on the pipeline, kind of, about 1 million square feet that you guys are talking to right now. How much of that is the leases that are going to expire this year versus next year? Just what should we expect in terms of momentum as we progress throughout the year?

This is Paul. A lot of the renewals that we're working on are -- some are 2026, but most are for 2027 and even actually in beyond that in 2028 as well. As you know, we don't have too much lease rollover for the remainder of this year. And we've got good momentum on the renewal -- on the rollover for next. We also have got pretty good momentum on filling some of our vacant space. We've got a bunch of leases that we're in discussion with potential tenants for in our vacancy. So we feel, in general, pretty good about our pipeline. And it's been -- our pipeline has been roughly the same size for the past few quarters, which is reflected in our overall leasing momentum that we had in both in 2024 and '25 and now the beginning of '26.

Got it. That's helpful. And then shifting to the guidance, you guys reaffirmed there, came in at $0.21 this quarter. So just looking at that from an annualized basis, that would put you above the guidance. Were there any kind of, one-time things or stuff that we should be thinking about that's going to drive that a little bit lower based off of that $0.21?

Sure. Gavin, why don't you answer that?

Matt, Gavin here. So this quarter, we had a $1.9 million lease termination payment that came in the first quarter. And then the -- we also had a reimbursement from some of our G&A -- our GSA work we did in Lincoln, Nebraska. The one-time reimbursement for the Lincoln, Nebraska work will be straight-lined versus recognized in the full period quarter. So the $1.9 million for the lease termination income really drove up the first quarter in our model. But as far as the remaining of the year goes, we haven't accrued for or expecting a significant amount of lease termination income coming in.

Our next question comes from the line of Mitch Germain with Citizens JMP.

Paul, what's the profile of the buyers of these vacant properties? And is the -- are most of them being repurposed to other uses?

Yes. Good question, Mitch. The profile is sort of mixed. The Walgreens properties as you -- or the property in Deerfield, Illinois, we call it the Walgreens properties, their former headquarters. We actually tore the buildings down there and sold raw land to a developer. The Glen Burnie property that we sold at such a terrific premium, that was sold to a user who happened to be a next-door neighbor. So that property was very valuable to them. So over our sale process over the past few years, we've had the best outcomes are from people who are going to either repurpose the property into something else or users. And then when you have somebody who's just buying the property as an investor hoping to re-lease it, those are the most challenging buyers, but sometimes they're the only ones in the market.

Got you. That's helpful. You only have 3 vacant assets remaining, which is quite an accomplishment considering I think that metric has been kind of double digit for the last couple of years. Is the goal for those 3 remaining, are those sale candidates? Or is some of that part of your leasing pipeline as well?

It's -- we hope to lease all 3 of those properties up, Mitch. So we've made a lot of progress, obviously, in the property in Buffalo with moving Ingram Micro into that property. The property in Tulsa, Oklahoma is a very high-quality Class A building. And that is currently vacant, but we've started to get some good leasing momentum there. We're in discussion and in negotiation with a few leases in that property. So our goal is to lease up that vacancy. But as you may have noticed over the past year or so, given our accelerated disposition volume, we're taking a very, very hard look quickly at whether or not that leasing interest is going to turn into true leases signed in buildings. And if we come to the conclusion that it is, we're going to lease these properties up. If we come to the conclusion that leasing is stalling, we're going to take a hard look and perhaps sell those assets. But just to be clear, the vacant assets we have remaining for the most part, we expect to be able to lease up.

That's super helpful, which then leads me to -- it seems like the next phase of dispositions is going to be some of your stable properties that have some WALT, fairly decent tenant, but just may not fit some of that criteria that you mentioned, the critical use criteria. Is that a way to think about the next phase, if there is a go-forward plan for you guys?

I think that's pretty good. I mean I think we look at things, Mitch, as sort of everything is for sale. So we'll comment on it probably next quarter. But one of the properties we're announcing that we have under contract for sale is where we have a tenant is interested in buying the property and they offered us a price we frankly couldn't refuse. So you say, okay, if you're willing to pay a price and it makes sense for them because they're already in the building, and it makes sense for us because they're paying us a significant value for the real estate. So I think we'll look at sales opportunistically. And then to the extent once we get those proceeds, we'll look at what do we do with those proceeds in the case of the property I just mentioned, we're going to utilize it to pay down debt. But in the future, we will utilize some of those sales to recycle capital into dedicated use assets, just as you described.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. McDowell for any final comments.

Thank you all for participating in the call today, and we look forward to further updates at the end of the second quarter. Have a good day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to Orion Properties Year-End 2025 Earnings Call. As a reminder, this conference is being recorded.

I would now like to turn the call over to Emma Little, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter and year ended December 31, 2025, filed its 2025 Form 10-K with the Securities and Exchange Commission and posted its earnings supplement to its website at onlreit.com.

During the call today, we will be discussing Orion's guidance estimates for calendar year 2026 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-K and other SEC filings, and Orion undertakes no duty to update any forward-looking statements made during this call.

We will also be discussing non-GAAP financial measures such as funds from operations, or FFO, and core funds from operations, or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure.

Hosting the call today are Orion's Chief Executive Officer, Paul McDowell; and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer.

With that, I am now going to turn the call over to Paul McDowell.

Good morning, everyone, and thank you for joining us on Orion Properties 2025 Year-end Earnings Call. As recently announced, Orion has begun a strategic options review process as management and the Board of Directors continue to explore pathways to unlock value for our shareholders. Since this process is in the early stages, we will focus today's call on our operating performance and the tremendous progress we made further stabilizing the portfolio and executing our business plan during 2025, which has now positioned us for core FFO earnings growth in 2026 and beyond.

Starting with leasing. We completed over 900,000 square feet of leasing in 2025 on top of the 1.1 million square feet we leased in 2024, reflecting an improving market backdrop. We also signed an additional 183,000 square feet after year-end. These are meaningful volumes, particularly given the reduced size of our portfolio and have really moved the needle to enhance the quality and stability of our lease roll.

One critical metric to measure our success is weighted average lease term or WALT, which averaged nearly 10 years on new leases signed in 2025. This is nearly double our portfolio average WALT. Overall, the average WALT for all leasing activity in 2025 was 7.5 years, which continues to move in the right direction and is approaching 6 years for the total portfolio. Cash rent spreads on fourth quarter renewals were up for the third straight quarter at 12.8%, though overall, 2025 rent spreads remained volatile and were down 7.1% for the year, but were up an average of 3.7% when comparing ending rents in the current term versus ending rents in the renewal term.

Importantly, our 2025 leasing momentum and noncore dispositions translated into a 600 basis point improvement in our lease rate year-over-year to over 80% at year-end and a 500 basis point improvement in our occupancy rate to 78.7% at year-end. Equally significant, our lease rollover profile has improved, and we entered 2026 with scheduled lease expirations totaling just $11.4 million of annualized base rent in 2026. This is relative to the nearly $16.2 million of annualized base rent that was scheduled to expire in 2025, and $39.4 million in 2024. This positions us to drive further occupancy gains and stabilize revenues as we continue to lease, sell vacant properties and selectively recycle capital into new cash flowing assets throughout this year and into next.

Leasing momentum remains constructive so far in 2026. Our pipeline is robust, and we have over 1 million square feet in either discussion or documentation stages which includes several full building leases as well as longer duration renewals and new leases with terms materially greater than the average of our portfolio. Our accelerating portfolio improvement through increased disposition activity was another key story for the year. During 2025, we sold 10 properties totaling more than 960,000 square feet for approximately $81 million of gross proceeds, which included 2 vacant traditional office properties and 1 stabilized traditional office property sold in the fourth quarter for $32 million. Subsequent to year-end, we sold 2 more vacant properties in Bedford, Massachusetts and Malvern, Pennsylvania, totaling an additional 516,000 square feet for over $13 million and are under contract to sell additional noncore properties for gross proceeds of roughly $36 million in the near term, including the 37.4 acre Deerfield, Illinois property where we completed the demolition of the 6 buildings formerly leased to Walgreens during the fourth quarter.

While the per square foot price of these sales varied from $17 per square foot to $216 per square foot, our focus was on selling properties where we felt the re-leasing prospects did not outweigh the burden of continuing to carry them. These sale transactions will substantially reduce the estimated carry costs associated with these vacant properties by a combined $10.3 million annually.

Our 2025 and near-term dispositions will generate a total of roughly $130 million, which has allowed us to maintain reasonable debt levels while still funding vital tenant improvement allowances, leasing commissions and other capital expenditures to support our strong leasing activity. We are also actively evaluating opportunities to recycle a modest percentage of these proceeds into acquisitions. As we continue to shift our portfolio concentration away from traditional suburban office properties and toward Dedicated Use Assets or DUAs, 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 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. A terrific example of this strategy is the Barilla America's headquarters building we just purchased at the end of last week in Northbrook, Illinois. In addition to serving as Barilla's headquarters, the building also houses their sole test kitchen and R&D facility in the U.S. Worldwide, the Barilla Group is the world's largest maker of pasta and their pasta and sauces are a familiar site on U.S. grocery shelves.

The 75,000 square foot building is subject to a 10.8-year lease with current net rents at approximately $15.30 per square foot and growing 2.5% annually. We bought the property for $15 million equating to a going-in cash capitalization rate of 8.1% and an average capitalization rate over the approximately 11-year lease term of 9%. At year-end, approximately 35.8% of our portfolio by annualized base rent consisted of dedicated use assets versus 31.8% at the end of 2024. And we expect this percentage will continue to increase over time through disposition activity and targeted acquisitions.

We recognize as a small cap REIT that G&A expense is a very important consideration, and we remain disciplined on expenses at the corporate level. In 2025 and early 2026, we reduced headcount by more than 10%, including at the executive and senior Vice President levels and manage controllable G&A. We estimate these initiatives will generate about $1.8 million of annualized savings. These efforts are, however, offset by inevitable inflation, expected increased accounting fees associated with SOX 404 internal control audit requirements beginning in 2026 for us, and legal and other expenses associated with managing an activist investor.

Turning very briefly to the balance sheet, as Gavin will give more detail in his remarks. In February, we were able to deal with both our major debt maturities that had been scheduled to come due within the next year. First, with the support of our existing lenders, we entered into a new $215 million secured revolving facility, which will mature in February 2029 inclusive of two 6-month extension options.

Second, we extended our existing $355 million CMBS loan by 3.5 years to August 2030, inclusive of two extension options totaling 18 months. These very significant achievements give us the financial flexibility and term to continue to execute on our business plan.

A final note on our strategic options process. While we have increasing confidence in our stand-alone prospects, over the past 3 years, as we have consistently disclosed, management and the Board have devoted time to considering avenues for Orion to potentially pursue in addition to our business plan. Our ongoing public strategic options review process will provide further opportunity to consider with our Board and our financial advisers what could be a range of potential strategic alternatives to maximize stockholder value. And as we've said before, we remain very open to pursuing any actionable proposals.

To sum up, the progress we've made over the past 4 years and which progress accelerated in 2025 has materially derisked and stabilized our portfolio, and we are finally set for meaningful growth from a core FFO standpoint over the next several years. Our priorities in 2026 remain: improve portfolio quality, lengthen WALT, renew tenants and fill vacant space, reduce risk, lower expenses, prudently managed leverage and position Orion with a more stable and durable earnings profile. We believe these are the right steps to unlock long-term value, which will make Orion attractive to investors and potential strategic partners alike.

With that, I'll turn the call over to Gavin.

Thanks, Paul. For the fourth quarter of 2025 compared to the fourth quarter of 2024, Orion had total revenues of $35.2 million as compared to $38.4 million, core FFO of $0.19 per share as compared to $0.18 per share. As expected, we recognized $0.03 per share of lease termination income in the fourth quarter of 2025 associated with the Fresno, California asset sale. Adjusted EBITDA of $16.1 million versus $16.6 million. The year-over-year changes in operating income are primarily related to current year vacancies and costs incurred for the Deerfield demolition, offset by income from our San Ramon property acquired in 2024 and carrying cost savings from dispositions of vacant assets. G&A came in as expected at $6 million compared to $6.1 million. CapEx and leasing costs were $17.8 million compared to $8.2 million, which primarily relates to work performed at our Buffalo, New York property, where our new 160,000 square-foot lease with Ingram Micro is expected to commence in April 2026; and at our Lincoln, Nebraska property, where our new 86,000 square-foot lease with the United States government commenced in February 2026.

For the full year 2025 compared to 2024, Orion had total revenues of $147.6 million as compared to $164.9 million. Core FFO of $0.78 per share, which included approximately $0.09 per share of income from lease terminations and end of lease obligations. This compares a core FFO of $1.01 in 2024, which included $0.04 per share of lease termination income.

Adjusted EBITDA was $69 million versus $82.8 million. The year-over-year decreases in operating income are primarily related to current year vacancies and costs incurred for the demolition discussed earlier. Offset by income from our 2024 acquisition and carry cost savings from dispositions of vacant assets as well as successful property tax appeals.

G&A came in as expected at $20.3 million as compared to $20.1 million in 2024. 2025 G&A includes $423,000 in legal and other expenses related to managing an activist investor. CapEx and leasing costs were $60 million compared to $24.1 million in the prior year. The increase in CapEx in 2025 was driven by completion of landlord and tenant improvement work related to the acceleration in our leasing activity. As we have previously discussed, CapEx timing is dependent on when leases are executed and work is completed on leased 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.

Our net debt to full year adjusted EBITDA was a relatively conservative 6.8x at year-end. And on a modified basis, net of restricted cash, was approximately 6.2x. As of December 31, 2025, and as adjusted for our new secured $215 million revolver, we had total liquidity of $145.9 million, including to $22.9 million of cash and cash equivalents and $123 million of available revolver capacity. We also had $39.9 million of restricted cash including our pro rata share of the joint venture's restricted cash.

Orion continues to manage leverage while maintaining significant liquidity to support our ongoing leasing efforts and provide the financial flexibility needed to execute on our business plan for the next several years. Since our spin, we have repaid a net $173 million of outstanding debt as of year-end while supporting our current business plan.

As Paul mentioned, on February 18, we entered into a credit agreement for a new senior secured credit facility revolver, which refinances our original credit facility revolver. The new credit facility revolver extends maturity date until February 2029, including two 6-month borrower extension options. It reduces the lender's commitment to $215 million to more closely align with our business plan, reduces the interest rate margin on our borrowings by 50 basis points to SOFR plus 2.75% and eliminates the 10 basis point SOFR adjustment, which will help to lower future interest expense. As of March 5, 2026, we had $127 million outstanding and $88 million of borrowing capacity under our new credit facility revolver.

We appreciate the continued support from our lending group and the timeliness of executing the credit agreement prior to our 10-K filing, which alleviated any accounting disclosures with respect to near-term debt maturities. On February 17, we amended our CMBS loan. The loan modification agreement extends maturity date by 2 years to February 2029, subject to borrower extension options for a total of 18 months until August 2030.

During this time, the fixed interest rate on the CMBS loan of 4.971% will remain unchanged and excess cash flows after payment of interest and property operating expenses will be swept by the lender to be applied to a combination of prepaying the outstanding principal balance of the CMBS loan and funding reserves, which we can access principally for capital expenditures. As part of the loan modification, we negotiate favorable release provisions for certain assets in the pool that we may dispose of and repay principal. Additionally, yield maintenance premiums will no longer apply to principal payments made during the term.

Potential property dispositions as well as amortizing nature of the CMBS loan, we'll repay principal and reduce interest expense during the term, further lowering leverage over the next several years. As of March 5, 2026, we had $353 million outstanding under the CMBS loan and $37.7 million in an all-purpose reserve.

Turning to the Arch Street joint venture. The nonrecourse mortgage debt was $128.8 million as of year-end, and our 20% share of that was $25.8 million. Due to the capital constraints of our joint venture partner, the joint venture was unable to make an approximately $16 million loan principal prepayment to satisfy the 60% loan-to-value condition to extend this debt obligation until November 27, 2026.

The lenders have been providing short-term extensions while the joint venture remains in active cooperative discussions with the lenders with respect to the plans of the portfolio and an additional extension. Further, the joint venture has entered into a contract to sell one of the assets out of the portfolio and is in active discussions with the lenders on an additional asset sales to repay debt.

Due to the uncertainties regarding the Arch Street joint venture investments, as of December 31, 2025, we reduced the carrying value of our investment to 0 and recorded a loan loss reserve against our member loan to the Arch Street joint venture. The impairments are driven by accounting rules, which are focused on the probable recoverability of our investment in and collection of the member loan based on facts and circumstances as of December 31, 2025. The Arch Street joint venture contributed approximately $0.05 of core FFO in 2025, which primarily related to interest income from our member loan and management fees. We have not included income from the JV and our outlook for this year past February 2026.

While we have written our investment in the JV down due to the uncertainty around the debt financing and our partners' ability to meet capital calls, we continue to believe that the portfolio, which is performing with an occupancy rate of 100% and a weighted average lease term of 6.3 years has positive equity. We expect to continue to work with the JVs lenders and our JV partner to find their way to collect our member loan in full and unlock our equity. As for the dividend on March 4, 2026, Orion's Board of Directors declared a quarterly cash dividend of $0.02 per share for the first quarter of 2026.

Turning to our 2026 outlook. As previewed last quarter, 2025 represented a trough for our core FFO, excluding lease-related termination income, as our recent leasing and capital initiatives begin to translate into improved recurring earnings power over 2026 and beyond. Core FFO for the year is expected to range from $0.69 to $0.76 per diluted share. As a reminder, core FFO for 2025 would have been $0.69 excluding $0.09 of lease termination income. G&A is expected to range from $19.8 million to $20.8 million. Excluding noncash compensation, we expect 2026 G&A will be in line or slightly better than 2025. We also do not expect G&A to rise significantly in the outer years including noncash compensation. As a percentage of revenue and total assets, our G&A remains in line with other similarly sized public REITs. Net debt to adjusted EBITDA is expected to range from 6.5x to 7.3x.

With that, we will open the line for questions. Operator?

[Operator Instructions] Our first question is from Mitch Germain with Citizens JMP.

What is -- it seems like your leasing pipeline is almost 2x higher relative to last quarter. Is that just an overall conviction that you're seeing in office leasing? Is it really kind of the tide really turning a bit more positively here?

Mitch, I think it's probably a little bit of both, frankly. We have a -- our portfolio is not very big. So the numbers can move pretty dramatically if we start to get some leasing momentum on one or two properties, which is exactly the case that's occurred from last quarter to this quarter. And then -- and I would characterize that leasing momentum that we've gotten is as a result of the market improving somewhat. So I think it's a bit of both. But I would reemphasize that the number may be volatile quarter-over-quarter.

And from a historical context, and I know that what is that 3, 4 years for you guys. Like when you look at your leasing pipeline and compare that to the success rate that you've had, I don't know, maybe have you thought about like what the percentage is that you've seen historically in your ability to take the pipeline into a lease?

We haven't calculated that specifically. But I will tell you, Mitch, that our success rate has improved very significantly over the past 2 years. I think -- the first -- in 2023, as you might remember, we only leased 230,000 square feet of space, and we didn't have any new leases. And last year, we did -- in '24, we did 1.1 million square feet. And in '25, we did 900,000 square feet and 183,000 square feet so far this year with a pretty strong pipeline. So I would say that we're -- our ability to turn inquiry into signed leases has really improved a lot. And I'd say that the decision-making process at tenants has also shortened up quite significantly, where they're now looking at space, deciding it meets their needs and then entering into lease negotiations with us.

That's helpful. Last one for me, the Barilla transaction. Maybe -- I don't know, is that -- was that a broker that brought it to you? Was it a relationship? I do understand some of the criteria as to why you consider it a strong hold or an investment. Maybe what percentage of the asset is office versus nontraditional or more like industrial space, if you can provide some context there.

Sure. Well, the transaction came to us through the broker -- it was brokered. It was a marketed transaction. So we saw it as well as other market participants. Stephanie Peters, who works for us. She's the one who does acquisitions, and so she keeps a close eye on the market. And so she brought that in from the brokerage community. The property itself contains the test kitchens and R&D facilities for the Barilla operations here in North America and South America as well. So very important. From a percentage perspective, about half roughly is their test and R&D and the half is office.

Our next question is from Matthew Erdner with JonesTrading.

It's good to see you guys back in the market acquiring properties. How should we think about the pace of the remaining, I guess, vacant properties being disposed of throughout the year? And then what should we look for you guys to kind of go out and acquire more properties?

Yes, that's a great question. We've sold -- on the vacant property side, it's important to note that we had a huge amount of activity in 2025, obviously, selling down 10 properties in '25 and then 2 additional vacant properties in the beginning of '26. And then we have pending a couple of additional sales, including our vacant land in Illinois -- Deerfield, Illinois. With respect to the pace of vacant sales in the future, we don't have that much vacancy left. But as we generate -- as vacancy comes online, we are going to take a hard look and we'll make a judgment about whether or not we sell those properties or whether we hold them for lease-up. Some of the vacancy that we have now, we feel pretty confident about our ability to lease it up. So that's the primary focus.

With respect to acquisitions, we've been very judicious. This is only our second acquisition since the spin, but we do want to recycle capital. And so when we have capital recycled from sale of either vacant properties or stabilized properties, both of which we did last year, we look at that capital, and we can allocate it towards debt repayment, we can allocate it towards our existing asset base for tenant improvements and leasing commissions and billing improvements and the like or we can allocate it towards acquisitions, all of which we expect to do during the course of this year.

Got it. That's very helpful. And then I guess, just looking at the upcoming lease maturities. It looks like through 2028, there's a little under 46% that's scheduled to roll over. What kind of opportunity does this present to you guys in terms of being able to go out there and kind of grow these cash spreads and generate that FFO growth.

Well, I think we do expect core FFO to grow meaningfully in the coming years as the portfolio stabilizes. And as we rent stuff up. We've had -- I would characterize it, which is, I think, reflective of the broader market as a mixed renewal rent increases or decreases. Sometimes we required -- market requires us to lower rents for renewal because that's just what the market will bear. But as we've seen at the end of last year where we had 3 quarters in a row of increases in renewal rents, we hope that continues into '26 and '27 as the market gradually recovers. But I think it's going to be volatile quarter-over-quarter.

There are no further questions at this time. I would like to turn the conference back over to Paul for closing remarks.

Okay. Thank you, everyone, for joining us today on the call. We had a terrific year in 2025, and we're hoping to have just as good a year in 2026. We look forward to updating you on our first quarter later in the year. Thank you.

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

Greetings, and welcome to Orion Properties Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin.

Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter ended September 30, 2025, filed its Form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website at onlreit.com.

During the call today, we will be discussing Orion's guidance estimates for calendar year 2025 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates.

The risks are discussed in our earnings release as well as in our Form 10-Q and other SEC filings, and Orion undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures such as funds from operations, or FFO, and core funds from operations or core FFO.

These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure.

Hosting the call today are Orion's Chief Executive Officer, Paul McDowell; and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell.

Thank you, Paul. Good morning, everyone, and thank you for joining us on Orion Properties third quarter earnings call. Today, I will highlight the substantial progress in executing on our business plan and provide an update on our ongoing leasing, disposition and acquisition activity for the quarter. Following my remarks, Gavin will review our financial results and improved guidance outlook for the rest of the year.

We had another very productive leasing quarter with 303,000 square feet of space leased at a weighted average lease term or WALT of over 10 years and an additional 57,000 square feet signed after quarter end. Our primary focus remains on continuing to enhance the quality and durability of our portfolio and its associated cash flows.

One critical metric we use to measure that success is the weighted average lease term for the portfolio, which is now 5.8 years or approaching 6 years. This is a material improvement from the roughly 3.5 years at the time of our spin. This substantial progress reflects the steady execution of our business plan and the increasing stability of our tenant base.

Year-to-date through November 6, we have completed 919,000 square feet of leasing, which is in addition to the 1.1 million square feet we leased last year, reflecting the improving market backdrop. Included in the total for the third quarter is a 5.4-year new lease agreement for 80,000 square feet at our Kennesaw, Georgia property that we mentioned on the last call.

We also signed several renewals during the quarter, including a 15-year extension with AGCO Corporation for 126,000 square feet in Duluth, Georgia, a 7-year extension with T-Mobile for 69,000 square feet in Nashville, Tennessee and a 15-year extension with the United States government for 16,000 square feet in Fort Worth, Texas.

Importantly, rent spreads on lease renewal activity were again positive in the third quarter, up over 2% for renewals and over 4% for total leasing activity. Overall, leasing momentum remains constructive heading into year-end and 2026.

Our pipeline, which includes transactions in both the discussion and documentation stage, is over 500,000 square feet and includes several longer duration renewals and new leases with terms greater than the average of our portfolio. Orion's operating property occupancy rate was 72.8% at quarter end as compared to 73.7% at December 31, 2024.

The year-to-date change is impacted by lease rollovers during the year and resulting vacancies we are holding on the balance sheet, which we intend to sell or lease in the reasonably near term. Adjusted for operating properties that are currently under agreement to be sold or have been sold since quarter end, our property occupancy rate would be 74.5%.

We continue to expect that our portfolio occupancy will rise materially next year and even further the next as we lease space, sell vacant properties and selectively recycle capital into new assets. When talking about our occupancy expectations, it's important to note that our heavy lease rollover has improved markedly year-over-year.

For example, in 2026, we have only $10.8 million of rent subject to rollover as compared to $39.4 million of rent that was subject to rollover risk last year in 2024. As further evidence of our active business plan execution, so far this year, we have closed on the sale of 7 vacant or soon-to-be vacant properties and 1 stabilized traditional office property totaling 761,000 square feet for a gross sales price of $64.4 million or about $85 per square foot.

We also have agreements in place to sell another 4 properties, including 3 vacant or soon-to-be vacant properties and 1 stabilized traditional office property totaling over 500,000 square feet for $46.6 million or about $92 per square foot. These transactions are expected to close in the fourth quarter of 2025 and first quarter of 2026. Combined, that is close to 1.3 million square feet with gross proceeds of more than $110 million.

Collectively, we have sold 27 properties since the spin, totaling 2.7 million square feet, which equates to more than 25% of the inherited portfolio's rentable square feet, saving an estimated $39 million of cumulative carry costs.

Even with all this progress, we continue to evaluate our portfolio with particular focus on obsolete buildings and those assets requiring substantial capital investment. This includes the former Walgreens campus in Deerfield, Illinois, where we are close to completing the demolition of the outdated office buildings, and we expect to sell the 37.4-acre site in the coming quarters.

2025 marked a year of accelerating portfolio transformation, which positions us well for next year and beyond. We believe the sale transactions we've completed and are continuing to work on provide very attractive exit points for these properties and avoid the uncertainty and significant capital investment and carrying costs to retenant the assets.

The stabilized asset sales we have announced will also allow us to continue to shift our portfolio away from traditional office properties. These transactions demonstrate our continued ability to monetize noncore assets and redeploy capital while improving the overall quality and durability of our remaining portfolio as demonstrated by our increasing WALT.

We are also evaluating a number of opportunities to recycle the proceeds from our disposition activity as we continue to shift our portfolio concentration away from traditional suburban office properties and towards dedicated use assets or DUAs, 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. We are continuing to look carefully at limited targeted acquisitions of DUAs to recycle capital, stabilize rental revenues, increase portfolio WALT and further enhance portfolio quality.

At quarter end, approximately 33.9% of our portfolio by annualized base rent and approximately 24.6% by square footage were DUAs, and this percentage will increase over time through disposition activity and targeted acquisition. Orion has also been very proactive in managing leverage while 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, manage G&A, have been highly selective on acquisitions and aligned our dividend policy.

As a result, our net debt to annualized year-to-date adjusted EBITDA was a relatively conservative 6.7x at quarter end. We will continue disciplined execution focused on portfolio stabilization and enhancement with the goal of further unlocking long-term value, which we believe will make Orion attractive to investors and potential strategic partners alike.

We've made very significant progress derisking the portfolio and executing the business plan this year with a portfolio WALT now approaching 6 years, more than 900,000 square feet of leasing and 12 properties sold or under contract for sale totaling 1.3 million square feet for over $110 million.

Net of lease-related termination income, we believe 2025 should be the bottom for core FFO per share and that next year and subsequent years should show accelerating earnings growth, coupled with rising occupancy. With that, I'll turn the call over to Gavin.

Thanks, Paul. Orion generated total revenues of $37.1 million in the third quarter as compared to $39.2 million in the same quarter of the prior year. Core FFO for the quarter was $11 million or $0.19 per share as compared to $12 million or $0.21 per share in the same quarter of 2024.

Core FFO results for the year-to-date 2025 period were $33.1 million or $0.59 per share and include approximately $0.05 per share of lease-related termination income. Included in the $0.05 per share is $0.02 per share associated with the simultaneous sale and early lease termination of a traditional office buildings in Fresno, California. We will recognize an additional $0.03 per share of lease termination income from this transaction in the fourth quarter.

Adjusted EBITDA was $17.4 million versus $19.1 million in the same quarter of 2024. The changes year-over-year are primarily related to vacancies, a smaller portfolio and timing of leasing activity. G&A in the third quarter came in as expected at $4.6 million compared to $4.5 million in the same quarter of 2024.

CapEx and leasing costs in the third quarter were $18.3 million compared to $6.1 million in the same quarter of 2024. The increase in CapEx in the 2025 period was driven by the acceleration in leasing activity. As we have discussed previously, 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 $273 million, comprised of $33 million of cash and cash equivalents, including the company's pro rata share of cash from the Arch Street joint venture and $240 million of available capacity on the credit facility revolver. We intend to maintain significant liquidity on the balance sheet to fund expected capital commitments to support our ongoing leasing successes and provide the financial flexibility needed to execute on our business plan for the next several years.

We ended the quarter with net debt to gross real estate assets of 33.4% and total outstanding debt of $508.9 million, including our nonrecourse $355 million CMBS loan that is a securitized mortgage loan collateralized by 19 properties maturing in February 2027. $110 million of floating rate debt on the credit facility revolver maturing in May 2026, $18 million under the mortgage loan for our San Ramon property maturing in December 2031 and $25.9 million, representing our share of the Arch Street joint venture mortgage debt maturing in November 2025.

The joint venture has exercised the option to extend this debt obligation for an additional 12 months until November 2026 and the lenders are in the process of confirming all extension conditions have been met. We further reduced our borrowings under the credit facility revolver to $92 million during October. Regarding our credit facility revolver, as mentioned, the scheduled maturity date for this obligation is in May 2026, and we have no remaining extension options. We continue to have productive discussions with our lenders about extending and/or refinancing this debt obligation in keeping with our current business plan, and we fully expect to be successful.

Extending and restructuring our credit facility continues to be among our highest priorities, and we will share updates on our progress on this front in future quarters. There are additional disclosures regarding our credit facility in our Form 10-Q. On November 5, 2025, Orion's Board of Directors declared a quarterly cash dividend of $0.02 per share for the fourth quarter of 2025.

Moving to guidance. We are improving our outlook for core FFO, net debt to adjusted EBITDA and G&A in 2025. We are raising our full year core FFO guidance to a new range of $0.74 to $0.76 per share, up from our prior range of $0.67 to $0.71 per share. The increase is primarily caused by lease termination income from a negotiated early termination of the lease at our Fresno property in conjunction with the property disposition.

The termination payment was agreed to in the third quarter, and the income will be straight-lined through the disposition date, which occurred in October, and we will generate approximately $0.05 per share of lease termination income for 2025.

We are also improving our outlook for net debt to adjusted EBITDA which is now anticipated to range from 6.7x to 7.2x, down from 7.3x to 8.3x. The improvement is primarily driven by our continued net debt reduction efforts through expected property disposition proceeds as well as the lease termination income I discussed earlier, benefiting adjusted EBITDA.

Lastly, we are improving and tightening our G&A range to $19.5 million to $20 million from $19.5 million to $20.5 million. While we are not providing formal 2026 guidance yet, we do expect 2025 to represent a trough for our core FFO, excluding a total of $0.08 per share of 2025 lease-related termination income as our recent leasing and capital initiatives begin to translate into improved recurring earnings next year and beyond. With that, we will open the line for questions. Operator?

[Operator Instructions]

Our first question comes from the line of Mitch Germain with Citizens Bank.

Just I want to talk about some of the puts and takes of guidance. You get the benefit of the lease term income, you're selling some vacancy, which helps with some of the expense drag, though it seems like in effect, if I look at last quarter, the lease term income actually went down. So just maybe kind of describe some of the puts and takes that helped you kind of shape where your outlook is today.

Gavin, do you want to take that?

Mitch, Yes. So the lease termination income was a result of the negotiated termination settlement with one of our tenants in the Fresno building. The puts really is driven by that and then as well as our leasing efforts that are taking place in the fourth quarter and the third quarter of leases that we signed in the prior year and the prior quarter as well for the free rent bridge now coming to an end. And then from an interest perspective, our interest rates are coming down, and so we're not paying as much interest expense. So we believe that, that also helped us in the fourth quarter.

Okay. Your leasing pipeline went down quarter-over-quarter. Does any of that have to do with some execution? Obviously, a little bit of a smaller portfolio as well. Is there anything that we should be thinking about behind that with regards to demand?

Well, I think it's a couple of things, Mitch. The answer is no on the demand scale. We've seen continued improved demand for our properties. So we feel pretty good about that. Some of it is exactly what you just mentioned, that is some of the properties that we talked about on the last call that were sort of in the pipeline have -- we've now got leases signed up.

And I think the second thing is that's a little different is we have less rollover coming next year. So we have a somewhat smaller portfolio. We've been selling vacancy, and we have less expected vacancies for next year. So all that combines to probably shrinking the pipeline slightly. But the pipeline we do have, we feel pretty good about.

Got you. Last one for me. You did one acquisition last year. Obviously, you want to change the composition of the types of assets that you're owning over time. It's not going to be an overnight thing. Curious about the pipeline of deals. Are you seeing deals? And is pricing and demand, what could be slowing your ability to acquire here? Maybe just provide some perspective, please?

Yes. Well, I think that on the first -- on the last part, we are seeing a pretty strong pipeline of potential transactions. Of course, we are highly sensitive to a number of factors, pricing being probably the biggest one, of course. But then, of course, it's property location and lease duration. So it's a -- it's a little like Goldilocks.

We kind of got to find the right temperature for the acquisition that we're looking for. But we do see some good transactions. We're being highly selective, but we do think it makes sense for us to recycle some of the capital -- some of this capital into new assets with long-duration WALT's and with higher quality cash flows. We're just not going to do it willy-nilly. We're going to be highly selective. We expect to add some assets in the next 12 months, but it will not be -- it will be a relatively modest number.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. McDowell for any final comments.

Thank you all for joining us today, and we look forward to further updating you in the months and quarters ahead. Thank you. Goodbye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.