UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021March 31, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 001-40873
Orion Office REIT Inc.
(Exact name of registrant as specified in its charter)
Maryland87-1656425
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2325 E. Camelback Road, Suite 850PhoenixAZ85016
(Address of principal executive offices)(Zip Code)
(602)698-1002
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class:Trading Symbol(s):Name of each exchange on which registered:
Common Stock$0.001 par value per shareONLNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ox No x*o
* The registrant became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, on October 22, 2021.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐oAccelerated filer☐oNon-accelerated filer☒x
Smaller reporting company☐oEmerging growth company☒x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The Registrant’s shares of common stock, $0.001 par value per share, are listed and trade on the New York Stock Exchange (“NYSE”) and began trading publicly in regular way on November 15, 2021.
There were 56,625,650 shares of common stock of Orion Office REIT Inc. outstanding as of November 30, 2021.April 29, 2022.








1


Table of Contents
EXPLANATORY NOTEExplanatory Note
This quarterly report of Orion Office REIT Inc. (the “Company”, “Orion”, “we” or “us”) includes the financial statements of the Company, as of September 30, 2021 and for the period from July 15, 2021 (date of capitalization) to September 30, 2021,three months ended March 31, 2022 and the Company’s predecessors, Realty Income Office Assets (as defined below) and2021. The financial statements also include VEREIT Office Assets (as defined below), asa predecessor of andthe Company, for the three and nine months ended September 30,March 31, 2021, and 2020.as further described below.

On November 1, 2021, pursuant to the Agreement and Plan of Merger, dated as of April 29, 2021 (as amended, the “Merger Agreement”), by and among Realty Income Corporation (“Realty Income”), VEREIT, Inc. (“VEREIT”), Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”) and Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), Merger Sub 2 merged with and into VEREIT Operating Partnership, L.P. (“VEREIT OP”), with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Upon the Merger Effective Time, as part of the Mergers, Realty Income acquired certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”)Assets (the “Separation”) to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”).
The Distribution is more fully described in the preliminary information statement included as Exhibit 99.1 to the Company’s Registration Statement on Form 10 (File No. 001-40873) (the “Form 10”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 4, 2021, the final version of which was included as Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on October 25, 2021 (the “Information Statement”). The Distribution became effective at 4:01 p.m., Eastern Time, on November 12, 2021.
Following the Distribution, the Company became an independent publicly traded company and intends to qualify and elect to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company’s initial taxable year endingended December 31, 2021. The Company’s common stock trades on the New York Stock Exchange under the symbol “ONL”.
The consolidated and combined financial statements of the Company coveredincluded in this report presentinclude the accounts of Realty Income Office Assets for the three months ended March 31, 2021 as the ownership interests were under common control of Realty Income during that period. From and after the Merger Effective Time, the consolidated and combined financial conditionstatements of the Company as of September 30, 2021, which is prior toinclude the consummationaccounts of the Mergers, the SeparationCompany and the Distribution.its consolidated subsidiaries and a consolidated joint venture. Therefore, the discussion of the Company’s results of operations, cash flowsconsolidated and combined financial conditionstatements set forth in this report isare not necessarily indicative of the future results of operations or cash flows or financial condition of the Company as an independent, publicly traded company. Moreover, the combined and consolidated financial statements for Realty Income Office Assets andthe VEREIT Office Assets are not necessarily indicative of the Company's results of operations, cash flows or financial position following the completion of the Mergers, the Separation and the Distribution.that would have been obtained if VEREIT Office Assets had been an independent, stand-alone company. For more information regarding the risks related to our business, refer to risk factorsPart I - Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10 and10-K filed with the Information Statement.SEC on March 24, 2022.

2

ORION OFFICE REIT INC.
For the quarterly period ended September 30, 2021March 31, 2022
Page
PartPART I
Item 1. Unaudited Financial Statements
4
Orion Office REIT Inc. Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021
4
Orion Office REIT Inc. Consolidated Balance Sheets as ofSeptember 30, 2021and July15,2021(date of capitalization)
4
Orion Office REIT Inc. Consolidated StatementCombined Statements of Operations forthe period fromThree Months Ended JulyMarch 31, 20215,2 and2021 (date of capitalization) to September 30, 2021
5
Orion Office REIT Inc. Consolidated Statementand Combined Statements of Changes in Equity Comprehensive Income (Loss) for the period from July 15, 2021 (date of capitalization) to September 30,Three Months Ended March 31, 2022 and 2021
6
Orion Office REIT Inc. Consolidated Statementand Combined Statements of Cash FlowsEquity for the period fromJuly 15, 2021 (date of capitalization) to September 30,Three Months Ended March 31, 2022 and 2021
7
Orion Office REIT Inc. Consolidated and Combined Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021
8
Notes to Orion Office REIT Inc. Consolidated and Combined Financial Statements
89
VEREIT Office Assets Combined and Consolidated Statement of Operations for the Three Months Ended March 31, 2021
24
VEREIT Office Assets Combined and Consolidated Balance Sheets asStatement of Equity for the September 30,Three Months Ended March 31, 2021 and December 31, 2020
12
VEREIT Office Assets Combined and Consolidated Statements of Operations for the Three and Nine Months EndedSeptember 30, 2021 and 2020
1325
VEREIT Office Assets Combined and Consolidated StatementsStatement of EquityCash Flows for the Three and Nine Months Ended September 30,March 31, 2021 and 2020
14
VEREITOffice Assets Combined and Consolidated Statements of Cash Flows for the Nine Months EndedSeptember 30, 2021 and 2020
1526
Notes to VEREIT Office Assets Combined and Consolidated Financial Statements
16
26
27
28
29
30
Item 2. Management DiscussionManagement’s Discussion and Analysis of Financial ConditionCondition and Results of Operations
3735
Item 3. Quantitative and Qualitative Disclosures About Market Risk
5550
Item 4. Controls and Procedures
5551
PartPART II
Item 1. Legal Proceedings
5551
Item 1A. Risk Factors
5551
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
5651
Item 3. Defaults Upon Senior Securities
5651
Item 4. Mine Safety Disclosures
5651
Item 5. Other Information
5652
Item 6. Exhibits
5653
Signatures
5955




PART I — FINANCIAL INFORMATION
3

Item 1. Financial Statements.
ORION OFFICE REIT INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data) (Unaudited)
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements.

September 30, 2021July 15, 2021
(date of capitalization)		March 31, 2022December 31, 2021
ASSETSASSETSASSETS
Cash$1 $1 
Real estate investments, at cost:Real estate investments, at cost:
LandLand$254,786 $250,194 
Buildings, fixtures and improvementsBuildings, fixtures and improvements1,231,469 1,231,551 
Total real estate investments, at costTotal real estate investments, at cost1,486,255 1,481,745 
Less: accumulated depreciation and amortizationLess: accumulated depreciation and amortization137,217 128,109 
Total real estate investments, netTotal real estate investments, net1,349,038 1,353,636 
Accounts receivable, netAccounts receivable, net22,032 17,916 
Intangible lease assets, netIntangible lease assets, net272,623 298,107 
Cash and cash equivalentsCash and cash equivalents18,585 29,318 
Other assets, netOther assets, net92,671 60,501 
Total assetsTotal assets$1 $1 Total assets$1,754,949 $1,759,478 
LIABILITIES AND EQUITYLIABILITIES AND EQUITYLIABILITIES AND EQUITY
Bridge facility, netBridge facility, net$— $354,357 
Mortgages payable, netMortgages payable, net351,648 — 
Credit facility term loan, netCredit facility term loan, net172,793 172,490 
Credit facility revolverCredit facility revolver91,000 90,000 
Accounts payable and accrued expensesAccounts payable and accrued expenses17,929 17,379 
Below-market lease liabilities, netBelow-market lease liabilities, net18,993 20,609 
Distributions payableDistributions payable5,663 — 
Other liabilities, netOther liabilities, net19,897 16,355 
Total liabilitiesTotal liabilities677,923 671,190 
Common stock ($0.01 par value, 100,000 shares issued and outstanding)1 1 
Common stock, $0.001 par value, 100,000,000 shares authorized and 56,625,650 shares issued and outstanding as of each of March 31, 2022 and December 31, 2021Common stock, $0.001 par value, 100,000,000 shares authorized and 56,625,650 shares issued and outstanding as of each of March 31, 2022 and December 31, 202157 57 
Additional paid-in capitalAdditional paid-in capital2,797 — Additional paid-in capital1,145,548 1,145,278 
Accumulated other comprehensive incomeAccumulated other comprehensive income4,356 299 
Accumulated deficitAccumulated deficit(2,797)— Accumulated deficit(74,328)(58,715)
Total stockholders’ equityTotal stockholders’ equity1,075,633 1,086,919 
Non-controlling interestNon-controlling interest1,3931,369 
Total equityTotal equity$1 $1 Total equity1,077,026 1,088,288 
Total liabilities and equityTotal liabilities and equity$1,754,949 $1,759,478 

The accompanying notes are an integral part of this statement.
4

ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTAND COMBINED STATEMENTS OF OPERATIONS
(In thousands)thousands, except for per share data) (Unaudited)

For the Period from July 15, 2021 (date of capitalization) to September 30, 2021
Operating expenses:
Transaction costs$2,797 
Net loss$(2,797)
Three Months Ended March 31,
20222021
Rental$53,017 $13,028 
Fee income from unconsolidated joint venture189 — 
Total revenues53,206 13,028 
Operating expenses:
Property operating15,314 1,468 
General and administrative3,517 556 
Depreciation and amortization34,353 5,988 
Impairments1,602 — 
Acquisition related63 — 
Transaction costs756 — 
Total operating expenses55,605 8,012 
Other (expenses) income:
Interest expense(6,847)(465)
Loss on extinguishment of debt, net(468)— 
Other income, net39 — 
Equity in income of unconsolidated joint venture(41)— 
Total other (expenses) income, net(7,317)(465)
(Loss) income before taxes(9,716)4,551 
Provision for income taxes(166)— 
Net (loss) income(9,882)4,551 
Net (income) loss attributable to non-controlling interest(24)— 
Net (loss) income attributable to common stockholders$(9,906)$4,551 
Weighted-average shares outstanding - basic and diluted$56,626 $56,626 
Basic and diluted net (loss) income per share attributable to common stockholders$(0.17)$0.08 

The accompanying notes are an integral part of this statement.
5

ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTAND COMBINED STATEMENTS OF CHANGES IN EQUITYCOMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)

Common StockAdditional Paid-In CapitalAccumulated DeficitTotal Equity
Balance, July 15, 2021 (date of capitalization)$1 $— $— $1 
Net loss— — (2,797)(2,797)
Capital contributions— 2,797 — 2,797 
Balance, September 30, 2021$1 $2,797 $(2,797)$1 

Three Months Ended March 31,
20222021
Net (loss) income$(9,882)$4,551 
Total other comprehensive income (loss)
Unrealized gain on interest rate derivatives3,818 — 
Reclassification of previous unrealized loss on interest rate derivatives into net (loss) income239 — 
Total other comprehensive income (loss)4,057 — 
Total comprehensive (loss) income(5,825)4,551 
Comprehensive (income) loss attributable to non-controlling interests (1)
(24)— 
Total comprehensive (loss) income$(5,849)$4,551 
(1)Represents comprehensive (income) loss attributable to a consolidated joint venture partner.

The accompanying notes are an integral part of this statement.these statements.
6

ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTAND COMBINED STATEMENTS OF CASH FLOWSEQUITY
(In thousands)thousands, except for share and per share data) (Unaudited)

For the Period from July 15, 2021 (date of capitalization) to September 30, 2021
Cash flows from operating activities:
Common Stock
Number
of Shares		Par
Value		Additional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit		Total Stockholders’ EquityNon-Controlling InterestsTotal Equity
Balance, January 1, 202256,625,650 $57 $1,145,278 $299 $(58,715)$1,086,919 $1,369 $1,088,288 
Net (loss) income— — — — (9,906)(9,906)24 (9,882)
Distributions— — — — (5,707)(5,707)— (5,707)
Equity-based compensation, net— — 270 — — 270 — 270 
Other comprehensive income— — — 4,057 — 4,057 — 4,057 
Balance, March 31, 202256,625,650 $57 $1,145,548 $4,356 $(74,328)$1,075,633 $1,393 $1,077,026 


Common Stock
Number
of Shares		Par
Value		Additional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit		Net Parent InvestmentTotal Parent Company EquityNon-Controlling InterestsTotal Equity
Balance, January 1, 2021— $— $— $— $— $497,118 $497,118 $— $497,118 
Net income— — — — — 4,551 4,551 — 4,551 
Distributions to parent company, net— — — — — (14,122)(14,122)— (14,122)
Balance, March 31, 2021— $— $— $— $— $487,547 $487,547 $— $487,547 

Net loss$(2,797)
Net cash used in operating activities(2,797)
Cash flows from financing activities:
Capital contributions2,797 
Net cash provided by financing activities2,797 
Net change in cash— 
Cash, beginning of period1 
Cash, end of period$1 

The accompanying notes are an integral part of this statement.
7
ORION OFFICE REIT INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Three Months Ended March 31,
20222021
Cash flows from operating activities:
Net (loss) income$(9,882)$4,551 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization34,353 5,988 
Non-cash revenue adjustments(1,092)(390)
Amortization of net premiums on mortgages payable— (21)
Impairments1,602 — 
Loss on extinguishment of debt, net468 — 
Amortization of deferred financing costs1,172 — 
Equity-based compensation270 — 
Equity in income of unconsolidated joint venture41 — 
Changes in assets and liabilities:
Accounts receivable, net and other assets, net(1,989)(226)
Accounts payable, accrued expenses and other liabilities, net3,210 1,248 
Net cash provided by operating activities28,153 11,150 
Cash flows from investing activities:
Capital expenditures and leasing costs(1,836)(55)
Return of investment from unconsolidated joint venture601 — 
Net cash used in investing activities(1,235)(55)
Cash flows from financing activities:
Repayment of bridge facility, including debt extinguishment costs(355,026)— 
Proceeds from mortgage notes payable355,000 — 
Payments on mortgage notes payable— (163)
Proceeds from credit facility revolver70,000 — 
Repayments of credit facility revolver(69,000)— 
Distributions to parent company, net— (14,122)
Payments of deferred financing costs(3,096)— 
Other financing activities(46)— 
Net cash used in financing activities(2,168)(14,285)
Net change in cash and cash equivalents and restricted cash24,750 (3,190)
Cash and cash equivalents and restricted cash, beginning of period29,318 3,915 
Cash and cash equivalents and restricted cash, end of period$54,068 $725 
Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period$29,318 $— 
Restricted cash at beginning of period— 3,915 
Cash and cash equivalents and restricted cash at the beginning of the period$29,318 $3,915 
Cash and cash equivalents at end of period$18,585 $— 
Restricted cash at the end of the period35,483 725 
Cash and cash equivalents and restricted cash at the end of the period$54,068 $725 

The accompanying notes are an integral part of this statement.

8
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
September 30, 2021March 31, 2022 (Unaudited)
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
Orion Office REIT Inc. (“the Company”(the “Company”, “Orion”, “we” or “us”) was incorporated in the state of Maryland on July 1, 2021 and was capitalized on July 15, 2021. As of September 30, 2021, the Company was an indirect wholly owned subsidiary of Realty Income Corporation (“Realty Income”).
On April 29, 2021, Realty Income Corporation (“Realty Income”) entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc. (“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”). On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Upon the Merger Effective Time, as part of the Mergers, Realty Income acquired certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office AssetsAssets”) and VEREIT Office Assets (the “Separation”) to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). Approximately $595.0 million was distributed by the Company to Realty Income in accordance with the Separation and Distribution Agreement. In connection with the Separation and the Distribution, the Company entered into certain agreements with Realty Income to govern the ongoing relationships between the Company and Realty Income and to provide mechanisms for an orderly transition to the Company’s status as an independent, publicly traded company, including the Separation and Distribution Agreement and a transition services agreement to provide certain administrative and other services between the parties for a limited time. Following the Distribution, the Company became an independent and publicly traded company and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year endingended December 31, 2021.
The Company’s common stock, par value $0.001 per share, trades on the New York Stock Exchange (the “NYSE”) under the symbol “ONL”.
Realty Income and VEREIT are both considered accounting predecessors of the Company.
Following the Mergers, the Separation and the Distribution,At March 31, 2022, the Company ownsowned and operatesoperated 92 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.5 million leasable square feet located within 29 states and Puerto Rico. In addition, the Company owns an equity interest in an unconsolidated joint venture with an affiliate of Arch Street Capital Partners (the “Arch Street Joint Venture”), which, as of September 30, 2021March 31, 2022 owned a portfolio consisting of 56 office properties totaling approximately 0.81.0 million leasable square feet located within 56 states.
Through September 30, 2021, the Company had not conducted any business as a separate company other than start-up related activities.
Note 2 - Summary of Significant Accounting Policies
Basis of PresentationAccounting
The accompanying consolidated and combined statements of the Company presented herein include the accounts of the Company and its consolidated subsidiaries. All intercompany transactions have been eliminated upon consolidation. The financial statements wereare prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
For periods presented prior The consolidated and combined financial statements reflect all adjustments which are, in the opinion of management, necessary to the datea fair statement of the Distribution, the historical consolidated financial results for the Company reflect chargesinterim periods presented. These adjustments are considered to be of a normal, recurring nature.
The operating results presented for certain legal, accountinginterim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company’s audited consolidated and other costs relatedcombined financial statements and notes thereto as of and for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2022. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the Distribution, which were incurredrules and paid byregulations of the SEC and U.S. GAAP.
9
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Principles of Consolidation and Combination and Basis of Presentation
The consolidated and combined statements of the Company include the accounts of Realty Income Office Assets presented on a combined basis for the Company’s behalf,three months ended March 31, 2021 as the ownership interests were under common control and are reflected as capital contributions.
Organizational Costs
Organizational costs are expensed as incurred. Such costs are comprisedownership of Realty Income during that period. For the legalthree months ended March 31, 2022, the consolidated and professional fees associated withcombined financial statements include the formation and organizationaccounts of the Company and are included in transaction costsits consolidated subsidiaries and a consolidated joint venture. The portion of the consolidated joint venture not owned by the Company is presented as non-controlling interest in the accompanyingCompany’s consolidated statementbalance sheets, statements of operations.operations, statements of comprehensive income (loss) and statements of changes in equity.
For legal entities being evaluated for consolidation, the Company must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. The Company’s evaluation includes consideration of fees paid to the Company where the Company acts as a decision maker or service provider to the entity being evaluated. If the Company determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. The Company consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.
The Company then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. The Company continually evaluates the need to consolidate VIEs based on standards set forth in U.S. GAAP.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8

ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited)
Note 2 – Stockholder’s Equity
The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock ($0.01 par value per share) to Realty Income for a total of $1,000. Certain start-up and transaction related costs were incurred and paid on the Company’s behalf by Realty Income and are reflected as capital contributions.
Note 3 – Income Taxes
The Company intends to qualify and elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company’s initial taxable year ending December 31, 2021. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain to its stockholders. As a REIT, the Company generally will not be subject to corporate level U.S. federal income tax.
Note 4 – Subsequent Events
Merger with Realty Income
The Mergers were consummated on November 1, 2021, and the Separation and the Distribution were completed on November 12, 2021.
Credit Facility
In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion Office REIT LP (“Orion OP”), as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425 million senior revolving credit facility (the “Revolving Facility”), including a $25 million letter of credit sub-facility, and a two-year, $175 million senior term loan facility (the “Term Loan Facility,” and together with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “CMBS Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355 million senior bridge term loan facility (the “CMBS Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
On November 12, 2021, Orion OP borrowed $90.0 million under the Revolving Facility, and each of the Term Loan Facility and the CMBS Bridge Facility was fully drawn. Approximately $595.0 million of the net proceeds of the Facilities was distributed to Realty Income in accordance with the Separation and Distribution Agreement. Orion OP retained the remaining net proceeds of such borrowings as working capital that will be used for the general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries. As of the completion of the Separation and the Distribution, the Company had $620.0 million in consolidated outstanding indebtedness, approximately $15.6 million in cash and $335.0 million of availability under the Revolving Facility.
The CMBS Bridge Facility is subject to one 6-month extension option at the election of Orion OP. The exercise of such extension option requires the payment of an extension fee and the satisfaction of certain other customary conditions.
The interest rate applicable to the loans under the Facilities may, at the election of Orion OP, be determined on the basis of LIBOR or a base rate, in either case, plus an applicable margin. Under the Revolver/Term Loan Facilities, the applicable margin is (1) in the case of the Revolving Facility, 2.50% for LIBOR loans and 1.50% for base rate loans and (2) in the case of the Term Loan Facility, 2.50% for LIBOR loans and 1.50% for base rate loans. Under the CMBS Bridge Facility, the applicable margin for LIBOR loans is initially 2.50% with increases over time to a maximum of 3.50% and the applicable margin on base rate loans is initially 1.50% with increases over time to a maximum of 2.50%, in each case, based on the number of days elapsed after November 12, 2021. Loans under the Credit Agreements may be prepaid, and unused commitments under the Credit Agreements may be reduced, at any time, in whole or in part, without premium or penalty (except for LIBOR breakage costs).
To the extent that amounts under the Revolving Facility remain unused, Orion OP is required to pay a quarterly commitment fee on the unused portion of the Revolving Facility in an amount equal to 0.25% per annum of the unused portion of the Revolving Facility.
The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) and the CMBS Bridge Facility is guaranteed pursuant to a Guaranty (the “CMBS Bridge Guaranty”), in each case, by the Company
9

ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited)
and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).
The Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.
The Credit Agreements require that Orion OP comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. In addition, the Credit Agreements require that Orion OP satisfy certain financial covenants, including a:
•ratio of total debt to total asset value of not more than 0.60 to 1.00;
•ratio of adjusted EBITDA to fixed charges of not less than 1.50 to 1.00;
•ratio of secured debt to total asset value of not more than 0.45 to 1.00;
•ratio of unsecured debt to unencumbered asset value of not more than 0.60 to 1.00; and
•ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00.
The Credit Agreements include customary representations and warranties of the Company and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolver/Term Loan Facilities. The Credit Agreements also include customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Credit Agreements to be immediately due and payable and foreclose on the collateral securing the Facilities.
Equity
On November 10, 2021, the Company issued 56,525,650 additional shares of common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Company’s common stock. Also on November 10, 2021, in connection with the filing of the Company’s Articles of Amendment, the Company changed the par value of its common stock from $0.01 per share to $0.001 per share. On November 12, 2021, Realty Income effected the Distribution.
On November 12, 2021, in connection with the Distribution, Orion OP entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
In connection with the entry into the LLCA, the Company and the Arch Street Joint Venture entered into that certain Right of First Offer Agreement (the “ROFO Agreement”), dated November 12, 2021, pursuant to which, subject to certain limitations, the Company, on behalf of itself and its affiliates, agreed not to acquire or purchase a fee simple or ground leasehold interest in any office real property, including by way of an acquisition of equity interests, within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture, which will expire upon the earlier of (1) the third anniversary of the execution of the ROFO Agreement, (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million. If the Arch Street Joint Venture decides not to acquire any such property, the Company may seek to acquire the property independently, subject to certain restrictions.
Also on November 12, 2021, in connection with the entry into the LLCA, the Company granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of the Company’s common stock (the “Arch Street Warrants”). The Arch Street Warrants entitle the respective holders to purchase shares of the Company’s common stock at a price per share equal to (1) the 30-day volume weighted average per share price of the Company’s common stock for the first 30 trading days beginning on the first trading date of the Company’s common stock, multiplied by (2) 1.15 (as may be adjusted for any stock splits, dividends, combinations or similar transactions), at any time commencing 31 trading days after the completion of the Distribution. The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Company common stock determined according to the formula set forth in the Arch Street Warrants. The Arch Street Warrants expire on the earlier of (a) 10 years after issuance and (b) the termination of the Arch Street Joint Venture.
10

ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited)
The Arch Street Warrants will be exercisable and the Company will not be obligated to issue shares of the Company’s common stock upon exercise of a warrant unless such common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. The Company has agreed that, prior to six months following the Company’s eligibility to use Form S-3 for the registration of securities of the Company, the Company will file with the SEC a registration statement on Form S-3 (the “Registration Statement”) for the registration, under the Securities Act, of the shares of the Company’s common stock issuable upon exercise of the Arch Street Warrants. The Company will use its commercially reasonable efforts to cause the Registration Statement to become effective and to maintain the effectiveness of the Registration Statement, and a current prospectus relating thereto, until the earlier of (a) the expiration of the Arch Street Warrants, or (b) the shares issuable upon such exercise shall become freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act (or any successor rule)) of us. The holders of the Arch Street Warrants will also remain subject to the ownership limitations pursuant to the Company’s organizational documents.
Also in connection with the entry in the LLCA, the Arch Street Joint Venture’s lender consented to the transfer of the interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP, and, in connection therewith, Orion OP agreed to become a guarantor of certain limited customary recourse obligations and provide certain customary environmental indemnities under the Arch Street Joint Venture’s existing indebtedness.
11

VEREIT OFFICE ASSETS
COMBINED AND CONSOLIDATED BALANCE SHEETS
(In thousands) (Unaudited)

September 30, 2021December 31, 2020
ASSETS
Real estate investments, at cost:
Land$163,295 $167,658 
Buildings, fixtures and improvements1,302,490 1,340,258 
Intangible lease assets184,560 192,291 
Total real estate investments, at cost1,650,345 1,700,207 
Less: accumulated depreciation and amortization523,277 504,192 
Total real estate investments, net1,127,068 1,196,015 
Operating lease right-of-use assets5,365 5,403 
Investment in unconsolidated joint venture14,588 13,434 
Cash and cash equivalents176 400 
Restricted cash3,370 3,014 
Rent and tenant receivables and other assets, net34,339 34,964 
Goodwill159,129 159,129 
Total assets$1,344,035 $1,412,359 
LIABILITIES AND EQUITY
Mortgage notes payable, net$143,269 $217,588 
Below-market lease liabilities, net5,477 7,188 
Accounts payable and accrued expenses10,286 12,632 
Deferred rent and other liabilities8,702 8,114 
Operating lease liabilities5,365 5,403 
Total liabilities173,099 250,925 
Commitments and contingencies (Note 4)00
Net parent investment1,169,789 1,160,246 
Non-controlling interest1,147 1,188 
Total equity1,170,936 1,161,434 
Total liabilities and equity$1,344,035 $1,412,359 

The accompanying notes are an integral part of this statement.
12

VEREIT OFFICE ASSETS
COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands) (Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Rental revenue (including reimbursable)$40,494 $42,370 $121,389 $128,583 
Fee income from unconsolidated joint venture161 102 601 462 
Total revenues40,655 42,472 121,990 129,045 
Operating expenses:
Property operating (including reimbursable)9,997 11,991 30,811 34,567 
General and administrative1,483 1,635 5,058 5,271 
Depreciation and amortization14,790 15,122 44,234 47,375 
Impairments6,440 — 28,064 199 
Total operating expenses32,710 28,748 108,167 87,412 
Other (expenses) income:
Interest expense(1,706)(2,440)(5,522)(7,412)
(Loss) gain on disposition of real estate assets, net— (1,653)— 9,781 
Loss on extinguishment of debt, net(5)— (85)(1,686)
Equity in income of unconsolidated joint venture211 182 621 381 
Other income, net95 11 146 28 
Total other (expenses) income, net(1,405)(3,900)(4,840)1,092 
Income before taxes6,540 9,824 8,983 42,725 
Provision for income taxes(156)(159)(469)(480)
Net income6,384 9,665 8,514 42,245 
Net loss attributable to non-controlling interest10 15 41 29 
Net income attributable to VEREIT Office Assets$6,394 $9,680 $8,555 $42,274 

The accompanying notes are an integral part of this statement.
13

VEREIT OFFICE ASSETS
COMBINED AND CONSOLIDATED STATEMENTS OF EQUITY
(In thousands) (Unaudited)

Total Equity
Balance, January 1, 2020$1,310,129 
Distributions, net(69,624)
Net income20,837 
Balance, March 31, 20201,261,342 
Distributions, net(31,163)
Net income11,743 
Balance, June 30, 20201,241,922 
Distributions, net(58,436)
Net income9,665 
Balance, September 30, 2020$1,193,151 
Balance, January 1, 2021$1,161,434 
Contributions, net18,927 
Net loss(9,866)
Balance, March 31, 20211,170,495 
Distributions, net(4,395)
Net income11,996 
Balance, June 30, 20211,178,096 
Distributions, net(13,544)
Net income6,384 
Balance, September 30, 2021$1,170,936 

The accompanying notes are an integral part of this statement.
14

VEREIT OFFICE ASSETS
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net income$8,514 $42,245 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization44,167 46,993 
Impairments28,064 199 
Gain on disposition of real estate assets, net— (9,781)
Loss on extinguishment of debt, net85 1,686 
Equity in income of unconsolidated joint venture(621)(381)
Distributions from unconsolidated joint venture621 371 
Changes in assets and liabilities:
Rents and tenant receivables, operating lease right-of-use and other assets, net1,214 196 
Accounts payable and accrued expenses(3,276)651 
Deferred rent, operating lease and other liabilities550 (2,002)
Net cash provided by operating activities79,318 80,177 
Cash flows from investing activities:
Capital expenditures and leasing costs(4,531)(6,373)
Real estate developments(240)(1,280)
Proceeds from disposition of real estate— 116,376 
Investments in unconsolidated joint venture(2,180)(2,669)
Return of investment from unconsolidated joint venture1,026 370 
Proceeds from the settlement of property-related insurance claims70 10 
Net cash (used in) provided by by investing activities(5,855)106,434 
Cash flows from financing activities:
Proceeds from mortgage notes payable— 1,032 
Payments on mortgage notes payable(74,600)(27,719)
Payments of deferred financing costs— (326)
Refunds of deferred financing costs280 — 
Net contributions (distributions) to parent989 (159,223)
Net cash used in financing activities(73,331)(186,236)
Net change in cash and cash equivalents and restricted cash132 375 
Cash and cash equivalents and restricted cash, beginning of period3,414 2,891 
Cash and cash equivalents and restricted cash, end of period$3,546 $3,266 
Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalent at the beginning of the period$400 $190 
Restricted cash at the beginning of the period3,014 2,701 
Cash and cash equivalents and restricted cash at the beginning of the period$3,414 $2,891 
Cash and cash equivalent at the end of the period$176 $610 
Restricted cash at the end of the period3,370 2,656 
Cash and cash equivalents and restricted cash at the end of the period$3,546 $3,266 
Supplemental disclosures:
Cash paid for interest$5,886 $7,930 
Non-cash investing and financing activities:
Real estate contributions to unconsolidated joint venture$— $17,240 
Accrued capital expenditures and real estate developments$926 $(1,719)

The accompanying notes are an integral part of this statement.
15

VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited)
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
On April 29, 2021, Realty Income Corporation (“Realty Income”) entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc. (“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”). On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”) (the “Separation”) to Orion Office REIT Inc. (the “Company”) and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). Following the Distribution, Orion operates as a separate, publicly-traded company and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year ending December 31, 2021. VEREIT Office Assets includes the combined accounts related to certain of the office properties of VEREIT, historically operated through subsidiaries of VEREIT, and contains certain corporate costs.
As of September 30, 2021, VEREIT Office Assets had 1 reportable segment which owned 52 properties, including 1 property owned by a consolidated joint venture, totaling approximately 7.5 million leasable square feet located in 25 U.S. states and Puerto Rico, and an investment in 1 unconsolidated joint venture that owns 5 office properties totaling approximately 0.8 million leasable square feet located within 5 states. As of September 30, 2021, VEREIT Office Assets had not conducted any business as a separate legal entity and had no other material assets or liabilities.
Summary of Significant Accounting Policies
Principles of Combination and Basis of Accounting and Presentation
The accompanying combined and consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of VEREIT Office Assets on a combined and consolidated basis as the ownership interests were under common control and ownership of VEREIT, including a consolidated joint venture. Any applicable intercompany accounts and transactions have been eliminated in consolidation and combination. The portion of the consolidated joint venture not previously owned by VEREIT, is presented as non-controlling interest in VEREIT Office Assets’ combined and consolidated balances sheets and statements of operations. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results for the entire year or any subsequent interim period. These combined and consolidated financial statements should be read in conjunction with the audited combined and consolidated financial statements of VEREIT Office Assets and notes thereto as of and for the year ended December 31, 2020, included in the Information Statement. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC and GAAP.
16
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)

For legal entities being evaluated for consolidation, VEREIT Office Assets must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. VEREIT Office Assets’ evaluation includes consideration of fees paid to VEREIT Office Assets where VEREIT’s management, on behalf of VEREIT Office Assets, acts as a decision maker or service provider to the entity being evaluated. If VEREIT Office Assets determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. VEREIT Office Assets consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.
VEREIT Office Assets then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, VEREIT Office Assets’ ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. VEREIT Office Assets consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to VEREIT Office Assets’ combined and consolidated financial statements. VEREIT Office Assets continually evaluates the need to consolidate these VIEs based on standards set forth in GAAP.
These combined and consolidated financial statements were derived from the books and records of VEREIT and were carved out from VEREIT at a carrying value reflective of historical cost in such VEREIT records. VEREIT Office Assets’ historical balance sheets reflect amounts for goodwill based on its proportion of the cost basis of the real estate assets as of December 31, 2018. VEREIT Office Assets’ historical financial results reflect charges for certain corporate costs and, we believe such charges are reasonable. Costs of the services that were charged to VEREIT Office Assets were based on either actual costs incurred or a proportion of costs estimated to be applicable to this entity, based on VEREIT Office Assets’ pro rata share of VEREIT’s annualized rental income. Annualized rental income is rental revenue on a straight-line basis, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any adjustments to rental income due to changes in the collectability assessment, contingent rent, such as percentage rent, and operating expense reimbursements. The historical combined and consolidated financial information presented may therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if there had been an independent, stand-alone public company during the periods presented or of Orion’s future performance as an independent, stand-alone company.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Real Estate Investments
Real estate and related assets acquired are recorded at cost and accumulated depreciation and amortization are assessed based on the period of future benefit of the asset. Depreciation and amortization are computed using a straight-line method over the estimated useful life of 40 years for buildings and building improvements, 15 years for land improvements and the remaining lease term for tenant improvements and intangible lease assets.
VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its Management makes significant estimates regarding real estate assets may not be recoverable. Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates.investment impairments.
17
VEREIT OFFICE ASSETSRevenue Recognition
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTSRental Revenue
September 30, 2021 (Unaudited) - (Continued)

When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability. In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets have been adjusted to their respective fair values and an impairment loss has been recognized. There are inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants.
Investment in Unconsolidated Joint Venture
As of September 30, 2021 and December 31, 2020, VEREIT Office Assets owned a 20% ownership interest in an unconsolidated joint venture that owned 5 and 4 properties, respectively, with total real estate investments, at cost, of $196.1 million and $169.3 million, respectively, and total debt outstanding of $118.4 million and $102.6 million, respectively, which was non-recourse to VEREIT Office Assets.
VEREIT Office Assets accounted for its investment in the unconsolidated joint venture using the equity method of accounting as VEREIT Office Assets had the ability to exercise significant influence, but not control, over operating and financing policies of the joint venture. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for VEREIT Office Assets’ share of equity in the joint venture’s earnings and distributions. VEREIT Office Assets recorded its proportionate share of net income (loss) from the unconsolidated joint venture in equity in income of unconsolidated joint venture in the combined and consolidated statements of operations.
VEREIT Office Assets was required to determine whether an event or change in circumstances had occurred that may have had a significant adverse effect on the fair value of its investment in the unconsolidated joint venture. If an event or change in circumstance had occurred, VEREIT Office Assets’ management was required to evaluate its investment in the unconsolidated joint venture for potential impairment and determine if the carrying value of its investment exceeded its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value is fully recovered. The evaluation of an investment in an unconsolidated joint venture for potential impairment required VEREIT Office Assets’ management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No impairments were identified during the three and nine months ended September 30, 2021 and 2020.
Goodwill Impairment
VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable. To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including, but not limited to macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no quantitative testing is required. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount, the provisions of guidance require that the fair value be compared to the carrying value. Goodwill is considered impaired if the carrying value exceeds the fair value. No impairments of VEREIT’s goodwill were recorded during the three and nine months ended September 30, 2021 and 2020. The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying combined and consolidated statements of operations.
Cash and Cash Equivalents
VEREIT Office Assets considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. VEREIT Office Assets considers investments in highly liquid money market accounts to be cash equivalents.
18
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)

Restricted Cash
As of September 30, 2021 and December 31, 2020, restricted cash included $3.4 million and $3.0 million, respectively, in lender reserves. Reserves relate to lease expirations, as well as maintenance, structural and debt service reserves.
Rent and Tenant Receivables and Other Assets, Net
Rent and tenant receivables and other assets, net primarily includes amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries due from tenants. Prepaid expenses as of the balance sheet date relate to future periods and will be expensed or reclassified to another account during the period to which the costs relate. Any amounts with no future economic benefit are charged to earnings when identified.
Deferred Financing Costs
Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. Deferred financing costs are presented on the combined and consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed.
Leases - Lessor
At the inception of a new lease arrangement, including new leases that arise from amendments, the terms and conditions are assessed to determine the proper lease classification. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease. When a lease does not effectively transfer control of the underlying asset to the lessee, but a guarantee is obtained for the value of the asset from a third party, the lease is classified as a direct financing lease. All other leases are classified as operating leases. As of September 30, 2021 and December 31, 2020, no leases were classified as sales-type or direct financing leases.
For operating leases with minimum scheduled rent increases, rental revenue is recognized on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments is probable. Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
VEREIT Office Assets adopted Accounting Standards Codification Topic 842, Leases effective as of January 1, 2019. Two separate lease components were identified as follows: (i) land lease component and (ii) single property lease component comprised of building, land improvements and tenant improvements. The leases also contain provisions for tenants to reimburse VEREIT Office Assets for real estate taxes and insurance, which are considered noncomponents of the lease, and maintenance and other property operating expenses, which are considered to be non-lease components. VEREIT Office Assets elected the practical expedient to combine lease and non-lease components and the non-lease components will be included with the single property lease component as the predominant component.
VEREIT Office AssetsCompany continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term.term and the Company recognizes a general allowance on a portfolio-wide basis. For leases that are deemed not probable of collection, revenue is recorded as cash is received. Allreceived and the Company reduces rental revenue for any straight-line rent receivables. The Company recognizes all changes in the collectability assessment for an operating lease are recognized as an adjustment to rental income.
19
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)

revenue. During the yearthree months ended DecemberMarch 31, 2020, there was a global outbreak of a new strain of coronavirus, COVID-19. The global and domestic response to2022, the COVID-19 outbreak continues to evolve. Federal, state, and local authorities have responded in a variety of ways, including temporary closure of or imposed limitations on the operations of certain non-essential businesses. Since the COVID-19 outbreak began, each of VEREIT Office Assets’ tenants has almost entirely continued to meet its payment obligations under its respective lease. In consideration of each tenant’s payment history, among other factors, there have been no changes in the collectability assessment for any of VEREIT Office Assets’ operating leases. Though the COVID-19 outbreakCompany did not haverecord a material impactgeneral allowance or any reductions to rental revenue for amounts not probable of collection.
For operating leases with minimum scheduled rent increases, the Company recognizes rental revenue on VEREIT Office Assets’ resultsa straight-line basis, including the effect of operations, cash flows or financial condition for the three and nine months ended September 30, 2021 and 2020, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.
Leases - Lessee
To account for leases for which VEREIT Office Assets is the lessee, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures are performed at the lease commencement date.
The lease liability is initially measured as the present value of the lease paymentsany free rent periods, over the lease term discounted using the interest rate implicitwhen collectability of lease payments is probable. Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease if that ratepayments are based occur. Variable lease payments, including contingent rent, which is readily determinable; otherwise,paid by a tenant when the lessee’s incremental borrowing ratetenant’s sales exceed an agreed upon minimum amount, are recognized once tenant sales exceed contractual tenant lease thresholds and is used. The incremental borrowing rate is determined based oncalculated by multiplying the estimated ratesales in excess of interest that the lessee would payminimum amount by a percentage defined in the lease.
10
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Certain of the Company’s leases also contain provisions for tenants to borrowreimburse the Company for real estate taxes, insurance and maintenance and other property operating expenses. Such reimbursements are included in rental revenue and amounts paid directly by tenants are recorded on a collateralizednet basis, over a similar term atas applicable.
Rental revenue also includes lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as amortization of above and below-market leases. During the quarters ended March 31, 2022 and 2021, the Company did not recognize any lease termination income.
Fee Income from Unconsolidated Joint Venture
The Company provides various services to our unconsolidated joint venture entity in exchange for market-based fees. Total asset and property management and acquisition fees earned in connection with this entity was $0.2 million for the quarter ended March 31, 2022. No such fee income was earned for the quarter ended March 31, 2021.
Cash and Cash Equivalents
Cash and cash equivalents include cash in bank accounts, as well as investments in highly-liquid funds with original maturities of three months or less. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an amount equalinsurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed federally insured levels. Although the Company bears risk on amounts in excess of those insured by the FDIC, it has not experienced and does not anticipate any losses due to the lease payments in a similar economic environment. The lease term is the noncancelable periodhigh quality of the lease and includes any renewal and termination options VEREIT Office Assets is reasonably certain to exercise. The lease liability balance is amortized usinginstitutions where the effective interest method. The lease liability is remeasured when the contract is modified, upon the resolution of a contingency such that variable payments become fixed or if the assessment of exercising an extension, termination or purchase option changes.deposits are held.
Restricted cash
The operating lease right-of-use (“ROU”) asset balance is initially measuredCompany had $35.5 million in restricted cash as of March 31, 2022, primarily comprised of reserves held by the lease liability amount, adjustedlender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances. The Company did not have any lease payments made prior to the commencement date, initial direct costs, estimated costs to dismantle, remove, or restore the underlying asset and incentives received.
Income Taxes
Asrestricted cash balances as of September 30, 2021, VEREIT Office Assets was owned by VEREIT, which had elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2011. VEREIT believed it was organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ending December 31, 2021. As a REIT, VEREIT was generally not subject to federal income tax on taxable income that it distributed to its stockholders so long as it distributed annually at least 90% of its REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). Accordingly, no provision has been made for federal income taxes in the accompanying combined and consolidated financial statements of VEREIT Office Assets.
During each of the three months ended September 30, 2021 and 2020 and each of the nine months ended September 30, 2021 and 2020, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $0.2 million and $0.5 million, respectively. Amounts areRestricted cash is included in provision for income taxes inOther Assets, net on the accompanyingCompany’s consolidated and combined and consolidated statements of operations.balance sheets.
VEREIT Office Assets had no unrecognized tax benefits as of or during the three and nine months ended September 30, 2021 and 2020. Any interest and penalties related to unrecognized tax benefits would be recognized in provision for income taxes in the accompanying combined and consolidated statements of operations. As of September 30, 2021, VEREIT Office Assets had no material uncertain income tax positions.
Recent Accounting Pronouncements
DuringIn July 2021, the first quarterFASB issued ASU 2021-05 establishing Topic 842, Lessors - Certain Leases with Variable Lease Payments. ASU 2021-05 further clarifies ASC 842 classification guidance as it relates to a lessor’s accounting for certain leases with variable lease payments. This guidance requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. The adoption of ASU 2021-05 did not have a material impact on our consolidated and combined statements.
In March 2020, the Financial Accounting Standards Board (the “FASB”)FASB issued Accounting Standards Update (“ASU”)ASU 2020-04 establishing Topic 848, Reference Rate Reform (Topic 848).Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. VEREIT Office Assets continues to evaluateWe are currently evaluating the impact that the expected market transition from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates will have on our financial statements as well as the applicability of the guidanceaforementioned expedients and may apply other elections as applicable as additional changesexceptions provided in the market occur.ASU 2020-04.
20
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)

Note 23 – Real Estate Investments and Related Intangibles
Property DispositionsAcquisitions
During the ninethree months ended September 30, 2020, VEREIT Office Assets disposedMarch 31, 2022, the Company acquired for no consideration the fee interest in 1 parcel of 3 properties, selling themland in connection with the maturity of a ground lease. As a result of the transaction, $4.7 million that was previously classified as a finance lease right-of-use asset with respect to such land parcel previously subject to the unconsolidated joint venture for an aggregateground lease was reclassified from other assets, net sales price of $135.5 million. The dispositions resulted in proceeds of $116.4 million after closing costs and VEREIT Office Assets recorded a net gain of $9.8 million related to the dispositions, which is included in gain on disposition of real estate assets, netinvestments in the accompanying combined andCompany’s consolidated statementsbalance sheet as of operations.March 31, 2022. During the three months ended March 31, 2021, the Company had no acquisitions.
11
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Intangible Lease Assets
Intangible lease assets consisted of the following (amounts in thousands, except weighted-average useful life):
Weighted-Average Useful Life (Years)September 30, 2021December 31, 2020
Intangible lease assets:
In-place leases, net of accumulated amortization of $118,576 and $118,093, respectively10.4$30,120 $40,622 
Leasing commissions, net of accumulated amortization of $5,519 and $4,211, respectively9.08,904 7,974 
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $14,605 and $12,974, respectively11.56,836 8,417 
Total intangible lease assets, net$45,860 $57,013 
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $18,335 and $17,553, respectively10.3$5,477 $7,188 
Weighted-Average Useful Life (Years)March 31, 2022December 31, 2021
Intangible lease assets:
In-place leases, net of accumulated amortization of $90,129 and $65,247, respectively4.9$247,807 $272,743 
Leasing commissions, net of accumulated amortization of $694 and $456, respectively13.011,097 10,349 
Above-market lease assets, net of accumulated amortization of $7,535 and $6,239, respectively5.113,719 15,015 
Total intangible lease assets, net$272,623 $298,107 
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $16,075 and $14,459, respectively7.6$18,993 $20,609 
The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net increase to rental revenue was $70,000$0.3 million for the three months ended September 30, 2021.March 31, 2022. The aggregate amount of amortization of above-market and below-market leases included as a net decrease to rental revenue was $31,000$0.2 million for the three months ended September 30, 2020 and $12,000 and $35,000 for the nine months ended September 30, 2021 and 2020, respectively.March 31, 2021. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $4.1$25.2 million and $4.0$1.7 million for the three months ended September 30,March 31, 2022 and March 31, 2021, and 2020, respectively, and $11.8 million and $13.7 million for the nine months ended September 30, 2021 and 2020, respectively.
The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of September 30, 2021March 31, 2022 (amounts in thousands):
Remainder of 20212022202320242025Remainder of 202220232024202520262027
In-place leases:In-place leases:In-place leases:
Total projected to be included in amortization expenseTotal projected to be included in amortization expense$3,286 $10,475 $9,142 $5,512 $1,156 Total projected to be included in amortization expense$69,724 $73,858 $49,213 $21,652 $15,499 $7,441 
Leasing commissions:Leasing commissions:Leasing commissions:
Total projected to be included in amortization expenseTotal projected to be included in amortization expense$433 $1,692 $1,290 $1,201 $1,020 Total projected to be included in amortization expense$759 $1,012 $969 $901 $901 $901 
Above-market lease assets and deferred lease incentives:Above-market lease assets and deferred lease incentives:Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenueTotal projected to be deducted from rental revenue$559 $2,223 $2,186 $1,104 $354 Total projected to be deducted from rental revenue$3,874 $4,791 $2,998 $860 $682 $237 
Below-market lease liabilities:Below-market lease liabilities:Below-market lease liabilities:
Total projected to be included in rental revenue$518 $2,003 $1,878 $854 $208 
Total projected to be added to rental revenueTotal projected to be added to rental revenue$4,828 $6,091 $3,786 $1,036 $817 $655 
2112
VEREITORION OFFICE ASSETSREIT INC.
NOTES TO COMBINEDCONSOLIDATED AND CONSOLIDATEDCOMBINED FINANCIAL STATEMENTS
September 30, 2021March 31, 2022 (Unaudited) - (Continued)
Investment in Unconsolidated Entity
The following is a summary of the Company’s investment in one unconsolidated entity, Arch Street Joint Venture, as of March 31, 2022 and for the three months ended March 31, 2022 (dollar amounts in thousands):
Ownership % (1)
Number of PropertiesCarrying Amount of
Investment		Equity in Income
Three Months Ended (2)
InvestmentMarch 31, 2022March 31, 2022December 31, 2021March 31, 2022March 31, 2021
Arch Street Joint Venture (3) (4)
20%6$17,952 18,631 $(41)— 

(1)The Company’s ownership interest reflects its legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest because of various provisions in the joint venture agreement regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.
(2)The interest in the Arch Street Joint Venture was acquired by Realty Income as part of the Mergers, and was transferred to the Company upon the consummation of the Distribution. Therefore, the Company’s equity in income reflects operations following the Merger Effective Time.
(3)During three months ended March 31, 2022, the Arch Street Joint Venture did not acquire any properties.
(4)The total carrying amount of the Company’s investment in the unconsolidated joint venture was greater than the underlying equity in net assets by $1.7 million as of March 31, 2022. This difference is related to a step up in the fair value of the investment in the unconsolidated joint venture in connection with the Mergers. The step up in fair value was allocated to the Company’s investment in the unconsolidated joint venture and is being amortized in accordance with the Company’s depreciation policy.
Note 4 – Receivables and Other Assets:

Consolidated Joint Venture
VEREIT Office Assets had an interest in 1 consolidated joint venture that owned 1 propertyAccounts receivable, net consisted of the following as of September 30, 2021March 31, 2022 and December 31, 2020. As2021 (in thousands):
March 31, 2022December 31, 2021
Accounts receivable, net13,271 10,194 
Straight-line rent receivable, net$8,761 $7,722 
Total$22,032 $17,916 

Other assets, net consisted of September 30, 2021the following as of March 31, 2022 and December 31, 2020,2021 (in thousands):
March 31, 2022December 31, 2021
Restricted cash35,483 — 
Right-of-use assets, net (2)
26,023 30,958 
Investment in unconsolidated entity17,953 18,631 
Deferred costs, net (1)
5,709 6,246 
Prepaid expenses2,813 3,730 
Other assets, net4,690 936 
Total$92,671 $60,501 
_______________________________________________
(1)Amortization expense for deferred costs related to the consolidated joint venture had total assets of $30.7revolving credit facility totaled $0.5 million for the three months ended March 31, 2022 as compared to no deferred costs for the three months ended March 31, 2021. Accumulated amortization for deferred costs related to the revolving credit facility was $0.8 million and $33.0$0.3 million respectively,as of which $27.8March 31, 2022 and December 31, 2021, respectively.
(2)Amortization expense for below market right-of-use asset was less than $0.1 million for the three months ended March 31, 2022. There was no amortization expense for below market right-of-use asset for the three months ended March 31, 2021. Includes right-of-use finance leases of $9.0 million, right-of-use operating leases of $10.0 million, and $29.1a below-market right-of-use asset of $7.1 million, respectively, were real estate investments, net of less than $0.1 million in accumulated depreciationamortization as of March 31, 2022. Includes right-of-use finance leases of $13.8 million, right-of-use operating leases of $10.2 million, and amortization at eacha below-market right-of-use asset of the respective dates. The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a$7.1 million, net balance of $14.8less than $0.1 million in accumulated amortization as of December 31, 2020. During2021.
13
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Note 5 – Fair Value Measures
Items Measured at Fair Value on a Recurring Basis
The following tables present information about the nine months ended September 30, 2021, VEREIT,Company’s assets and liabilities measured at fair value on behalf of VEREIT Office Assets, repaid the balance in full and there were no amounts outstandinga recurring basis as of September 30, 2021. VEREIT OfficeMarch 31, 2022 and December 31, 2021, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):
Level 1Level 2Level 3Balance as of March 31, 2022
Assets:
Derivative assets$— $4,356 $— $4,356 
Level 1Level 2Level 3Balance as of December 31, 2021
Assets:
Derivative assets$— $299 $— $299 
Derivative Assets had–The Company’s derivative financial instruments relate to interest rate swaps. The valuation of derivative instruments is determined using a discounted cash flow analysis on the ability to control operating and financing policiesexpected cash flows of each derivative. This analysis reflects the contractual terms of the consolidated joint venture. There were restrictionsderivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.
Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of March 31, 2022 and December 31, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the useoverall valuation of these assets as VEREIT Office Assets was generally requiredits derivative positions and determined that the credit valuation adjustments are not significant to obtain the approvaloverall valuation of the joint venture partnerCompany’s derivatives. As a result, the Company determined that its derivative valuations in accordance withtheir entirety are classified in Level 2 of the joint venture agreement for any major transactions. VEREIT Office Assetsfair value hierarchy.
Items Measured at Fair Value on a Non-Recurring Basis
Certain financial and the joint venture partner werenonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to the provisionsfair value adjustments in certain circumstances, such as when there is evidence of the joint venture agreement, which included provisions for when additional contributions may be required to fund certain cash shortfalls.impairment.
Impairments
VEREIT management performedReal Estate and Other Investments –The Company performs quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment, and right of use assets and its investment in the unconsolidated entity, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estatesuch assets may not be recoverable.
As part of VEREIT management’s quarterlythe Company’s impairment review procedures, net real estate assets representing 3 and 42 properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $6.4 million and $28.1$1.6 million during the three and nine months ended September 30, 2021, respectively. During each ofMarch 31, 2022 that relate to adjustments to expected sales prices for certain non-core assets which have been identified by management for potential sale.
There were no impairment charges recorded during the three and nine months ended September 30, 2020, net real estate assets related to 1 property, were deemed to be impaired resultingMarch 31, 2021.
The following table summarizes our provisions for impairment during the periods indicated below (dollars in impairment charges of $0.2 million. thousands):
Three Months Ended March 31,
2022
Number of properties2 
Carrying value of impaired properties$8,728 
Provisions for impairment(1,602)
Estimated fair value$7,126 

14
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
The impairment charges related to properties that VEREIT management identified for potential sale or were determined, based on discussions with the current tenants, would not be re-leased by the tenant and VEREIT management believed the property would not be leased to another tenant at a rental rate that supports the current book value.
VEREIT estimatedCompany estimates fair values using Level 2 and Level 3 inputs and useduses a combined income and market approach, specifically using discounted cash flow analysis andand/or recent comparable sales transactions. The evaluation of real estate assets for potential impairment required VEREIT’srequires the Company’s management to exercise significant judgment and make certain key assumptions, including but not limited to, the following: (1) capitalization rate; (2) discount rates; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions including number of months to re-lease, market rental revenue and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of VEREIT Office Assets’the Company’s tenants. For VEREIT’sthe Company’s impairment tests for the real estate assets during the three monthsquarter ended September 30, 2021, VEREIT usedMarch 31, 2022, the fair value measurement for its impaired properties was determined by applying a weighted-average discount ratesales price based on market data.
Real Estate and Other Investments – Separation Fair Value Assessment –Following the Mergers, Realty Income performed a purchase price allocation assessing the value of 9.7%the assets acquired and a weighted-average capitalization rateliabilities assumed at the date of 9.2%. For VEREIT’s impairment tests foracquisition of VEREIT. The assessment of fair value is preliminary and is based on information that was available to Realty Income management at the time the consolidated and combined statements were prepared. Measurement period adjustments, if any, will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. The finalization of Realty Income’s purchase accounting assessment could result in changes in the valuation of real estate assets duringand liabilities up to one year after the nine months ended September 30, 2021, VEREIT useddate of the Mergers, and these changes could be material.
Fair Value of Financial Instruments
The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate their carrying value in the accompanying consolidated balance sheets due to their short-term nature. The fair values of the Company’s financial instruments are reported below (dollar amounts in thousands):
LevelCarrying Amount at March 31, 2022Fair Value at March 31, 2022Carrying Amount at December 31, 2021Fair Value at December 31, 2021
Liabilities (1):
Bridge facility, net2— — $355,000 $355,000 
Mortgages payable, net2355,000 359,166 — — 
Credit facility term loan, net2175,000 175,000 175,000 175,000 
Credit facility revolver291,000 91,000 90,000 90,000 
Total$621,000 $625,166 $620,000 $620,000 

(1)Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.
Debt – The fair value is estimated by an independent third party using a weighted-average discount ratediscounted cash flow analysis, based on management’s estimates of 9.0%credit spreads and a weighted-average capitalization rate of 8.5%. For VEREIT’s impairment tests for the real estate assets during the three and nine months ended September 30, 2020, discountobservable market interest rates, and capitalization rates were not applicable as VEREIT determinedrepresenting level 2 on the fair value of the real estate assets of VEREIT Office Assets based on sale scenarios and the properties had leases expiring within 12 months of the impairment analysis.hierarchy.
2215
VEREITORION OFFICE ASSETSREIT INC.
NOTES TO COMBINEDCONSOLIDATED AND CONSOLIDATEDCOMBINED FINANCIAL STATEMENTS
September 30, 2021March 31, 2022 (Unaudited) - (Continued)

Note 36 – Mortgage Notes Payable,Debt, Net
As of September 30, 2021, VEREIT Office AssetsMarch 31, 2022, the Company had mortgage notes payable$615.4 million of $143.3 million,debt outstanding, including net discounts of $0.2 million and deferred financing costs, of $41,000, with a weighted-average years to maturity of 1.13.6 years and a weighted-average interest rate of 4.43%4.17%. As of December 31, 2020, VEREIT Office Assets had mortgage notes payable, net of $217.6 million including net premiums of $14,000 and net deferred financing costs of $0.3 million with a weighted-average years to maturity of 1.4 years and a weighted-average interest rate of 4.64%. The weighted average interest rate for fixed rate loans is computed using the interest rate in effect until the anticipated repayment date and the weighted average interest rate for the variable rate loan is computed using the interest rate in effect as of September 30, 2021. As of September 30, 2021, the mortgage notes were secured by 9 properties with a net carrying value of $224.7 million. As of September 30, 2021, the estimated fair value of the mortgage notes payable was $146.5 million and was estimated by discounting the expected cash flows based on estimated borrowing rates available as of the measurement date. VEREIT Office Assets classified the mortgage notes payable as Level 2 under the fair value hierarchy, which includes using inputs that are observable or can be corroborated with observable market data for substantially the entire contractual term.
The mortgage loan agreements require the maintenance of certain financial ratios. Failure to maintain such ratios could result in restrictions on the use of cash associated with the establishment of certain lender reserves. At September 30, 2021, there were no cash restrictions due to failure to maintain financial ratios.
The following table summarizes the carrying value of debt as of March 31, 2022 and December 31, 2021, and the debt activity for the three months ended March 31, 2022 (in thousands):
Three Months Ended March 31, 2022
Balance as of December 31, 2021Debt IssuancesRepayments, Extinguishment and AssumptionsAccretion and AmortizationBalance, March 31, 2022
Mortgages payable:
Outstanding balance$— $355,000 $— $— $355,000 
Deferred costs— (3,446)— 94 (3,352)
Mortgages payable, net— 351,554 — 94 351,648 
Bridge facility:
Outstanding balance355,000 — (355,000)— — 
Deferred costs(643)— 442 201 — 
Bridge facility, net354,357 — (354,558)201 — 
Credit facility term loan:
Outstanding balance175,000 — — — 175,000 
Deferred costs(2,510)(36)— 339 (2,207)
Credit facility term loan, net172,490 (36)— 339 172,793 
Credit facility revolver:
Outstanding balance90,000 70,000 (69,000)— 91,000 
Credit facility revolver, net90,000 70,000 (69,000)— 91,000 
Total debt$616,847 $421,518 $(423,558)$634 $615,441 
Credit Agreement
In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion Office REIT LP (“Orion OP”), as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425 million senior revolving credit facility (the “Revolving Facility”), including a $25 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “Term Loan Facility,” and together with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355.0 million senior bridge term loan facility (the “Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
On November 12, 2021, Orion OP borrowed $90.0 million under the Revolving Facility, and each of the Term Loan Facility and the Bridge Facility was fully drawn. Approximately $595.0 million of the net proceeds of the Facilities was distributed by the Company to Realty Income in accordance with the Separation and Distribution Agreement. Orion OP retained the remaining net proceeds of such borrowings as working capital for the general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries. In February 2022, as further described below, the Company refinanced the Bridge Facility in full with the $355.0 million CMBS Loan (defined below), and the Bridge Credit Agreement was terminated. As of March 31, 2022, the Company had borrowed and outstanding $91.0 million under the Revolving Facility and had $334.0 million of availability under the Revolving Facility, and no borrowings were outstanding under the Bridge Facility.
The interest rate applicable to the loans under the Facilities may, at the election of Orion OP, be determined on the basis of LIBOR or a base rate, in either case, plus an applicable margin. Under the Revolver/Term Loan Facilities, the applicable margin is (1) in the case of the Revolving Facility, 2.50% for LIBOR loans and 1.50% for base rate loans and (2) in the case of the
16
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Term Loan Facility, 2.50% for LIBOR loans and 1.50% for base rate loans. Under the Bridge Facility, the applicable margin for LIBOR loans was initially 2.50% with scheduled aggregateincreases over time to a maximum of 3.50% and the applicable margin on base rate loans was initially 1.50% with scheduled increases over time to a maximum of 2.50%, in each case, based on the number of days elapsed after November 12, 2021. Loans under the Revolver/Term Loan Facilities may be prepaid, and unused commitments under the Revolver/Term Loan Facilities may be reduced, at any time, in whole or in part, without premium or penalty (except for LIBOR breakage costs).
To the extent that amounts under the Revolving Facility remain unused, Orion OP is required to pay a quarterly commitment fee on the unused portion of the Revolving Facility in an amount equal to 0.25% per annum of the unused portion of the Revolving Facility.
The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) and the Bridge Facility was guaranteed pursuant to a Guaranty (the “Bridge Guaranty”), in each case, by the Company and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).
The Revolver/Term Loan Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.
The Revolver/Term Loan Facilities require that Orion OP comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. In addition, the Revolver/Term Loan Facilities require that Orion OP satisfy certain financial covenants, including a:
•ratio of total debt to total asset value of not more than 0.60 to 1.00;
•ratio of adjusted EBITDA to fixed charges of not less than 1.50 to 1.00;
•ratio of secured debt to total asset value of not more than 0.45 to 1.00;
•ratio of unsecured debt to unencumbered asset value of not more than 0.60 to 1.00; and
•ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00.
As of March 31, 2022, Orion OP was in compliance with these financial covenants.
The Revolver/Term Loan Facilities include customary representations and warranties of the Company and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolver/Term Loan Facilities. The Revolver/Term Loan Facilities also include customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, repaymentsaccrued interest and other obligations of Orion OP under the Revolver/Term Loan Facilities to be immediately due and payable and foreclose on the collateral securing the Revolver/Term Loan Facilities.
CMBS Loan
On February 10, 2022, certain indirect subsidiaries of the Company (the “Mortgage Borrowers”) obtained a $355.0 million fixed rate mortgage loan (the “CMBS Loan”) from Wells Fargo Bank, National Association (together with its successor, the “Lender”), which is secured by the Mortgage Borrowers’ fee simple or ground lease interests in 19 properties owned indirectly by the Company (collectively, the “Mortgaged Properties”). During March 2022, Wells Fargo effected a securitization of the CMBS Loan. The CMBS Loan bears interest a fixed rate of 4.971% per annum and matures on February 11, 2027.
The CMBS Loan requires monthly payments of interest only and all principal is due at maturity. The proceeds of the CMBS Loan were used to repay the Bridge Facility. Upon closing of the CMBS Loan, the Mortgage Borrowers funded $35.5 million of loan reserves primarily for future rent concessions and tenant improvement allowances under the leases with respect to the 19 Mortgaged Properties. These amounts, as well as the transaction expenses incurred in connection with the CMBS Loan, were funded with cash on hand and borrowings under the Company’s Revolving Facility.
The CMBS Loan is secured by, among other things, first priority mortgages and deeds of trust granted by the Mortgage Borrowers and encumbering the Mortgaged Properties.
The CMBS Loan is generally not freely prepayable by the Mortgage Borrowers without payment of certain prepayment premiums and costs. The CMBS Loan may be prepaid in whole, but not in part, except as provided in the loan agreement governing the CMBS Loan (the “CMBS Loan Agreement”), at any time following the Prepayment Lockout Release Date (as
17
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
defined in the CMBS Loan Agreement) (generally two years after the Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement. Further, releases of individual properties are permitted in connection with an arms’ length third party sale upon repayment of the Release Price (as defined in the CMBS Loan Agreement) for the applicable individual property and subject to payment of the applicable yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.
The CMBS Loan Agreement also contains customary cash management provisions, including certain trigger events (such as failure of the Mortgage Borrowers to satisfy a minimum debt yield) which allow the Lender to retain any excess cash flow as additional collateral for the Loan, until such trigger event is cured.
In connection with the CMBS Loan Agreement, the Company (as the guarantor) delivered a customary non-recourse carveout guaranty to the Lender (the “Guaranty”), under which the Company guaranteed the obligations and liabilities of the Mortgage Borrowers to the Lender with respect to certain non-recourse carveout events and the circumstances under which the CMBS Loan will be fully recourse to the Mortgage Borrowers, and which includes requirements for the Company to maintain a net worth of no less than $355.0 million and liquid assets of no less than $10.0 million, in each case, exclusive of the values of the collateral for the CMBS Loan. As of March 31, 2022, the Company was in compliance with these financial covenants.
The Mortgage Borrowers and the Company also provided a customary environmental indemnity agreement, pursuant to which the Mortgage Borrowers and the Company agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities relating to the Mortgaged Properties.
The loan documents evidencing the CMBS Loan include customary representations, warranties and covenants of the Mortgage Borrowers and the Company. The loan documents also include customary events of default, the occurrence of which, following any applicable grace period, would permit the Lender to, among other things, declare the principal, accrued interest and other obligations of the Mortgage Borrowers under the loan documents to be immediately due and payable and foreclose on the Mortgaged Properties.
The Company’s mortgages payable consisted of the following as of March 31, 2022 (dollar amounts in thousands):
Encumbered Properties
Net Carrying Value of Collateralized Properties (1)
Outstanding BalanceWeighted-Average
Interest Rate		Weighted-Average Years to Maturity
Fixed-rate debt19 $489,157 $355,000 4.97 %4.9

(1)Net carrying value is real estate assets, including right-of-use assets, net of real estate liabilities.
The table above does not include mortgage notes subsequent to September 30,associated with the unconsolidated joint venture of $136.7 million.
Note 7 – Derivatives and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
As of each of March 31, 2022 and December 31, 2021, the Company had interest rate swap agreements with an aggregate notional amount of $175.0 million, which were designated as cash flow hedges under U.S. GAAP. The interest rate swap agreements were effective on December 1, 2021 and mature on November 12, 2023.
The table below presents the fair value of the Company’s derivative financial instrument designated as a cash flow hedge as well as its classification in the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021 (in thousands):
Total
October 1, 2021 - December 31, 2021$178 
202260,875 
202382,451 
Total$143,504 
Derivatives Designated as Hedging InstrumentsBalance Sheet LocationMarch 31, 2022December 31, 2021
Interest rate swapsOther assets, net$4,356 $299 
During the three months ended March 31, 2022, the Company recorded unrealized gains of $3.8 million for changes in the fair value of its cash flow hedge in accumulated other comprehensive income. There were no similar amounts recorded during the three months ended March 31, 2021, as the interest rate swap agreement did not exist during such period.
18
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
The Company reclassified previous losses of $0.2 million for the three months ended March 31, 2022 from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings. There were no similar amounts recorded during the three months ended March 31, 2021.
During the next twelve months, the Company estimates that an additional $1.9 million will be reclassified from other comprehensive income as a decrease to interest expense.
Derivatives Not Designated as Hedging Instruments
As of each of March 31, 2022 and December 31, 2021, the Company had no interest rate swaps that were not designated as qualifying hedging relationships.
Tabular Disclosure of Offsetting Derivatives
The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of March 31, 2022 and December 31, 2021 (in thousands). The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.
Offsetting of Derivative Assets and Liabilities
Gross Amounts of Recognized AssetsGross Amounts of Recognized LiabilitiesGross Amounts Offset in the Consolidated Balance SheetsNet Amounts of Assets Presented in the Consolidated Balance SheetsNet Amounts of Liabilities Presented in the Consolidated Balance SheetsFinancial InstrumentsCash Collateral ReceivedNet Amount
March 31, 2022$4,356 $— $— $4,356 $— $— $— $4,356 
December 31, 2021$299 $— $— $299 $— $— $— $299 
Note 48 – Supplemental Cash Flow Disclosures
Supplemental cash flow information was as follows during the periods indicated below (in thousands):
Three Months Ended March 31,
20222021
Supplemental disclosures:
Cash paid for interest$5,019 $421 
Cash paid for income taxes$145 $— 
Non-cash investing and financing activities:
Accrued capital expenditures and leasing costs$610 $— 
Distributions declared and unpaid$5,663 $— 
Land acquired upon finance lease termination$4,707 $— 
Note 9 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Accrued real estate and other taxes$7,640 $10,322 
Accrued other5,698 4,159 
Accounts payable2,953 1,805 
Accrued interest1,638 1,093 
Total$17,929 $17,379 
19
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Note 10 – Commitments and Contingencies
Leasing

As part of its ordinary re-leasing activities, the Company has agreed and anticipates that it will continue to agree to provide rent concessions to tenants and incur leasing costs with respect to its properties, including tenant improvement allowances, landlord agreements to pay for certain improvements, as well as leasing commissions. These rent concession and leasing cost commitments could be significant.
Litigation
VEREIT Office AssetsThe Company is party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business. VEREIT Office AssetsThe Company does not believe that any of these outstanding claims against it are expected to have a material adverse effect upon its consolidated financialand combined position or results of operations.
Environmental Matters
In connection with the ownership and operation of real estate, VEREIT Office Assetsthe Company may potentially be liable for costs and damages related to environmental matters. VEREIT Office AssetsThe Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect upon its consolidated and combined position or results of operations.
Note 511 – Leases
Lessor
As of September 30, 2021, VEREIT Office AssetsMarch 31, 2022, the Company is the lessor for its 5292 office properties. VEREIT Office Assets’The Company’s operating leases have non-cancelable lease terms ranging from 0.08 years0.3 to 11.6716.0 years as of September 30, 2021 and 0.2 years to 8.75 years as of DecemberMarch 31, 2020, respectively.2022. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying assets. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index or LIBOR). VEREIT Office Assets believes the residual value risk is not a primary risk because of the long-lived nature of the assets.
23
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)

The components of rental revenue from VEREIT Office Assets’ operating leases were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Fixed:
Cash rent$32,431 $32,840 $96,855 $100,181 
Straight-line rent(165)(272)(1,624)(309)
Lease intangible amortization70 (31)(12)(35)
Property operating cost reimbursements1,004 996 2,925 2,848 
Total fixed33,340 33,533 98,144 102,685 
Variable (1)
7,154 8,837 23,245 25,898 
Total rental revenue$40,494 $42,370 $121,389 $128,583 

(1)Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent.
The following table presents future minimum operating lease payments due to VEREIT Office Assetsthe Company over the next five years and thereafter as of September 30, 2021March 31, 2022 (in thousands).
Future Minimum
Operating Lease Payments		Future Minimum
Operating Lease Payments
October 1, 2021 - December 31, 2021$24,188 
2022109,604 
April 1, 2022 - December 31, 2022April 1, 2022 - December 31, 2022$113,038 
2023202392,259 2023130,444 
2024202469,414 202499,069 
2025202535,956 202566,974 
2026202626,847 202664,401 
2027202745,012 
ThereafterThereafter30,409 Thereafter200,614 
TotalTotal$388,677 Total$719,552 
Lessee
VEREIT Office AssetsThe Company is the lessee under 1 ground lease arrangement,arrangements and corporate office leases, which meetsmeet the criteria ofunder U.S. GAAP for an operating lease. As of September 30, 2021, VEREIT Office Assets’ lease has aMarch 31, 2022, the Company’s operating leases had remaining lease term of 35.9terms ranging from 0.6 years to 62.8 years, which includes options to extend. Under the ground lease arrangement, VEREIT Office Assetsoperating leases, the Company pays rent and may also pay variable costs, including property operating expenses and common area maintenance. The weighted-average discount rate used to measure the lease liability for VEREIT Office Assets’the Company’s operating leaseleases was 5.17%3.16% as of September 30, 2021.March 31, 2022. As VEREIT Office Assets’ lease doesthe Company’s leases do not provide an implicit rate, VEREIT Office Assetsthe Company used an estimated incremental borrowing rate based on the information available at the lease guidance adoption date or the Merger Effective Time, as applicable, in determining the present value of lease payments.
Operating lease costs were $0.3 million and less than $0.1 million for each ofthe three months ended September 30,March 31, 2022 and March 31, 2021, and 2020 and for each of the nine months ended September 30, 2021 and 2020 was $0.1 million and $0.2 million, respectively. No cash paid for operating lease liabilities was capitalized.
2420
VEREITORION OFFICE ASSETSREIT INC.
NOTES TO COMBINEDCONSOLIDATED AND CONSOLIDATEDCOMBINED FINANCIAL STATEMENTS
September 30, 2021March 31, 2022 (Unaudited) - (Continued)

The following table reflects the maturity analysis of payments due from VEREIT Office Assetsthe Company over the next five years and thereafter for ground and corporate office lease obligations as of September 30,March 31, 2022 (in thousands).
Future Minimum Lease Payments
April 1, 2022 - December 31, 2022750 
2023778 
2024452 
2025442 
2026442 
2027445 
Thereafter12,939 
Total16,248 
Less: imputed interest6,170 
Total$10,078 
The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for ground and corporate office lease obligations as of December 31, 2021 (in thousands).
Future Minimum Lease PaymentsFuture Minimum Lease Payments
October 1, 2021 - December 31, 2021$82 
20222022329 20221,008 
20232023329 2023778 
20242024329 2024452 
20252025329 2025442 
20262026329 2026442 
ThereafterThereafter10,064 Thereafter13,383 
TotalTotal11,791 Total16,505 
Less: imputed interestLess: imputed interest6,426 Less: imputed interest6,248 
TotalTotal$5,365 Total$10,257 
Note 612 – Stockholders’ Equity
Common Stock
The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock ($0.01 par value per share) to Realty Income for a total of $1,000.
On November 10, 2021, the Company issued 56,525,650 additional shares of common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Company’s common stock. Also on November 10, 2021, in connection with the filing of the Company’s Articles of Amendment, the Company changed the par value of its common stock from $0.01 per share to $0.001 per share. On November 12, 2021, Realty Income effected the Distribution.
On March 22, 2022, the Company’s Board of Directors declared the Company’s first quarterly dividend as an independent public company. The dividend, which was for the first quarter of 2022, was in the amount of $0.10 per share, and was paid on April 15, 2022, to stockholders of record as of March 31, 2022.
Stock Warrants
On November 12, 2021, in connection with the Distribution, Orion OP entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
21
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)
Also on November 12, 2021, in connection with the entry into the LLCA, the Company granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of the Company’s common stock (the “Arch Street Warrants”). The Arch Street Warrants entitle the respective holders to purchase shares of the Company’s common stock at a price per share equal to $22.42, at any time. The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Company common stock determined according to the formula set forth in the Arch Street Warrants. The Arch Street Warrants expire on the earlier of (a) 10 years after issuance and (b) the later of the termination of the Arch Street Joint Venture and seven years after issuance.

Note 13 - Equity Based Compensation
The Company has an equity-based incentive award plan (the “Equity Plan”) for officers, employees, non-employee directors and consultants who provide services to the Company. Awards under the Equity Plan are accounted for under U.S. GAAP as share-based payments. The expense for such awards is recognized over the vesting period or when the requirements for exercise of the award have been met. Under the Equity Plan, the Company may grant various types of awards, including restricted stock units that will vest if the recipient maintains employment with the Company over the requisite service period (the “Time-Based Restricted Stock Units”) and restricted stock units that may vest in a number ranging from 0% to 100% of the total number of units granted, based on the Company’s total shareholder return measured on an absolute basis (“TSR-Based Restricted Stock Units”) and certain operational performance metrics (“Metrics-Based Restricted Stock Units”), in each case during a three-year performance period, subject to the recipient’s continued service with the Company (collectively, the “Performance-Based Restricted Stock Units”).

During the three months ending March 31, 2022, the Company granted Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units to certain officers and employees of the Company. The fair value of the Time-Based Restricted Stock Units granted to non-executive directors and employees under the Equity Plan is generally determined using the closing stock price on the grant date and is expensed over the requisite service period on a straight-line basis. The fair value of the TSR-Based Restricted Stock Units granted to employees under the Equity Plan is determined using a Monte Carlo simulation which takes into account multiple input variables that determine the probability of satisfying the required total shareholder return, and such fair value is expensed over the performance period. The fair value of the Metrics-Based Restricted Stock Units is determined when the likelihood of achieving the performance metrics becomes probable. As of March 31, 2022, the Company determined that the likelihood of achieving the performance metrics was improbable and recognized no compensation expense related to the Metrics-Based Restricted Stock Units.

Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units do not provide for any rights of a common stockholder prior to the vesting of such restricted stock units. Equity-based compensation expense related to Orion Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units for the three months ended March 31, 2022, was $0.1 million. As of March 31, 2022, total unrecognized compensation expense related to Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units was approximately $2.4 million, with an aggregate weighted-average remaining term of 2.9 years. Equity-based compensation expense for the three months ended March 31, 2022, related to Realty Income time-based restricted stock units and stock options granted in connection with the Mergers, was $0.1 million. As of March 31, 2022, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was approximately $0.5 million, with an aggregate weighted-average remaining term of 1.6 years.
Note 14 - Net Income (Loss) Per Share
The computation of basic and diluted earnings per share is as follows for the three months ended March 31, 2022 and March 31, 2021 (in thousands, except share and per share data):
Three Months Ended March 31,
20222021
Net (loss) income$(9,882)$4,551 
(Income) loss attributable to non-controlling interests(24)— 
Net (loss) income available to common stockholders used in basic and diluted net income per share(9,906)4,551 
Weighted average number of Common Stock outstanding - basic56,625,650 56,625,650 
Effect of dilutive securities (1)
— — 
Weighted average number of common shares - diluted56,625,650 56,625,650 
Basic and diluted net (loss) income per share attributable to common stockholders$(0.17)$0.08 
22
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2022 (Unaudited)

(1)As of March 31, 2022 and March 31, 2021, there were no adjustments to the weighted average common shares outstanding used in the diluted calculation given there were no potentially dilutive shares.
The following were excluded from diluted net (loss) income per share attributable to common stockholders, as the effect would have been antidilutive:
Three Months Ended March 31,
20222021
Weighted average unvested Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units (1)
765 — 
Weighted average stock warrants1,120,000 — 
_______________________________________________
(1)Net of assumed repurchases in accordance with the treasury stock method.
Note 15 – Subsequent Events
VEREIT Office Assets evaluated subsequent events and no items have come to the attention of management that require recognition or disclosure, except as set forth below.
In October 2021, each of the outstanding mortgage notes of VEREIT Office Assets were repaid in full by VEREIT on behalf of VEREIT Office Assets.Distributions
On November 1, 2021,May 3, 2022, the Mergers were completed. FollowingCompany’s Board of Directors declared a quarterly dividend of $0.10 per share for the Merger Effective Time, the Separation was completed. On November 12, 2021, following the Separation, the Distribution was completed.second quarter of 2022, payable on July 15, 2022, to stockholders of record as of June 30, 2022.
2523
REALTY INCOMEVEREIT OFFICE ASSETS
COMBINED BALANCE SHEETSAND CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands) (Unaudited)

 September 30, 2021December 31, 2020
ASSETS 
Real estate held for investment, at cost
Land$71,191$71,191
Buildings and improvements562,942562,828
Total real estate held for investment, at cost634,133634,019
Less accumulated depreciation and amortization149,229136,143
Real estate held for investment, net484,904497,876
Accounts receivable, net7,8408,078
Lease intangible assets, net23,49628,680
Other assets, net8,75711,797
Total assets$524,997$546,431
LIABILITIES AND EQUITY
Accounts payable and accrued expenses$1,896$848
Lease intangible liabilities, net6,0087,221
Other liabilities4,7834,192
Mortgages payable, net9,65637,052
Total liabilities$22,343$49,313
Equity$502,654$497,118
Total liabilities and equity$524,997$546,431
Three Months Ended March 31,
2021
Rental revenue (including reimbursable)$39,782 
Fee income from unconsolidated joint venture140 
Total revenues39,922 
Operating expenses:
Property operating (including reimbursable)9,890 
General and administrative1,664 
Depreciation and amortization14,957 
Impairments21,180 
Total operating expenses47,691 
Other (expenses) income:
Other income, net6 
Interest expense(2,032)
Loss on extinguishment of debt, net(117)
Equity in income of unconsolidated joint venture202 
Total other expenses, net(1,941)
Loss before taxes(9,710)
Provision for income taxes(156)
Net loss(9,866)
Net loss attributable to non-controlling interest2 
Net loss attributable to VEREIT Office Assets$(9,864)

The accompanying notes are an integral part of this statement.
2624
REALTY INCOMEVEREIT OFFICE ASSETS
COMBINED STATEMENTSAND CONSOLIDATED STATEMENT OF OPERATIONSEQUITY
(In thousands) (Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
REVENUE
Rental revenue (including reimbursable)$13,315 $13,256 $38,930 $40,175 
EXPENSES
Depreciation and amortization5,912 6,528 17,855 19,671 
Property (including reimbursable)1,660 1,433 4,611 4,400 
General and administrative594 485 1,665 1,579 
Interest276 736 1,080 2,370 
Provisions for impairment— 18,671 — 18,671 
TOTAL EXPENSES8,442 27,853 25,211 46,691 
Loss on extinguishment of debt, net(3,499)— (3,499)— 
TOTAL NET INCOME (LOSS)$1,374 $(14,597)$10,220 $(6,516)
Total Equity
Balance, January 1, 2021$1,161,434 
Contributions, net18,927 
Net loss(9,866)
Balance, March 31, 20211,170,495 

The accompanying notes are an integral part of this statement.
2725
REALTY INCOMEVEREIT OFFICE ASSETS
COMBINED STATEMENTSAND CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITYCASH FLOWS
(In thousands) (Unaudited)
Three Months Ended March 31,
2021
Cash flows from operating activities:
Net loss$(9,866)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization14,859 
Impairments21,180 
Loss on extinguishment of debt, net117 
Equity in income of unconsolidated joint venture(202)
Distributions from unconsolidated joint venture202 
Changes in assets and liabilities:
Rents and tenant receivables, operating lease right-of-use and other assets, net2,404 
Accounts payable and accrued expenses(5,652)
Deferred rent, operating lease and other liabilities(2)
Net cash provided by operating activities23,040 
Cash flows from investing activities:
Capital expenditures and leasing costs(2,969)
Real estate developments(14)
Return of investment from unconsolidated joint venture316 
Proceeds from the settlement of property-related insurance claims70 
Net cash used in investing activities(2,597)
Cash flows from financing activities:
Payments on mortgage notes payable(40,167)
Refunds of deferred financing costs280 
Net contributions from parent18,927 
Net cash used in financing activities(20,960)
Net change in cash and cash equivalents and restricted cash(517)
Cash and cash equivalents and restricted cash, beginning of period3,414 
Cash and cash equivalents and restricted cash, end of period$2,897 
Supplemental disclosures:
Cash paid for interest$2,355 
Non-cash investing and financing activities:
Accrued capital expenditures and real estate developments$(568)

Three Months Ended September 30, 2021 and 2020 Equity
Balance, June 30, 2021$495,589
Net income1,374
Contributions from Realty Income Corporation, net 5,691
Balance, September 30, 2021$502,654
Balance, June 30, 2020$495,347
Net loss(14,597)
Distributions to Realty Income Corporation, net (2,312)
Balance, September 30, 2020$478,438
Nine Months Ended September 30, 2021 and 2020 Equity
Balance, December 31, 2020$497,118
Net income10,220
Distributions to Realty Income Corporation, net(4,684)
Balance, September 30, 2021$502,654
Balance, December 31, 2019$508,006
Net loss(6,516)
Distributions to Realty Income Corporation, net(23,052)
Balance, September 30, 2020$478,438

The accompanying notes are an integral part of this statement.
2826
REALTY INCOME OFFICE ASSETS
COMBINED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

Nine Months Ended September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$10,220$(6,516)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization17,85519,671
Non-cash revenue adjustments(583)(376)
Loss on extinguishment of debt3,499—
Amortization of net premiums on mortgages payable(60)(337)
Provisions for impairment on real estate—18,671
Change in assets and liabilities
Accounts receivable and other assets(288)481
Accounts payable, accrued expenses and other liabilities1,6521,648
Net cash provided by operating activities32,29533,242
CASH FLOWS USED IN INVESTING ACTIVITIES
Cash flows used in investing activities - additions to PP&E(160)(417)
CASH FLOWS USED IN FINANCING ACTIVITIES
Distributions to Realty Income Corporation, net(4,684)(23,052)
Principal payments on mortgages payable(26,851)(9,203)
Payments upon extinguishment of debt(3,984)—
Net cash used in financing activities(35,519)(32,255)
Net (decrease) increase in restricted cash(3,384)570
Restricted cash, beginning of period3,9153,719
Restricted cash, end of period$531$4,289

The accompanying notes are an integral part of this statement.
29
REALTY INCOMEVEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30,March 31, 2021 (Unaudited)
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
On April 29, 2021, Realty Income Corporation (“Realty Income”) entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc. (“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”). On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Upon the Merger Effective Time, as part of the Mergers, Realty Income acquired certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and certain office real properties and related assets previously owned by subsidiaries ofthe VEREIT (collectively, “VEREIT Office Assets”)Assets (the “Separation”) to Orion Office REIT Inc. (the “Company”) and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). Following the Distribution, Orion operates as a separate, publicly-traded company and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year endingended December 31, 2021. Realty IncomeVEREIT Office Assets includes the combined accounts related to certain of the legacy office properties of Realty Income, whichVEREIT, historically operated through subsidiaries of VEREIT, and contains certain corporate costs.
As of September 30,March 31, 2021, Realty IncomeVEREIT Office Assets had 1 reportable segment which owned 4052 properties, located in 19 U.S. states, containingincluding 1 property owned by a consolidated joint venture, totaling approximately 3.07.6 million leasable square feet. As of September 30, 2021, Realty Income Office Assets had not conducted any business as a separate company and had no other material assets or liabilities.

On March 11, 2020, the World Health Organization announced that a new strain of coronavirus (“COVID-19”) was reported worldwide, resultingfeet located in COVID-19 being declared a pandemic, and on March 13, 2020 the U.S. President announced a National Emergency relating to the disease. There has been a widespread infection25 states in the United States and abroad, with national, statePuerto Rico, and local authorities imposing social distancing, quarantinean investment in 1 unconsolidated joint venture that owns 4 office properties totaling approximately 0.7 million leasable square feet located within 4 states.
Summary of Significant Accounting Policies
Principles of Combination and self isolation measures. The outbreak had an adverse impact on economic and market conditions generally and triggered a period of global economic slowdown. The impact may continue or increase in severity if the duration or extent of the pandemic, and any related variants, increases. As a result and through September 30, 2021, Realty Income Office Assets continued to evaluate the potential impacts of the COVID-19 pandemic, any related variants, and the measures taken to limit the spread on the business and industry segments as the situation continues to evolve and more information becomes available.
No rent concessions were granted and no lease modifications were entered into during the nine months ended September 30, 2021 and 2020, respectively, as a result of the COVID-19 pandemic; therefore, lease revenue continues to be recognized in accordance with the lease contracts in effect.
Note 2 – Basis of PresentationAccounting and CombinationPresentation
The accompanying combined and consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of Realty IncomeVEREIT Office Assets presented on a combined and consolidated basis as the ownership interests were under common control and ownership of Realty Income as of September 30, 2021. AllVEREIT, including a consolidated joint venture. Any applicable intercompany balancesaccounts and transactions have been eliminated.eliminated in consolidation and combination. The portion of the consolidated joint venture not previously owned by VEREIT, is presented as non-controlling interest in VEREIT Office Assets’ combined and consolidated balances sheets and statements of operations. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the entire year or any subsequent interim period. These combined and consolidated financial statements should be read in conjunction with the audited combined and consolidated financial statements of VEREIT Office Assets and notes thereto as of and for the ten months ended October 31, 2021, included in the Form 10-K for Orion Office REIT Inc. filed on March 24, 2022. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC and GAAP.
For legal entities being evaluated for consolidation, VEREIT Office Assets must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. VEREIT Office Assets’ evaluation includes consideration of fees paid to VEREIT Office Assets where VEREIT’s management, on behalf of VEREIT Office Assets, acts as a decision maker or service provider to the entity being evaluated. If VEREIT Office Assets determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of
27
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited - (Continued)

the entity, or (c) the right to receive the expected returns of the entity. VEREIT Office Assets consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.
VEREIT Office Assets then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, VEREIT Office Assets’ ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. VEREIT Office Assets consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to VEREIT Office Assets’ combined and consolidated financial statements. VEREIT Office Assets continually evaluates the need to consolidate these VIEs based on standards set forth in GAAP.
These combined and consolidated financial statements were derived from the books and records of Realty Income,VEREIT and were carved out from Realty IncomeVEREIT at a carrying value reflective of such historical cost in such Realty Income records, and include all adjustments (consistingVEREIT records. VEREIT Office Assets’ historical balance sheets reflect amounts for goodwill based on its proportion of only normal recurring accruals) necessary to present a fair statementthe cost basis of results for the interim periods presented. Realty Incomereal estate assets as of December 31, 2018. VEREIT Office Assets’ historical financial results reflect charges for certain corporate costs and, we believe such charges are reasonable. Costs of the services that were charged to Realty IncomeVEREIT Office Assets were based on either actual costs incurred except for General and administrative expenses, which were allocated asor a proportion of costs estimated to be applicable to this entity, based on Realty IncomeVEREIT Office Assets’ pro rata share of Realty Income’s totalVEREIT’s annualized rental revenue. The expenses allocated forincome. Annualized rental income is rental revenue on a straight-line basis, which includes the three months ended September 30, 2021effect of rent escalations and 2020, were $0.6 millionany tenant concessions, such as free rent, and $0.5 million, respectively,excludes any adjustments to rental income due to changes in the collectability assessment, contingent rent, such as percentage rent, and for the nine months ended September 30, 2021 and 2020, were $1.7 million and $1.6 million, respectively.operating expense reimbursements. The historical combined and consolidated financial information presented may therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if there had been an independent, stand-alone public company during the periods presented or of Orion’s future performance as an independent, stand-alone company.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Real Estate Investments
Real estate and related assets acquired are recorded at cost and accumulated depreciation and amortization are assessed based on the period of future benefit of the asset. Depreciation and amortization are computed using a straight-line method over the estimated useful life of 40 years for buildings and building improvements, 15 years for land improvements and the remaining lease term for tenant improvements and intangible lease assets.
VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates.
When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability. In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets have been adjusted to their respective fair values and an impairment loss has been recognized. There are inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants.
Investment in Unconsolidated Joint Venture
As of March 31, 2021, VEREIT Office Assets owned a 20% ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned 4 properties with total real estate investments, at cost, of $169.3 million and total debt outstanding of $102.6 million, which was non-recourse to VEREIT Office Assets.
30
28
REALTY INCOMEVEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30,March 31, 2021 (Unaudited)(Unaudited - (Continued)

ReadersVEREIT Office Assets accounted for its investment in the unconsolidated joint venture using the equity method of this quarterly report should referaccounting as VEREIT Office Assets had the ability to exercise significant influence, but not control, over operating and financing policies of the joint venture. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for VEREIT Office Assets’ share of equity in the joint venture’s earnings and distributions. VEREIT Office Assets recorded its proportionate share of net income (loss) from the unconsolidated joint venture in equity in income of unconsolidated joint venture in the combined and consolidated statements of operations.
VEREIT Office Assets was required to determine whether an event or change in circumstances had occurred that may have had a significant adverse effect on the fair value of its investment in the unconsolidated joint venture. If an event or change in circumstance had occurred, VEREIT Office Assets’ management was required to evaluate its investment in the unconsolidated joint venture for potential impairment and determine if the carrying value of its investment exceeded its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value is fully recovered. The evaluation of an investment in an unconsolidated joint venture for potential impairment required VEREIT Office Assets’ management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No impairments were identified during the three months ended March 31, 2021.
Goodwill Impairment
VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable. To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no quantitative testing is required. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount, the provisions of guidance require that the fair value be compared to the auditedcarrying value. Goodwill is considered impaired if the carrying value exceeds the fair value. No impairments of VEREIT’s goodwill were recorded during the three months ended March 31, 2021. The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying combined financialand consolidated statements of Realty Incomeoperations.
Cash and Cash Equivalents
VEREIT Office Assets considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. VEREIT Office Assets considers investments in highly liquid money market accounts to be cash equivalents.
Restricted Cash
As of March 31, 2021, restricted cash included $2.3 million in lender reserves. Reserves relate to lease expirations, as well as maintenance, structural and debt service reserves.
Rent and Tenant Receivables and Other Assets, Net
Rent and tenant receivables and other assets, net primarily includes amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries due from tenants. Prepaid expenses as of the balance sheet date relate to future periods and will be expensed or reclassified to another account during the period to which the costs relate. Any amounts with no future economic benefit are charged to earnings when identified.
29
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited - (Continued)

Deferred Financing Costs
Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. Deferred financing costs are presented on the combined and consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed.
Leases - Lessor
At the inception of a new lease arrangement, including new leases that arise from amendments, the terms and conditions are assessed to determine the proper lease classification. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease. When a lease does not effectively transfer control of the underlying asset to the lessee, but a guarantee is obtained for the value of the asset from a third party, the lease is classified as a direct financing lease. All other leases are classified as operating leases. As of March 31, 2021, no leases were classified as sales-type or direct financing leases.
For operating leases with minimum scheduled rent increases, rental revenue is recognized on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments is probable. Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
VEREIT Office Assets adopted Accounting Standards Codification Topic 842, Leases effective as of January 1, 2019. Two separate lease components were identified as follows: (i) land lease component and (ii) single property lease component comprised of building, land improvements and tenant improvements. The leases also contain provisions for tenants to reimburse VEREIT Office Assets for real estate taxes and insurance, which are considered noncomponents of the lease, and maintenance and other property operating expenses, which are considered to be non-lease components. VEREIT Office Assets elected the practical expedient to combine lease and non-lease components and the non-lease components will be included with the single property lease component as the predominant component.
VEREIT Office Assets continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received. All changes in the collectability assessment for an operating lease are recognized as an adjustment to rental income.
During the year ended December 31, 2020, there was a global outbreak of a new strain of coronavirus, COVID-19. The global and domestic response to the COVID-19 outbreak continues to evolve. Federal, state, and local authorities have responded in a variety of ways, including temporary closure of or imposed limitations on the operations of certain non-essential businesses. Since the COVID-19 outbreak began, each of VEREIT Office Assets’ tenants has almost entirely continued to meet its payment obligations under its respective lease. In consideration of each tenant’s payment history, among other factors, there have been no changes in the collectability assessment for any of VEREIT Office Assets’ operating leases. Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the three months ended March 31, 2021, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.
30
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited - (Continued)

Leases - Lessee
To account for leases for which VEREIT Office Assets is the lessee, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures are performed at the lease commencement date.
The lease liability is initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the lessee’s incremental borrowing rate is used. The incremental borrowing rate is determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The lease term is the noncancelable period of the lease and includes any renewal and termination options VEREIT Office Assets is reasonably certain to exercise. The lease liability balance is amortized using the effective interest method. The lease liability is remeasured when the contract is modified, upon the resolution of a contingency such that variable payments become fixed or if the assessment of exercising an extension, termination or purchase option changes.
The operating lease right-of-use (“ROU”) asset balance is initially measured as the lease liability amount, adjusted for any lease payments made prior to the commencement date, initial direct costs, estimated costs to dismantle, remove, or restore the underlying asset and incentives received.
Income Taxes
As of March 31, 2021, VEREIT Office Assets was owned by VEREIT, which had elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2011. VEREIT believed it was organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ended December 31, 2021. As a REIT, VEREIT was generally not subject to federal income tax on taxable income that it distributed to its stockholders so long as it distributed annually at least 90% of its REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). Accordingly, no provision has been made for federal income taxes in the accompanying combined and consolidated financial statements of VEREIT Office Assets.
During the three months ended March 31, 2021, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $0.2 million. Amounts are included in the Information Statement, as certain disclosures that would substantially duplicate those containedprovision for income taxes in the auditedaccompanying combined and consolidated statements of operations.
VEREIT Office Assets had no unrecognized tax benefits as of or during the three months ended March 31, 2021. Any interest and penalties related to unrecognized tax benefits would be recognized in provision for income taxes in the accompanying combined and consolidated statements of operations. As of March 31, 2021, VEREIT Office Assets had no material uncertain income tax positions.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected market transition from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates will have on our financial statements have not been includedas well as the applicability of the aforementioned expedients and exceptions provided in this quarterly report. Unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars.
Note 3 – Supplemental Detail for Certain Components of Combined Balance Sheets (dollars in thousands):
A. Accounts receivable consist of the following at:September 30, 2021December 31, 2020
Straight-line rent receivables$6,876 $7,043 
Rent receivables532670
Property tax receivables432365
$7,840 $8,078 
B. Lease intangible assets, net, consist of the following at:September 30, 2021December 31, 2020
In-place leases$76,949$97,433
Accumulated amortization of in-place leases(55,873)(71,633)
Above-market leases8,33710,046
Accumulated amortization of above-market leases(5,917)(7,166)
$23,496$28,680
C. Other assets, net, consist of the following at:September 30, 2021December 31, 2020
Right of use asset - financing leases$5,573$5,573
Right of use asset - operating leases, net2,0432,057
Impounds and security deposits related to mortgages payable (restricted cash)5313,915
Prepaid expenses610252
$8,757$11,797
D. Lease intangible liabilities, net, consist of the following at:September 30, 2021December 31, 2020
Below-market leases$19,616$20,703
Accumulated amortization of below-market leases(13,608)(13,482)
$6,008$7,221
ASU 2020-04.
Note 42 – Investments in Real Estate Investments and Related Intangibles
Realty Income Office Assets acquires land, buildings and improvements necessary for the successful operations of its commercial clients.
A.     Acquisitions during the first Nine Months of 2021 and 2020Property Acquisitions/Dispositions
There were no property acquisitions foror dispositions during the ninethree months ended September 30, 2021 and 2020.
B.     Properties with Existing Leases
The value of the in-place and above-market leases is recorded to lease intangible assets, net on the combined balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on the combined balance sheets.
The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all in-place leases for the nine months ended September 30, 2021 and 2020 were $4.8 million and $6.0 million, respectively.
The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on the combined statements of operations. The amounts amortized as a net increase to rental revenue for capitalized above-market and below-market leases for the nine months endedMarch 31, 2021.
31
REALTY INCOMEVEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30,March 31, 2021 (Unaudited)(Unaudited - (Continued)
September 30, 2021 and 2020 were $0.8 million and $0.6 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.
The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at September 30, 2021 (in thousands):
Net Increase to Rental RevenueIncrease to Amortization Expense
2021$252 $1,491 
20221,0165,474
20238513,948
20246832,609
20251071,763
Thereafter6795,791
Totals$3,588 $21,076 
Note 5 – Mortgages Payable
During the first nine months of 2021, Realty Income made $26.8 million in principal payments, including the repayment of 2 mortgages in full for $26.5 million on behalf of Realty Income Office Assets. During the first nine months of 2020, Realty Income made $9.2 million in principal payments, including the repayment of 1 mortgage in full for $8.5 million on behalf of Realty Income Office Assets. These repayments by Realty Income are presented as a reduction to Distributions to Realty Income, net on the combined statements of cash flows. No mortgages were assumed during the first nine months of 2021 or 2020. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions which vary from loan to loan.
In September 2021, Realty Income completed the early redemption on $12.5 million in principal of a mortgage due June 2032, plus accrued and unpaid interest, on behalf of Realty Income Office Assets. As a result of the early redemption, Realty Income Office Assets recognized a $3.5 million loss on extinguishment of debt for the nine months ended September 30, 2021. The loss on extinguishment of debt included a prepayment penalty of $4.0 million, less the write off of the remaining unamortized mortgage premium balance of $0.5 million.
The mortgages for Realty Income Office Assets contain customary covenants, such as limiting the ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At September 30, 2021, Realty Income Office Assets was in compliance with these covenants.
The following summarizes Realty Income Office Assets’ mortgages payable as of September 30, 2021 and December 31, 2020, respectively (dollars in thousands):
Office PropertiesFixed RateMaturity DateSeptember 30, 2021December 31, 2020
East Windsor, NJ (1)
4.9%6/1/2022$9,625$9,625
Columbus, OH (2)
5.6%6/1/2032—12,811
Tucson, AZ (2)
5.4%7/1/2021—14,040
Remaining principal balance  9,62536,476
Unamortized premium, net

31576
Total mortgages payable, net  $9,656$37,052
(1)The mortgage related to the East Windsor, NJ property was paid in full on October 1, 2021. As a result of the early repayment, Realty Income Office Assets incurred a $0.3 million prepayment penalty.
(2)In April 2021, on behalf of Realty Income Office Assets, Realty Income repaid the mortgage on the property in Tucson, AZ in full for $14.0 million and in September 2021, repaid the mortgage on the property in Columbus, OH in full for $12.5 million.
32
REALTY INCOME OFFICE ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)
Note 6 – Financial Instruments and Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Realty Income Office Assets believes that the carrying values reflected in the combined balance sheets reasonably approximate the fair values for accounts receivable, escrow deposits and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for the mortgages payable assumed in connection with acquisitions, which are disclosed as follows (dollars in thousands):
At September 30, 2021Carrying ValueEstimated Fair Value
Mortgages payable assumed in connection with acquisitions (1)
$9,625$9,695
At December 31, 2020Carrying ValueEstimated Fair Value
Mortgages payable assumed in connection with acquisitions (1)
$36,476$37,095
(1)Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums is $31,000 at September 30, 2021, and $0.6 million at December 31, 2020.
The estimated fair values of the mortgages payable assumed in connection with acquisitions have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect internal assumptions and calculations, the measurement of estimated fair values related to the mortgages payable is categorized as level three on the three-level valuation hierarchy.
Note 7 – Operating Leases
A. At September 30, 2021, Realty Income Office Assets owned 40 single-client office properties in the U.S. At September 30, 2021, 3 properties were available for lease.
Substantially all leases are net leases where clients pay or reimburse for property taxes and assessments, maintain the interior and exterior of the building and leased premises, and carry insurance coverage for public liability, property damage, fire and extended coverage.
B. Major Clients – Two clients’ rental revenue individually represented 17.6% and 11.9% of Realty Income Office Assets’ total revenue for the nine months ended September 30, 2021.
Two clients’ rental revenue individually represented 17.1% and 11.4% of Realty Income Office Assets’ total revenue for the nine months ended September 30, 2020.
If the clients with rental revenue representing more than 10.0% of Realty Income Office Assets’ total revenue early terminate or become insolvent, and Realty Income Office Assets is unable to re-lease the properties at terms that are advantageous, there may be adverse impacts to the combined financial statements.
Note 8 – Supplemental Disclosures of Cash Flow Information
Cash paid for interest was $1.2 million for the first nine months of 2021 and $2.6 million for the first nine months of 2020.
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REALTY INCOME OFFICE ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)
Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows) the following table provides a reconciliation of cash and cash equivalents reported within the combined balance sheets to the total of the cash, cash equivalents and restricted cash reported within the combined statements of cash flows (dollars in thousands):
  September 30, 2021 September 30, 2020
Security deposits related to mortgages payable (1)
$531$531
Impounds related to mortgages payable (1)
—3,758
Total restricted cash shown in the combined statements of cash flows$531$4,289
(1)Included within other assets, net on the combined balance sheets (see note 3). These amounts consist of cash that Realty Income Office Assets is legally entitled to, but that is not immediately available to it. As a result, these amounts were considered restricted as of the dates presented.
Note 9 – Segment Information
Realty Income Office Assets evaluates performance and makes resource allocation decisions on an industry-by-industry basis. For financial reporting purposes, clients are organized into 12 activity segments. All properties are incorporated into one of the applicable segments. All segments listed below are located within the U.S. Because substantially all leases require clients to pay or reimburse for operating expenses, rental revenue is the only component of segment profit and loss measured.
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REALTY INCOME OFFICE ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)
The following tables set forth certain information regarding the properties owned by Realty Income Office Assets, classified according to the business of the respective clients (dollars in thousands):
September 30, 2021December 31, 2020
Segment net real estate assets:
Aerospace$14,985$15,406
Diversified Industrial27,81528,465
Drug Stores70,44271,787
Financial Services54,52256,077
Food Processing11,71812,133
General Merchandise19,53119,999
Government Services92,41994,960
Health Care73,69675,795
Insurance4,6554,844
Other Manufacturing20,87721,337
Telecommunications36,10037,427
Transportation Services58,14459,646
Total segment net real estate assets$484,904$497,876
Intangible assets:
Aerospace$2,192$2,348
Diversified Industrial1,8272,344
Financial Services1,6932,166
Food Processing1,2491,658
General Merchandise2,9573,701
Government Services4,5315,452
Health Care3,3883,666
Insurance107199
Other Manufacturing1,6691,889
Telecommunications1,0271,794
Transportation Services2,8563,463
Total intangible assets$23,496$28,680
Other corporate assets16,59719,875
Total assets$524,997$546,431

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REALTY INCOME OFFICE ASSETSConsolidated Joint Venture
NOTES TO COMBINED FINANCIAL STATEMENTSVEREIT Office Assets had an interest in 1 consolidated joint venture that owned 1 property as of March 31, 2021. As of March 31, 2021, the consolidated joint venture had total assets of $32.6 million, of which $28.7 million were real estate investments, net of accumulated depreciation and amortization at each of the respective dates. The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a net balance of $15.0 million as of March 31, 2021. The joint venture partner is the managing member of the joint venture. However, in accordance with the joint venture agreement, VEREIT Office Assets had the ability to control operating and financing policies of the consolidated joint venture and the joint venture partner must obtain VEREIT Office Assets’ approval for any major transactions. VEREIT Office Assets and the joint venture partner were subject to the provisions of the joint venture agreement, which included provisions for when additional contributions may be required to fund certain cash shortfalls.
September 30,Impairments
VEREIT management performed quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment and right of use assets, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.
As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing 1 property of VEREIT Office Assets was deemed to be impaired resulting in impairment charges of $21.2 million during the three months ended March 31, 2021. The impairment charges related to a property that VEREIT management identified for potential sale or were determined, based on discussions with the current tenants, would not be re-leased by the tenant and VEREIT management believed the property would not be leased to another tenant at a rental rate that supported the book value.
VEREIT estimated fair values using Level 3 inputs and used a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment required VEREIT’s management to exercise significant judgment and make certain key assumptions, including the following: (1) capitalization rate; (2) discount rates; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions, including number of months to re-lease, market rental revenue and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of VEREIT Office Assets’ tenants. For VEREIT’s impairment tests for the real estate assets during the three months ended March 31, 2021, (Unaudited) - (Continued)
Three Months Ended September 30,Nine Months Ended September 30,
Revenue2021202020212020
Segment rental revenue:
Aerospace$545$537$1,635$1,620
Diversified Industrial1,1487022,5582,107
Drug Stores1,4611,4614,3824,382
Financial Services1,3251,3123,9743,937
Food Processing4384381,3141,314
General Merchandise7257142,1542,144
Government Services2,5312,2047,6117,042
Health Care1,8181,8435,4635,549
Insurance180178536534
Other Manufacturing5681,3321,5773,941
Telecommunications1,3841,3454,1534,035
Transportation Services1,1921,1903,5733,570
Total rental revenue (including reimbursable)$13,315$13,256$38,930$40,175
VEREIT used a discount rate of 8.6% and a capitalization rate of 8.1% .
Note 103 – Commitments and Contingencies
In the ordinary course of business, Realty IncomeLitigation
VEREIT Office Assets is party to various legal actionsproceedings which it believes are believed to be routine in nature and incidental to the operation of theits business. Realty IncomeVEREIT Office Assets believesdoes not believe that the outcomeany of the proceedings will notthese outstanding claims against it are expected to have a material adverse effect upon the combinedits consolidated financial position or results of operations.
Realty IncomeEnvironmental Matters
In connection with the ownership and operation of real estate, VEREIT Office Assets may potentially be liable for costs and damages related to environmental matters. VEREIT Office Assets has certain propertiesnot been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect upon its results of operations.
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VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited - (Continued)


Note 4 – Leases
Lessor
As of March 31, 2021, VEREIT Office Assets is the lessor for its 52 office properties. VEREIT Office Assets’ operating leases have non-cancelable lease terms ranging from 0.03 years to 12.18 years as of March 31, 2021. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying assets. Lease agreements may also contain rent increases that are subject to ground leases, which are accounted for as operating leases.
At September 30, 2021, Realty Incomebased on an index or rate (e.g., the consumer price index or LIBOR). VEREIT Office Assets had commitmentsbelieves the residual value risk is not a primary risk because of $0.8 millionthe long-lived nature of the assets.
The components of rental revenue from VEREIT Office Assets’ operating leases were as follows (in thousands):
Three Months Ended March 31,
2021
Fixed:
Cash rent$32,146 
Straight-line rent(765)
Lease intangible amortization(31)
Property operating cost reimbursements948 
Total fixed32,298 
Variable (1)
7,484 
Total rental revenue$39,782 

(1)Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent.
Lessee
VEREIT Office Assets is the lessee under 1 ground lease arrangement, which meets the criteria of an operating lease. As of March 31, 2021, VEREIT Office Assets’ lease has a remaining lease term of 36.4 years, which includes options to extend. Under the ground lease arrangement, VEREIT Office Assets pays variable costs, including property operating expenses and common area maintenance. The discount rate for building improvementsVEREIT Office Assets’ operating lease was 5.17% as well as $0.4 millionof March 31, 2021. As VEREIT Office Assets’ lease does not provide an implicit rate, VEREIT Office Assets used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.
Operating lease costs for leasing commissions.the three months ended March 31, 2021 were $82,000. No cash paid for operating lease liabilities was capitalized.









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VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited - (Continued)

Note 115 – Subsequent Events
Realty IncomeVEREIT Office Assets evaluated subsequent events through May 4, 2022 and no items have come to the attention of management that require recognition or disclosure, except as set forth below.

Property Acquisition
In OctoberSubsequent to March 31, 2021, Realty IncomeVEREIT Office Assets contributed $2.2 million to the unconsolidated joint venture, which acquired 1 property for a gross purchase price of $26.4 million.
Debt
Subsequent to March 31, 2021, each of the outstanding mortgage notes of VEREIT Office Assets were repaid 1 mortgage in full for $9.6 millionby VEREIT on behalf of Realty IncomeVEREIT Office Assets related to its property in East Windsor, NJ. As a result of the early repayment, Realty Income Office Assets incurred a $0.3 million prepayment penalty.Assets.
Mergers, Separation and Distribution
On November 1, 2021, Realty Income completed its acquisition of VEREIT, and the Mergers were consummated.completed. Following the Merger Effective Time, the Separation was completed. On November 12, 2021, Realty Income completedfollowing the Separation, and the Distribution.Distribution was completed.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Orion Office REIT Inc. (the “Company”, “Orion”, “we”, or “us”) makes statements in this section that are forward-looking statements.statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section entitled “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K filed on March 24, 2022. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see the section titled "Risk Factors" includedPart I - Item 1A. Risk Factors contained in the preliminary information statement included as Exhibit 99.1 to the Company’s Registration Statement on Form 10 (File No. 001-40873) filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 4, 2021, the final version of which was included as Exhibit 99.1 to the CurrentAnnual Report on Form 8-K filed with the SEC on October 25, 2021 (the “Information Statement”).10-K.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” which reflect our expectations and projections regarding future events and plans, future financial condition, results of operations, liquidity and business, including leasing and occupancy, acquisitions, dispositions, rent receipts, rent relief requests, rent relief granted, the payment of future dividends, the Company’s growth and the impact of the coronavirus (COVID-19) on our business, the Mergers, the Separation and the Distribution (each, as defined under “Overview - Merger with Realty Income” below).business. Generally, the words “anticipates,” “assumes,” “believes,” “continues,” “could,” “estimates,” “expects,” “goals,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” and“guidance,” variations of such words and similar expressions identify forward-looking statements. These forward-looking statements are based on information currently available to us and involve a number of known and unknown assumptions and risks, uncertainties and other factors, which may be difficult to predict and beyond the Company’s control, that could cause actual events and plans or could cause our business, financial condition, liquidity and results of operations to differ materially from those expressed or implied in the forward-looking statements. These factors include, among other things, those discussed below. Information regarding historical rent collections should not serve as an indication of future rent collection. We disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or factors, new information, future events or otherwise, except as may be required by law.
The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements:
•Realty Income Corporation’s (“Realty Income”) inabilitythe risk of rising interest rates, including that our borrowing costs may increase and we may be unable to refinance our debt obligations on favorable terms or failure to perform under the various transaction agreements effecting the Separation and the Distribution;at all;
•the risk of inflation, including that our lack of operating historycosts, such as an independent company;insurance premiums, utilities, real estate taxes and capital expenditures and repair and maintenance costs, may rise;
•conditions associated with the global market, including an oversupply of office space, clienttenant credit risk and general economic conditions;
•the extent to which the ongoing COVID-19 pandemic or any future pandemic or outbreak of a highly infectious or contagious disease or fear of such pandemics or outbreaks impacts our business, operating results, financial condition and prospects, which is highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the COVID-19 pandemic and its impact on the U.S. economy and potential changes in tenant behavior that could adversely affect the use of and demand for office space;
•our ability to acquire new properties and sell non-core assets on favorable terms and in a timely manner, or at all;
•our ability to comply with the terms of our credit agreements or to meet the debt obligations on certain of our properties;
•our ability to access the availability of refinancing currentcapital markets to raise additional equity or refinance maturing debt obligations;
•existing and potential co-investments with third-parties;
•changes in any credit rating we may subsequently obtain;on favorable terms or at all;
•changes in the real estate industry and in performance of the financial markets and interest rates and our ability to effectively hedge against interest rate changes;
•the actual or perceived impactrisk of global and economic conditions;tenant defaults on their lease obligations, which are heightened due to our focus on single tenant properties;
•our ability to enter intorenew leases with existing tenants or re-let space to new leases or renewal leasestenants on favorable terms;terms or at all;
•the cost of rent concessions, tenant improvement allowances and leasing commissions;
•the potential for termination of existing leases pursuant to clienttenant termination rights;
•the amount, growth and relative inelasticity of our expenses;
•risks associated with the ownership and development of real property;
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•risks associated withaccompanying the management of the Arch Street Joint Venture, our unconsolidated joint venture, with an affiliate of Arch Street Capital Partners and any potential future equity investments;as defined in the MD&A Overview, in which we hold a non-controlling ownership interest;
•the outcome of claims and litigation involving or affecting the company;
•theour ability to satisfy conditions necessary to close pending real estate transactions, and the abilitywhich may be subject to successfully integrate pending transactions;
•applicable regulatory changes;conditions that are outside of our control;
•risks associated with acquisitions, including the integration of VEREIT Office Assets andthe office portfolios of Realty Income Office Assets (each, as definedCorporation (“Realty Income”) and VEREIT, Inc. into Orion;
•Realty Income’s inability or failure to perform under “Overview - Merger with Realty Income” below) into Orion;the various transaction agreements effecting the Separation and the Distribution;
•risks associated with the fact that our historicalwe have a limited operating history and pro forma financial information may not be a reliable indicator of our future results;performance is difficult to predict;
•our properties may be subject to impairment charges;
•risks associated with achieving expected synergiesresulting from losses in excess of insured limits or cost savings;uninsured losses;
•risks associated with the potential volatility of our common stock; and
•other risks and uncertainties detailed from time to time in our SEC filings.
All forward-looking statements should be read in light of the risks identified in the section titled “Risk Factors” included in the Information Statement and Part II,I, Item 1A. Risk Factors within this Quarterlyin the Company’s Annual Report on Form 10-Q.10-K for the year ended December 31, 2021.
We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:
When we refer to “annualized base rent,” we mean the monthly aggregate cash amount charged to tenants under our leases (including monthly base rent receivables and certain contractually obligated reimbursements by our tenants), as of March 31, 2022, multiplied by 12, including the Company’s pro rata share of such amounts from its unconsolidated joint venture with an affiliate of Arch Street Capital Partners. Annualized base rent is not indicative of future performance.
Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. There are various forms of net leases, most typically classified as triple net or double net. Triple net leases typically require that the tenant pay all expenses associated with the property (e.g.(e.g., real estate taxes, insurance, maintenance and repairs). Double net leases typically require that the tenant pay all operating expenses associated with the property (e.g.(e.g., real estate taxes, insurance and maintenance), but excludes some or all major repairs (e.g.(e.g., roof, structure and parking lot). Accordingly, the owner receives the rent “net” of these expenses, rendering the cash flow associated with the lease predictable for the term of the lease. Under a net lease, the tenant generally agrees to lease the property for a significant term and agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease.
Overview
Orion is an internally managed REIT engaged in the ownership, acquisition, and management of a diversified portfolio of mission-critical regional and corporate headquarters office buildings located in high quality suburban markets across the U.S. and leased primarily on a single-tenant net lease basis to creditworthy tenants. Orion Office REIT Inc. was incorporated in the State of Maryland on July 1, 2021 and intends to qualify and elect to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2021.
The Company has 92 office properties with an aggregate of 10.5 million leasable square feet located in 29 states and Puerto Rico, with an occupancy rate of 88.1% and a weighted-average remaining lease term of 4.0 years as of March 31, 2022. Including the Company’s pro rata share of square feet and annualized base rent from the Company’s unconsolidated joint venture with an affiliate of Arch Street Capital Partners, we owned an aggregate of 10.6 million leasable square feet with an occupancy rate of 88.3% and a weighted-average remaining lease term of 4.1 years as of March 31, 2022.
Merger with Realty Income
On April 29, 2021, Realty Income entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc. (“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”). On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Upon the Merger Effective Time, as part of the Mergers, Realty Income acquired certain office real properties and related assets previously owned by subsidiaries of
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VEREIT (collectively, “VEREIT Office Assets”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and certain office real properties and related assets previously owned by subsidiaries ofthe VEREIT (collectively, “VEREIT Office Assets”)Assets (the “Separation”) to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). Following the Distribution, we became an independent publicly traded company and intend to qualify and elect to be taxed as a REIT, commencing with our initial taxable year endingended December 31, 2021.
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On November 12, 2021, in connection with the Distribution, Orion OP also entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
Our common stock, par value $0.001 per share, trades on the New York Stock Exchange (the “NYSE”)NYSE under the symbol “ONL”.
Realty Income and VEREIT are both considered our accounting predecessors.
Following the Mergers, the Separation and the Distribution, we own and operate 92 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.5 million leasable square feet located within 29 states and Puerto Rico. In addition, we own an equity interest in an unconsolidated joint venture with an affiliate of Arch Street Capital Partners, which, as of September 30, 2021 owned a portfolio consisting of five office properties totaling approximately 0.8 million leasable square feet located within five states.
Through September 30,November 12, 2021, we had not conducted any business as a separate company other than start-up related activities.
Emerging Growth Company Status
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including but not limited to, compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved. If we do take advantage of some or all of these exemptions, someWe cannot predict if investors maywill find our common stock less attractive. Theattractive because we will rely on the exemptions available to us as an emerging growth company. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies until we can no longer avail ourselves of the exemptions applicable to emerging growth companies or until we affirmatively and irrevocably opt out of the extended transition period.
We will remain an emerging growth company until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur on the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Basis of Presentation
For periods presented prior to the date of the Distribution, the historicalThe Company’s consolidated and combined financial results forstatements include the accounts of the Realty Income Office Assets presented on a combined basis for the three months ended March 31, 2021 as the ownership interests were under common control and ownership of Realty Income during that period. For the three months ended March 31, 2022, the consolidated and combined financial statements of the Company include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture.
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The historical combined and consolidated financial results for the VEREIT Office Assets include the accounts of Realty Income Office Assets andthe VEREIT Office Assets on a combined basis as the ownership interests have historically beenwere under common control and ownership of Realty Income and VEREIT, respectively.VEREIT. These combined financial results were derived from the books and records of Realty Income and VEREIT and were carved out from Realty Income and VEREIT, respectively.VEREIT.
The combined historical financial statements of Realty Income Office Assets and the combined and consolidated financial statements of the VEREIT Office Assets reflect charges for certain corporate costs and, we believe such charges are reasonable. Costs of the services that were charged to Realty Income Office Assets andthe VEREIT Office Assets were based on either actual costs incurred by each business or a proportion of costs estimated to be applicable to each entity,business, based on Realty Income Office Assets’ pro-rata share of total rental revenue and VEREIT Office Assets’ pro-rata share of annualized rental income.base rent. The historical combined financial information presented does not necessarily include all of the expenses that would have been incurred had Realty Income Office Assets and VEREIT Office Assets been operating as a separate, standalone entity.company. Such historical combined and consolidated financial information may not be indicative of the results of operations, financial position or cash flows that would have been obtained if Realty Income Office Assets andthe VEREIT Office Assets had been an independent, standalone
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public company during the periods presented or of the future performance of the Company as an independent, standalone company.
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Election as a REIT
We intend to qualify and elect to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2021. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, to stockholders. As a REIT, except as discussed below, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). REITs are subject to a number of other organizational and operational requirements. Even if we maintain our qualification for taxation as a REIT, we may become subject to certain state and local taxes on our income and property, federal income taxes on certain income and excise taxes on our undistributed income. We believe we are organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year endingended December 31, 2021.
InflationSignificant Accounting Estimates
Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting estimates would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different assumptions or estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policy involves significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.
Real Estate Impairment
We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. However, net leases that require the tenant to pay its allocable share of operating expenses, including common area maintenance costs,invest in real estate taxesassets and insurance, may reduce our exposuresubsequently monitor those investments quarterly for impairment. The risks and uncertainties involved in applying the principles related to increases in costs and operating expenses resulting from inflation.
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ORION OFFICE REIT INC.
Results of Operations
For the periods presented priorreal estate impairment include, but are not limited to, the datefollowing:
•The review of impairment indicators and subsequent determination of the Distribution, our historical consolidated financial results reflect charges for certain legal, accounting and other costs related to the Distribution, which were incurred and paid by Realty Income on our behalf, and are reflected as capital contributions.
Liquidity and Capital Resources
From July 1, 2021 (inception) to September 30, 2021, our principal sources of liquidity wereundiscounted future cash on hand and contributions from Realty Income.
For the next 12 months, our principal liquidity needs are to: (i) fund operating expenses; (ii) meet our debt service requirements; (iii) make distributions to our stockholders, as required forflows could require us to qualify as a REIT; (iv) fund capital expenditures at properties we own;reduce the value of assets and (v) fund acquisitions, investments and commitments, including commitments to fund acquisitions related to the Arch Street Joint Venture, as defined below. We expect that these liquidity needs generally will be satisfied by a combination of cash flows from operations and borrowings under the Revolving Facility (as defined below).
Credit Facility
In connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion Office REIT LP (“Orion OP”), as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425 million senior revolving credit facility (the “Revolving Facility”), including a $25 million letter of credit sub-facility, and a two-year, $175 million senior term loan facility (the “Term Loan Facility,” and together with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “CMBS Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355 million senior bridge term loan facility (the “CMBS Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
On November 12, 2021, Orion OP borrowed $90 million under the Revolving Facility, and each of the Term Loan Facility and the CMBS Bridge Facility was fully drawn. Approximately $595 million of the net proceeds of the Facilities was distributed to Realty Income in accordance with the Separation and Distribution Agreement. Orion OP retained the remaining net proceeds of such borrowings as working capital that will be used for our general corporate purposes, Orion OP and Orion OP’s subsidiaries. As of the completion of the Separation and the Distribution, we had $620.0 million in consolidated outstanding indebtedness, approximately $15.6 million in cash and $335.0 million of availability under the Revolving Facility.
The CMBS Bridge Facility is subject to one 6-month extension option at the election of Orion OP. The exercise of such extension option requires the payment ofrecognize an extension fee and the satisfaction of certain other customary conditions.
The interest rate applicable to the loans under the Facilities may, at the election of Orion OP, be determined on the basis of LIBOR or a base rate, in either case, plus an applicable margin. Under the Revolver/Term Loan Facilities, the applicable margin is (1) in the case of the Revolving Facility, 2.50% for LIBOR loans and 1.50% for base rate loans and (2) in the case of the Term Loan Facility, 2.50% for LIBOR loans and 1.50% for base rate loans. Under the CMBS Bridge Facility, the applicable margin for LIBOR loans is initially 2.50% with increases over time to a maximum of 3.50% and the applicable margin on base rate loans is initially 1.50% with increases over time to a maximum of 2.50%, in each case, based on the number of days elapsed after November 12, 2021. Loans under the Credit Agreements may be prepaid, and unused commitments under the Credit Agreements may be reduced, at any time, in whole or in part, without premium or penalty (except for LIBOR breakage costs).
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To the extent that amounts under the Revolving Facility remain unused, Orion OP is required to pay a quarterly commitment fee on the unused portion of the Revolving Facility in an amount equal to 0.25% per annum of the unused portion of the Revolving Facility.
The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) and the CMBS Bridge Facility is guaranteed pursuant to a Guaranty (the “CMBS Bridge Guaranty”), in each case, by us and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).
The Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.
The Credit Agreements require that Orion OP comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. In addition, the Credit Agreements require that Orion OP satisfy certain financial covenants, including a:

impairment loss.
•ratioThe evaluation of total debtreal estate assets for potential impairment requires our management to total asset valueexercise significant judgment and make certain key assumptions. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of not more than 0.60 to 1.00;our tenants.
•ratio of adjusted EBITDAChanges related to fixed charges of not less than 1.50management’s intent to 1.00;
•ratio of secured debtsell or lease the real estate assets used to total asset value of not more than 0.45 to 1.00;
•ratio of unsecured debt to unencumbered asset value of not more than 0.60 to 1.00; and
•ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00.
The Credit Agreements include customary representations and warranties of us and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit underdevelop the Revolver/Term Loan Facilities. The Credit Agreements also include customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Credit Agreements to be immediately due and payable and foreclose on the collateral securing the Facilities.
Equity
On November 10, 2021, we issued 56,525,650 additional shares of our common stock to Realty Income, such that Realty Income owned 56,625,650 shares of our common stock. Also on November 10, 2021, in connection with the filing of our Articles of Amendment, we changed the par value of our common stock from $0.01 per share to $0.001 per share. On November 12, 2021, Realty Income effected the Distribution.
On November 12, 2021, in connection with the Distribution, Orion OP entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
Also on November 12, 2021, in connection with the entry into the LLCA, we granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of our common stock (the “Arch Street Warrants”). The Arch Street Warrants entitle the respective holders to purchase shares of our common stock at a price per share equal to (1) the 30-day volume weighted average per share price of our common stock for the first 30 trading days beginning on the first trading date of our common stock, multiplied by (2) 1.15 (asforecasted cash flows may be adjusted for any stock splits, dividends, combinations or similar transactions), at any time commencing 31 trading days after the completion of the Distribution. The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of our common stock determined according to the formula set forth in the Arch Street Warrants. The Arch Street Warrants expire on the earlier of (a) ten years after issuance and (b) the termination of the Arch Street Joint Venture.
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The Arch Street Warrants will be exercisable and we will not be obligated to issue shares of our common stock upon exercise of a warrant unless such common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. We have agreed that, prior to six months following our eligibility to use Form S-3 for the registration of our securities, we will file with the SEC a registration statement on Form S-3 (the “Registration Statement”) for the registration, under the Securities Act, of the shares of our common stock issuable upon exercise of the Arch Street Warrants. We will use our commercially reasonable efforts to cause the Registration Statement to become effective and to maintain the effectiveness of the Registration Statement, and a current prospectus relating thereto, until the earlier of (a) the expiration of the Arch Street Warrants, or (b) the shares issuable upon such exercise become freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act (or any successor rule)) of us. The holders of the Arch Street Warrants will also remain subject to the ownership limitations pursuant to our organizational documents.
Also in connection with the entry into the LLCA, the Arch Street Joint Venture’s lender consented to the transfer of the interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP, and, in connection therewith, Orion OP agreed to become a guarantor of certain limited customary recourse obligations and provide certain customary environmental indemnities under the Arch Street Joint Venture’s existing indebtedness.
Right of First Offer Agreement
In connection with the entry into the LLCA, we and the Arch Street Joint Venture entered into that certain Right of First Offer Agreement (the “ROFO Agreement”), dated November 12, 2021, pursuant to which, subject to certain limitations, we, on behalf of ourselves and our affiliates, agreed not to acquire or purchase a fee simple or ground leasehold interest in any office real property, including by way of an acquisition of equity interests, within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture, which will expire upon the earlier of (1) the third anniversary of the execution of the ROFO Agreement, (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million. If the Arch Street Joint Venture decides not to acquire any such property, we may seek to acquire the property independently, subject to certain restrictions. We do not anticipate that the ROFO Agreement will have a material impact on our ability to acquire additional office real properties, although it could resultfinancial results.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are described in us acquiring future properties through the Arch Street Joint Venture rather than as sole 100% owner.
Dividend
We are a newly formed company that has recently commenced operations, and as a result, we have not paid any dividends asNote 2 - Summary of the date of this Quarterly Report on Form 10-Q. We intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year commencing on the day prior to the Distribution and ending on December 31, 2021. We intend to make regular distributionsSignificant Accounting Policies to our stockholders to satisfy the requirements to qualify as a REIT.consolidated financial statements.
Our dividends may be funded from a variety of sources. In particular, we expect that, initially, our dividends may exceed our net income under GAAP because of non-cash expenses, mainly depreciation

Operating Highlights and amortization expense, which are included in net income. To the extent that our funds available for distribution are less than the amount we must distribute to our stockholders to satisfy the requirements to qualify as a REIT, we may consider various means to cover any such shortfall, including borrowing under our Revolving Facility or other loans, selling certain of our assets or using a portion of the net proceeds we receive from future offerings of equity, equity-related securities or debt securities or declaring taxable share dividends. In addition, our Articles of Amendment and Restatement allow us to issue shares of preferred equity that could have a preference on dividends, and if we do, the dividend preference on the preferred equity could limit our ability to pay dividends to the holders of our common stock.
Contractual Obligations
As of September 30, 2021, we were not subject to any contractual obligations or commitments.Key Performance Indicators
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Off-Balance Sheet ArrangementsQuarter Ended March 31, 2022 Activity
We have no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.Real Estate Operations

•We entered into binding contracts to sell two properties for total purchase price of $9.3 million. As of March 31, 2022, these transactions remain subject to customary conditions for real estate transactions of this nature, including conditions related to the buyer’s due diligence, and may be terminated by the buyer in its sole discretion. There can be no assurance these pending sale transactions will be completed on their existing terms or at all.
•We delivered space under one new lease and expanded the premises related to an existing lease comprising a total of approximately 44,000 leasable square feet and extended a total of three leases comprising a total of approximately 137,000 leasable square feet. During the quarter, three leases expired comprising a total of approximately 425,000 leasable square feet. As of March 31, 2022, the Company had a total of ten vacant properties.
Debt
•We refinanced the $355.0 million Bridge Facility on February 10, 2022 with a $355.0 million CMBS Loan at a fixed rate of 4.971%. The CMBS Loan matures on February 11, 2027.
•As of March 31, 2022, we had $334.0 million of borrowing capacity under the Revolving Facility.
Equity
•We declared a quarterly dividend of $0.10 per share for the first quarter of 2022. The dividend was paid on April 15, 2022.

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VEREIT OFFICE ASSETS
Real Estate Portfolio Metrics
Our financial performance is impacted by the timing of acquisitions and dispositions and the operating performance of our operating properties. The following table shows the property statistics of our operating properties as of March 31, 2022, including our pro rata share of the applicable statistics of the properties owned by our unconsolidated joint venture:
2022
Portfolio Metrics
Operating properties92
Unconsolidated joint venture properties6
Rentable square feet (in thousands) (1)
10,646
Occupancy rate (2)
88.3%
Investment-grade tenants (3)
67.0%
Weighted-average remaining lease term (in years)4.1

(1)Represents leasable square feet of operating properties and the Company’s pro rata share of leasable square feet of properties owned by the unconsolidated joint venture.
(2)Occupancy rate equals the sum of leased square feet divided by rentable square feet.
(3)Based on annualized base rental income of our real estate portfolio, including the Company’s pro rata share of annualized base rent for properties owned by the unconsolidated joint venture, as of March 31, 2022. Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. The ratings may reflect those assigned by Standard & Poor’s Financial Services LLC or Moody’s Investor Service, Inc. to the lease guarantor or the parent company, as applicable.
Operating Performance
In addition, management uses the following financial metrics to assess our operating performance (dollar amounts in thousands, except per share amounts).
Three Months Ended March 31,
2022
Financial Metrics
Total revenues$53,206 
Net (loss) income$(9,882)
Basic and diluted net (loss) income per share attributable to common stockholders$(0.17)
FFO attributable to common stockholders (1)
$26,713 
FFO attributable to common stockholders per diluted share (1)
$0.47 
Core FFO attributable to common stockholders (1)
$28,000 
Core FFO attributable to common stockholders per diluted share (1)
$0.49 

(1)See the Non-GAAP Measures section below for descriptions of our non-GAAP measures and reconciliations to the most comparable U.S. GAAP measure.
Results of Operations
The results of operations discussed in this section include the accounts of the Company and its consolidated subsidiaries for the period ended March 31, 2022 and the accounts of Realty Income Office Assets for the period ended March 31, 2021.
Comparison of the three and nine months ended September 30, 2021March 31, 2022 to the three and nine months ended September 30, 2020March 31, 2021 (dollars in thousands)
The following tables set forthCompany’s portfolio size significantly increased as a result of the summary historical combined financial data of certain office real propertiesMergers, which contributed to an increase in revenues and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”), which were carved out from the financial information of VEREIT. The summary historical financial data set forth below forexpenses when comparing the three and nine months ended September 30, 2021 and 2020 has been derived from VEREIT Office Assets’ unaudited combined and consolidated financial statements andMarch 31, 2022 to the notes related thereto, which are included elsewheresame period in this Quarterly Report on Form 10-Q.
The summary historical combined and consolidated financial data set forth below does not indicate results expected for any future periods. The summary historical combined financial data is qualified in its entirety by, and should be read in conjunction with VEREIT Office Assets’ combined and consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the audited combined and consolidated financial statements of VEREIT Office Assets and related notes thereto as of and for the year ended December2021. At March 31, 2020, included in the Information Statement.

Three Months Ended September 30,Nine Months Ended September 30,
20212020Increase / (Decrease)20212020Increase / (Decrease)
REVENUE
Rental revenue$40,494 $42,370 $(1,876)$121,389 $128,583 $(7,194)
Fee income from unconsolidated joint venture161 102 59 601 462 139 
Total revenues40,655 42,472 (1,817)121,990 129,045 (7,055)
EXPENSES
Property operating9,997 11,991 (1,994)30,811 34,567 (3,756)
General and administrative1,483 1,635 (152)5,058 5,271 (213)
Depreciation and amortization14,790 15,122 (332)44,234 47,375 (3,141)
Impairments6,440 — 6,440 28,064 199 27,865 
Total operating expenses32,710 28,748 3,962 108,167 87,412 20,755 
Other (expenses) income:
Interest expense(1,706)(2,440)(734)(5,522)(7,412)(1,890)
(Loss) gain on disposition of real estate assets, net— (1,653)1,653 — 9,781 (9,781)
Loss on extinguishment of debt, net(5)— 5 (85)(1,686)(1,601)
Equity in income of unconsolidated joint venture211 182 29 621 381 240 
Other income, net95 11 84 146 28 118 
Total other (expenses) income, net(1,405)(3,900)2,495 (4,840)1,092 (5,932)
Income before taxes6,540 9,824 (3,284)8,983 42,725 (33,742)
Provision for income taxes(156)(159)(3)(469)(480)(11)
Net income$6,384 $9,665 $(3,281)$8,514 $42,245 $(33,731)

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Rental Revenue. Rental revenue decreased $1.92022, we had 92 office properties with an aggregate of 10.5 million and $7.2leasable square feet as compared to 40 properties with approximately 3.0 million leasable square feet at March 31, 2021.
Revenues
The table below sets forth, for the threeperiods presented, revenue information and ninethe dollar amount change year over year (in thousands):
Three Months Ended March 31,
202220212022 vs 2021
Increase/(Decrease)
Rental$53,017 $13,028 $39,989 
Fee income from unconsolidated joint venture189 — 189 
Total revenues$53,206 $13,028 $40,178 
Rental
The increase in rental revenue of $40.0 million during the three months ended September 30, 2021, respectively,March 31, 2022 as compared to the three and nine months ended September 30, 2020,same period in 2021 was primarily due to the dispositionincrease in our overall portfolio size resulting from the closing of three properties that were soldthe Mergers. Including the rental revenue from the VEREIT Office Assets for the quarter ended March 31, 2021, rental revenue increased $1.9 million primarily due to thereimbursement revenue, offset by a decrease of $2.1 million primarily due to vacancies.
Fee income from unconsolidated joint venture during the year ended December 31, 2020.

Fee Income from Unconsolidated Joint Venture. Fee income from unconsolidated joint venture increased $0.1consists of fees earned for providing various services to the Company’s unconsolidated joint venture. The increase of $0.2 million for bothduring the three and nine months ended September 30, 2021March 31, 2022 as compared to the threesame period in 2021 was due to fees earned from the Arch Street Joint Venture, including property and nineasset management fees. Fee income from unconsolidated joint venture from the VEREIT Office Assets for the quarter ended March 31, 2021 was $0.1 million due to fees earned from the Arch Street Joint Venture, including property and asset management fees.
Operating Expenses
The table below sets forth, for the periods presented, certain operating expense information and the dollar amount change year over year (in thousands):
Three Months Ended March 31,
202220212022 vs 2021
Increase/(Decrease)
Property operating15,314 1,468 13,846 
General and administrative3,517 556 2,961 
Depreciation and amortization34,353 5,988 28,365 
Impairments1,602 — 1,602 
Acquisition-related63 — 63 
Transaction costs756 — 756 
Total operating expenses$55,605 $8,012 $47,593 
Property Operating Expenses
Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses. The increase in property operating expenses of $13.8 million during the three months ended September 30, 2020,March 31, 2022 as compared to the same period in 2021 was primarily attributable to the increase in our portfolio size. Including the property operating expenses from the VEREIT Office Assets for the quarter ended March 31, 2021, property operating expenses increased $4.0 million primarily due to three properties having been acquired by the unconsolidated joint venture during the nine months ended September 30, 2020.

Property Operating Expenses. Property operatingreimbursable expenses decreased $2.0 millionfor property owners association, electricity and $3.8 million, for the threeHVAC repairs and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020, primarilynon-reimbursable expenses due to the disposition of three properties that were sold to the unconsolidated joint venture during the year ended December 31, 2020.vacancies.

General and Administrative Expenses.
General and administrative expenses remained relatively constant at $1.5increased $3.0 million during the three months ended March 31, 2022 as compared to the same period in 2021, which was primarily due to actual costs recorded during the three months ended March 31, 2022
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following the Distribution and $1.6 millionthe Company’s commencement of operations as a standalone business, as compared with an allocation of amounts for the three months ended September 30, 2021 and 2020, respectively. DuringMarch 31, 2021. Including the nine months ended September 30, 2021 and 2020, general and administrative expenses remained relatively constant at $5.1 millionfrom the VEREIT Office Assets for the quarter ended March 31, 2021, general and $5.3 million, respectively.administrative expenses increased $1.3 million. General and administrative expenses for Realty Income Office Assets and VEREIT Office Assets are an allocation from overall VEREIT general and administrative expenses.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $0.3 million and $3.1 million for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020, primarily due to the disposition of three properties that were sold to the unconsolidated joint venture during the year ended December 31, 2020.
Impairments. Impairments increased $6.4 million and $27.9 million for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. As part of VEREIT Office Assets’ impairment review procedures, net real estate assets representing four properties were deemed to be impaired, resulting in impairment charges of $28.1 million during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, net real estate assets related to one property were deemed to be impaired, resulting in impairment charges of $0.2 million. The 2021 and 2020 impairments related to properties that management identified for potential sale or determined, based on discussions with the current tenants, would not be released by the tenant and management believed that the property would not be leased to another tenant at a rental rate that supports the current book value.
Interest Expense. Interest expense decreased $0.7 million and $1.9 million, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020, primarily due to the payoff of $74.4 million mortgage notes payable during the nine months ended September 30, 2021.
(Loss) Gain on Disposition of Real Estate Assets, Net. Loss on disposition of real estate assets, net was $1.7 million for the three months ended September 30, 2020 relatedMarch 31, 2021 are primarily an allocation from Realty Income and VEREIT general and administrative expenses, and therefore, do not reflect the full general and administrative expenses of an independent, separate public company.
Depreciation and Amortization Expenses
The increase in depreciation and amortization expenses of $28.4 million during the three months ended March 31, 2022 as compared to the sale of one propertysame period in 2021 was primarily due to the unconsolidated joint venture. No such lossesincrease in our portfolio size. Including the depreciation and amortization expenses from the VEREIT Office Assets for the quarter ended March 31, 2021, depreciation and amortization expenses increased $13.4 million primarily due to the fair valuation of the VEREIT Office Assets as a result of the Mergers.
Impairments

Impairments of $1.6 million were recorded during the three months ended September 30,March 31, 2022 as compared to no impairments during the same period in 2021. GainAs part of the consummation of the Distribution, the Company’s portfolio became subject to new management which identified certain non-core assets for potential sale. Based on dispositionmanagement’s estimates, the carrying value of certain assets was determined to be unrecoverable, resulting in the recognition of impairment losses during the period. Impairments for the VEREIT Office Assets for the quarter ended March 31, 2021 was $21.2 million due to one real estate assets, netasset that was $9.8 million fordeemed to be impaired.
Acquisition-Related Expenses
During the ninethree months ended September 30, 2020,March 31, 2022, the Company incurred $0.1 million of acquisition-related expenses, which wasprimarily consist of internal salaries allocated to acquisition-related activities as well as costs incurred for deals that were not consummated. No such costs were incurred during the same period in 2021.
Transaction Costs
During the three months ended March 31, 2022, the Company incurred $0.8 million of transaction costs, which primarily consist of legal and accountant fees related to the Mergers and the Distribution and the Company’s start-up activities. No such costs were incurred during the same period in 2021.

Other (Expense) Income and Provision for Income Taxes
The table below sets forth, for the periods presented, certain financial information and the dollar amount change year over year (in thousands):
Three Months Ended March 31,
202220212022 vs 2021
Increase/(Decrease)
Interest expense$(6,847)$(465)$6,382 
Loss on extinguishment of debt, net$(468)$— $468 
Equity in income of unconsolidated joint venture$(41)$— $41 
Other income, net$39 $— $(39)
Provision for income taxes$(166)$— $166 
Interest Expense
The increase in interest expense of $6.4 million during the three properties soldmonths ended March 31, 2022 as compared to the unconsolidated joint venture during the nine months ended September 30, 2020 forsame period in 2021 was primarily due to an aggregate net sales priceincrease in debt outstanding from $36.9 million as of $135.5 million. No such gain was recorded during the nine months ended September 30, 2021.
Loss on ExtinguishmentMarch 31, 2021 to $615.4 million as of March 31, 2022, as discussed in Note 6 – Debt, Net. Including the interest expense from the VEREIT Office Assets for the quarter ended March 31, 2021, interest expense increased $4.4 million primarily due to the increase in debt outstanding in connection with the capitalization of the Company.
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Loss on extinguishment of debt, netdecreased $1.6
Loss on extinguishment of debt, net increased $0.5 million for nineduring the three months ended September 30, 2021March 31, 2022 as compared to no loss on extinguishment of debt in the nine months ended September 30, 2020. Duringsame period in 2021. The loss relates to the nine months ended September 30, 2020, VEREIT Office Assets incurred $1.7 million in losses onwrite off of deferred financing costs due to the early extinguishment of athe Company’s Bridge Facility, as discussed in Note 6 – Debt, Net. Loss on extinguishment of debt for the VEREIT Office Assets for the quarter ended March 31, 2021 was $0.1 million which primarily related to the write off of deferred financing costs due to the early extinguishment of mortgage notenotes payable.
Equity in Income of Unconsolidated Joint Venture. Equity in income of unconsolidated joint venture remained relatively constant at $0.2 million for both
Equity in income of the unconsolidated joint venture was a loss of $41,000 during the three months ended September 30,March 31, 2022 as compared to no equity in income of the unconsolidated joint venture for the same period in 2021, which relates to the Company’s investment in one unconsolidated joint venture, which interest was transferred to the Company in connection with the Separation and 2020. DuringDistribution. Including the nine months ended September 30, 2021, equity in income of unconsolidated joint venture increasedfrom the VEREIT Office Assets for the quarter ended March 31, 2021, income decreased $0.2 million comparedprimarily related to amortization of the nine months ended September 30, 2020, primarily due to three properties acquired bystep up in basis of the unconsolidated joint venture duringinvestment as a result of the year ended December 31, 2020.Mergers.
Other Income, Net. Other income, net increased $0.1 million for both the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020.
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Provision for Income Taxes. Provision
The provision for income taxes remained constant atconsists of certain state and local income and franchise taxes. The increase to $0.2 million and $0.5 million during each of the three and nine months ended September 30, 2021 and 2020, respectively.
Net Income. Net income was $6.4 million and $9.7 million for the three months ended September 30, 2021 and 2020, respectively, a decrease of $3.3 million during the three months ended September 30, 2021March 31, 2022, as compared to the three months ended September 30, 2020. During the nine months ended September 30, 2021 and 2020, netno provision for income was $8.5 million and $42.2 million, respectively, a decrease of $33.7 million during the nine months ended September 30, 2021 as comparedtaxes prior to the nine monthstime the Company became an independent, separate public company. The provision for income taxes for the VEREIT Office Assets for the quarter ended September 30, 2020.March 31, 2021 was $0.2 million.
Non-GAAP Measures
Our results are presented in accordance with U.S. GAAP. We also disclose certain non-GAAP measures, as discussed further below. Management uses these non-GAAP financial measures in our internal analysis of results and believes these measures are useful to investors for the reasons explained below. These non-GAAP financial measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP.
Funds From Operations (“FFO”) and Core Funds from Operations (“Core FFO”) Attributable to VEREIT Office AssetsOrion
VEREIT Office Assets defines FFO, a non-GAAP financial measure, consistent withDue to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts’Trusts, Inc. (“Nareit”) definition,, an industry trade group, has promulgated a supplemental performance measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.
Nareit defines FFO as net income or loss lesscomputed in accordance with U.S. GAAP adjusted for gains onor losses from disposition of real estate assets, net, plus depreciation and amortization of real estate assets, plus provisions for impairments of depreciableimpairment write-downs on real estate, assets, plus VEREIT Office Assets’ proportionateand our pro rata share of FFO adjustments for unconsolidated entities. The proportionate share of adjustments for unconsolidated entities is based upon VEREIT Office Assets’ legal ownership percentage, which may, at times, not equal its economic interest because of various provisionsrelated to the Unconsolidated Joint Venture. We calculate FFO in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns.accordance with Nareit’s definition described above.
VEREIT Office Assets considersIn addition to FFO, to be an appropriate supplemental measure of the operating performance of a real estate company as it is based on a net income analysis of property portfolio performance that adds back items such as gains or losses from disposition of property, depreciation and impairments for FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a real estate company, using historical accounting for depreciation, could be less informative. Thewe use ofCore FFO is recommended by the real estate industry as a supplemental performance measure.
Adjusted Funds from Operations (“AFFO”) Attributable to VEREIT Office Assets
VEREIT Office Assets uses adjusted funds from operations (“AFFO”) as a non-GAAP supplemental financial performance measure to evaluate the operating performance of VEREIT Office Assets. AFFO,the Company. Core FFO, as defined by VEREIT Office Assets, isthe Company, excludes from FFO excluding certain non-cashnon-recurring or infrequent items to the extent applicable, such as impairments of goodwill, intangibleacquisition-related expenses, transaction costs and right of use assets, straight-line rent, net direct financing lease adjustments, gains or losses on derivatives, reserves for loan loss, gains extinguishment of swaps and/or losses on the extinguishment or forgiveness of debt,debt. We believe that FFO and amortization of intangible assets, deferred financing costs, premiums and discounts on debt, above-market lease assets, deferred lease incentives and below-market lease liabilities. VEREIT Office Assets believes that excluding these costs fromCore FFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by VEREIT Office Assets’ management, and provides investors a view of the performance of VEREIT Office Assets’ portfolio over time. AFFO allowsallow for a comparison of the performance of VEREIT Office Assets’our operations with other real estate companies,publicly-traded REITs, as AFFO,FFO and Core FFO, or an equivalent measure, ismeasures, are routinely reported by publicly-traded REITs, each adjust for items that we believe do not reflect the ongoing operating performance of our business and VEREIT Office Assets believeswe believe are often used by analysts and investors for comparison purposes.
VEREIT Office Assets believesFor all of these reasons, we believe FFO and AFFO,Core FFO, in addition to net income (loss), as defined by U.S. GAAP, are helpful supplemental performance measures and useful in understanding the various ways in which VEREIT Office Assets’our management evaluates the performance of VEREIT Office Assetsthe Company over time. However, not all real estate companiesREITs calculate FFO and AFFOCore FFO the same way, including Realty Income Office Assets, so comparisons with other real estate companiesREITs may not be meaningful. FFO and AFFOCore FFO should not be considered as alternatives to net income (loss) and are not intended to be used as a liquidity measure indicative of cash flow available to fund VEREIT Office Assets’our cash needs. Neither the SEC, Nareit, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate AFFOCore FFO and its use as a non-GAAP financial performance measure.
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SeeThe table below presents a reconciliation of FFO and Core FFO to net (loss) income attributable to common stockholders, the Non-GAAP Measures section belowclosest GAAP financial measure, for descriptionsthe three months ended March 31, 2022 and 2021 (dollars in thousands):
Three Months Ended March 31,
20222021
Net (loss) income attributable to common stockholders$(9,906)$4,551 
Depreciation and amortization of real estate assets34,337 5,988 
Impairment of real estate1,602 — 
Proportionate share of adjustments for unconsolidated entity680 — 
FFO attributable to common stockholders$26,713 $10,539 
Acquisition-related expenses63 — 
Transaction costs (1)
756 — 
Loss (gain) on extinguishment and forgiveness of debt, net468 — 
Core FFO attributable to common stockholders$28,000 $10,539 
(1) Transaction costs primarily consist of VEREIT Office Assets’ non-GAAP measuresattorney fees and reconciliationsaccountant fees related to the most comparable measure in accordance with generally accepted accounting principles inMergers and the United States (dollars in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net income$6.4 $9.7 $8.5 $42.2 
Loss (gain) on disposition of real estate assets, net— 1.7 — (9.8)
Depreciation and amortization of real estate assets14.8 15.1 44.2 47.4 
Impairment of real estate6.4 — 28.1 0.2 
Proportionate share of adjustments for unconsolidated entities0.4 0.3 1.1 0.7 
FFO attributable to VEREIT Office Assets28.0 26.8 81.9 80.7 
Amortization of premiums (discounts) on debt, net— (0.2)(0.1)(0.5)
Amortization of above-market lease assets and deferred lease incentives, net of amortization of below-market lease liabilities(0.1)— — — 
Amortization and write-off of deferred financing costs— — — 0.1 
Loss (gain) on extinguishment and forgiveness of debt, net— — 0.1 1.7 
Straight-line rent0.2 0.3 1.6 0.3 
AFFO attributable to VEREIT Office Assets$28.1 $26.9 $83.5 $82.3 
Distribution and the Company’s start-up activities.
Liquidity and Capital Resources
General
Our principal liquidity needs for the next twelve months are to: (i) fund operating expenses; (ii) meet our debt service requirements; (iii) make distributions to our stockholders, as required for us to qualify as a REIT; (iv) fund capital expenditures at properties we own; and (v) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture. We believe that our principal sources of short-term liquidity, which are our cash and cash equivalents on hand, cash flows from operations, and borrowings under the Revolving Facility, are sufficient to meet our liquidity needs for the next twelve months. As of March 31, 2022, we had $18.6 million of cash and cash equivalents and $334.0 million of borrowing capacity under the Revolving Facility.
Our principal liquidity needs beyond the next twelve months are to: (i) repay or refinance debt at maturity, (ii) fund capital expenditures at properties we own and (iii) fund new acquisitions. We generally believe we will be able to satisfy these liquidity needs by a combination of cash flows from operations, borrowings under the Revolving Facility, proceeds from real estate dispositions, new borrowings such as bank term loans or other secured or unsecured debt, issuances of equity securities, and/or proceeds from the sale of assets. We believe we will be successful in either repaying or refinancing our debt obligations at or prior to maturity, but we cannot provide any assurance we will be able to do so. Our ability to refinance debt, raise capital and/or sell assets will be affected by various factors existing at the relevant time, such as capital and credit market conditions, the state of the national and regional economies, commercial real estate market conditions, available interest rate levels, the lease terms for and equity in and value of any related collateral, our financial condition and the operating history of the collateral, if any.
Credit Agreements
Summary and Obligations
In connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion Office REIT LP (“Orion OP”), as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425.0 million Revolving Facility, including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million Term Loan Facility with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355.0 million senior bridge term loan facility (the “Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
On November 12, 2021, Orion OP borrowed $90.0 million under the Revolving Facility, and each of the Term Loan Facility and the Bridge Facility was fully drawn. Approximately $595.0 million of the net proceeds of the Facilities was distributed by the Company to Realty Income in accordance with the Separation and Distribution Agreement. Orion OP retained the remaining net proceeds of such borrowings as working capital for general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries.
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In February 2022, as further described below, we refinanced the Bridge Facility in full with the $355.0 million CMBS Loan (defined below), and the Bridge Credit Agreement was terminated.
As of March 31, 2022, the Company had approximately $621.0 million of total consolidated debt outstanding, consisting of a $355.0 million CMBS Loan, a $175.0 million Term Loan Facility and a $425.0 million Revolving Facility, $91.0 million of which was outstanding. In addition, the Company’s pro rata share of the mortgage notes of the unconsolidated joint venture was $27.3 million as of March 31, 2022.
The interest rate applicable to the loans under the Revolver/Term Loan Facilities may, at the election of Orion OP, be determined on the basis of LIBOR or a base rate, in either case, plus an applicable margin. Under the Revolver/Term Loan Facilities, the applicable margin is (1) in the case of the Revolving Facility, 2.50% for LIBOR loans and 1.50% for base rate loans and (2) in the case of the Term Loan Facility, 2.50% for LIBOR loans and 1.50% for base rate loans. Loans under the Revolver/Term Loan Facilities may be prepaid, and unused commitments under the Revolver/Term Loan Facilities may be reduced, at any time, in whole or in part, without premium or penalty (except for LIBOR breakage costs).
To the extent that amounts under the Revolving Facility remain unused, Orion OP is required to pay a quarterly commitment fee on the unused portion of the Revolving Facility in an amount equal to 0.25% per annum of the unused portion of the Revolving Facility.
The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) by us and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).
The Revolver/Term Loan Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.
Revolver/Term Loan Facility Covenants
The Revolver/Term Loan Facilities require that Orion OP comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. In addition, the Revolver/Term Loan Facilities require that Orion OP satisfy certain financial covenants. The following is a summary of key financial covenants for the Company’s Revolver/Term Loan Facilities and the Company’s compliance therewith, as calculated per the terms of the Revolver/Term Loan Credit Agreement:

Credit Facility Key CovenantsRequiredMarch 31, 2022
Ratio of total indebtedness to total asset value≤ 60%32.3%
Ratio of adjusted EBITDA to fixed charges≥ 1.5x5.92x
Ratio of secured indebtedness to total asset value≤ 45%19.1%
Ratio of unsecured indebtedness to unencumbered asset value≤ 60%18.7%
Ratio of unencumbered adjusted NOI to unsecured interest expense≥ 2.00x12.35x
As of March 31, 2022, Orion OP was in compliance with these financial covenants.
The Revolver/Term Loan Facilities include customary representations and warranties of us and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolver/Term Loan Facilities. The Revolver/Term Loan Facilities also include customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Revolver/Term Loan Facilities to be immediately due and payable and foreclose on the collateral securing the Revolver/Term Loan Facilities.
CMBS Loan
On February 10, 2022, certain indirect subsidiaries of the Company (the “Mortgage Borrowers”) obtained a $355.0 million fixed rate mortgage loan (the “CMBS Loan”) from Wells Fargo Bank, National Association (together with its successor, the “Lender”), which is secured by the Mortgage Borrowers’ fee simple or ground lease interests in 19 properties owned indirectly by the Company (collectively, the “Mortgaged Properties”). During March 2022, Wells Fargo effected a securitization of the CMBS Loan. The CMBS Loan bears interest a fixed rate of 4.971% per annum and matures on February 11, 2027.
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The CMBS Loan requires monthly payments of interest only and all principal is due at maturity. The proceeds of the CMBS Loan were used to repay the Bridge Facility. Upon closing of the CMBS Loan, the Mortgage Borrowers funded $35.5 million of loan reserves primarily for future rent concessions and tenant improvement allowances under the leases with respect to the 19 Mortgaged Properties. These amounts, as well as the transaction expenses incurred in connection with the CMBS Loan, were funded with cash on hand and borrowings under the Company’s Revolving Facility.
The CMBS Loan is secured by, among other things, first priority mortgages and deeds of trust granted by the Mortgage Borrowers and encumbering the Mortgaged Properties.
The CMBS Loan is generally not freely prepayable by the Mortgage Borrowers without payment of certain prepayment premiums and costs. The CMBS Loan may be prepaid in whole, but not in part, except as provided in the loan agreement governing the CMBS Loan (the “CMBS Loan Agreement”), at any time following the Prepayment Lockout Release Date (as defined in the CMBS Loan Agreement) (generally two years after the Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement. Further, releases of individual properties are permitted in connection with an arms’ length third party sale upon repayment of the Release Price (as defined in the CMBS Loan Agreement) for the applicable individual property and subject to payment of the applicable yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.
The CMBS Loan Agreement also contains customary cash management provisions, including certain trigger events (such as failure of the Mortgage Borrowers to satisfy a minimum debt yield) which allow the Lender to retain any excess cash flow as additional collateral for the Loan, until such trigger event is cured.
In connection with the CMBS Loan Agreement, the Company (as the guarantor) delivered a customary non-recourse carveout guaranty to the Lender (the “Guaranty”), under which the Company guaranteed the obligations and liabilities of the Mortgage Borrowers to the Lender with respect to certain non-recourse carveout events and the circumstances under which the CMBS Loan will be fully recourse to the Mortgage Borrowers, and which includes requirements for the Company to maintain a net worth of no less than $355.0 million and liquid assets of no less than $10.0 million, in each case, exclusive of the values of the collateral for the CMBS Loan. As of March 31, 2022, the Company was in compliance with these financial covenants.
The Mortgage Borrowers and the Company also provided a customary environmental indemnity agreement, pursuant to which the Mortgage Borrowers and the Company agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities relating to the Mortgaged Properties.
The loan documents evidencing the CMBS Loan include customary representations, warranties and covenants of the Mortgage Borrowers and the Company. The loan documents also include customary events of default, the occurrence of which, following any applicable grace period, would permit the Lender to, among other things, declare the principal, accrued interest and other obligations of the Mortgage Borrowers under the loan documents to be immediately due and payable and foreclose on the Mortgaged Properties.
Equity
On November 10, 2021, we issued 56,525,650 additional shares of our common stock to Realty Income, such that Realty Income owned 56,625,650 shares of our common stock. Also on November 10, 2021, in connection with the filing of our Articles of Amendment, we changed the par value of our common stock from $0.01 per share to $0.001 per share. On November 12, 2021, Realty Income effected the Distribution.
On March 22, 2022, the Company’s Board of Directors declared the Company’s first quarterly dividend as an independent public company. The dividend, which was for the first quarter of 2022, was in the amount of $0.10 per share, and was paid on April 15, 2022, to stockholders of record as of March 31, 2022.
On November 12, 2021, in connection with the Distribution, Orion OP entered into the Arch Street Joint Venture with the Arch Street Partner, an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
Also on November 12, 2021, in connection with the entry into the LLCA, we granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of our common stock (the “Arch Street Warrants”). The Arch Street Warrants entitle the respective holders to purchase shares of our common stock at a price per share equal to $22.42, at any time. The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of our common stock determined according to the formula set forth in the
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Arch Street Warrants. The Arch Street Warrants expire on the earlier of (a) ten years after issuance and (b) if the Arch Street Joint Venture is terminated, the later of the termination of the Arch Street Joint Venture and seven years after issuance.
We have agreed that, prior to six months following our eligibility to use Form S-3 for the registration of our securities, we will file with the SEC a registration statement on Form S-3 (the “Registration Statement”) for the registration, under the Securities Act, of the shares of our common stock issuable upon exercise of the Arch Street Warrants. We will use our commercially reasonable efforts to cause the Registration Statement to become effective and to maintain the effectiveness of the Registration Statement, and a current prospectus relating thereto, until the earlier of (a) the expiration of the Arch Street Warrants, or (b) the shares issuable upon such exercise become freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act (or any successor rule)) of us. The holders of the Arch Street Warrants will also remain subject to the ownership limitations pursuant to our organizational documents.
Also in connection with the entry into the LLCA, the Arch Street Joint Venture’s lender consented to the transfer of the interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP, and, in connection therewith, Orion OP agreed to become a guarantor of certain limited customary recourse obligations and provide certain customary environmental indemnities under the Arch Street Joint Venture’s existing indebtedness.
Derivatives and Hedging Activities
During the year ended December 31, 2021, the Company entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2021 and maturing on November 12, 2023, which were designated as cash flow hedges, in order to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility.
Right of First Offer Agreement
In connection with the entry into the LLCA, we and the Arch Street Joint Venture entered into that certain Right of First Offer Agreement (the “ROFO Agreement”), dated November 12, 2021, pursuant to which, subject to certain limitations, we, on behalf of ourselves and our affiliates, agreed not to acquire or purchase a fee simple or ground leasehold interest in any office real property, including by way of an acquisition of equity interests, within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture, which will expire upon the earlier of (1) the third anniversary of the execution of the ROFO Agreement, (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million. If the Arch Street Joint Venture decides not to acquire any such property, we may seek to acquire the property independently, subject to certain restrictions. We do not anticipate that the ROFO Agreement will have a material impact on our ability to acquire additional office real properties, although it could result in us acquiring future properties through the Arch Street Joint Venture rather than as sole 100% owner.
Dividend
We intend to qualify and elect to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year commencing on the day prior to the Distribution and ending on December 31, 2021. We intend to make regular distributions to our stockholders to satisfy the requirements to qualify as a REIT. On March 22, 2022, the Company’s Board of Directors declared the Company’s first quarterly dividend as an independent public company. The dividend, which was for the first quarter of 2022, was in the amount of $0.10 per share, and was paid on April 15, 2022, to stockholders of record as of March 31, 2022. On May 3, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.10 per share for the second quarter of 2022 payable on July 15, 2022, to stockholders of record as of June 30, 2022.
Our dividend policy is established at the discretion of the Company’s Board of Directors and future dividends may be funded from a variety of sources. In particular, we expect that, initially, our dividends will exceed our net income under GAAP because of non-cash expenses, mainly depreciation and amortization expense, which are included in net income. To the extent that our funds available for distribution are less than the amount we must distribute to our stockholders to satisfy the requirements to qualify as a REIT, we may consider various means to cover any such shortfall, including borrowing under our Revolving Facility or other loans, selling certain of our assets or using a portion of the net proceeds we receive from future offerings of equity, equity-related securities or debt securities or declaring taxable share dividends. In addition, our Articles of Amendment and Restatement allow us to issue shares of preferred equity that could have a preference on dividends, and if we do, the dividend preference on the preferred equity could limit our ability to pay dividends to the holders of our common stock.
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Contractual Obligations
VEREIT Office Assets was subject to theThe following is a summary of our contractual obligations at September 30, 2021as of March 31, 2022 (in thousands).:
Payments Due by Period
TotalLess than 1 Year1 - 3 Years4 - 5 YearsMore Than 5 Years
Principal payments - mortgage notes payable$143,504 $178 $143,326 $— $— 
Interest payments - mortgage notes payable6,935 1,623 5,312 — — 
Operating lease and ground lease commitments11,791 82 987 658 10,064 
Total contractual obligations$162,230 $1,883 $149,625 $658 $10,064 
Payments due by period
TotalLess than 1 year1-3 years4-5 yearsMore than 5 years
Principal payments - Mortgage notes payable$355,000 $— $— $355,000 $— 
Interest payments - Mortgage notes payable87,109 13,480 53,725 19,904 — 
Principal payments - Credit facility term loan175,000 — 175,000 — — 
Interest payments - Credit facility term loan (1)
9,150 4,270 4,880 — — 
Principal payments - credit facility revolver91,000 — 91,000 — — 
Interest payments - credit facility revolver (2)
11,974 2,791 9,183 — — 
Operating and ground lease commitments16,248 750 1,672 887 12,939 
Total$745,481 $21,291 $335,460 $375,791 $12,939 

(1)As of March 31, 2022, we had $175.0 million of variable rate debt on the Credit Facility Term Loan effectively fixed through the use of interest rate swap agreements. We used the interest rates effectively fixed under our swap agreements to calculate the debt payment obligations in future periods.
(2)Interest payments due in future periods on variable rate debt were calculated using a forward LIBOR curve.

As part of its ordinary re-leasing activities, the Company has agreed and anticipates that it will continue to agree to provide rent concessions to tenants and incur leasing costs with respect to its properties, including tenant improvement allowances, landlord agreements to pay for certain improvements, as well as leasing commissions. These rent concession and leasing cost commitments could be significant.

Cash FlowsFlow Analysis for the three months ended March 31, 2022
The following table summarizes the changes in cash flows for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 (dollars in millions):
Nine Months Ended September 30,
9-months 2021 versus 2020		Three Months Ended March 31,
2022 versus 2021
2021202020222021
Net cash provided by operating activitiesNet cash provided by operating activities$79.3 $80.2 $(0.9)Net cash provided by operating activities$28,153 $11,150 $17,003 
Net cash (used in) provided by investing activities$(5.9)$106.4 $(112.3)
Net cash used in investing activitiesNet cash used in investing activities$(1,235)$(55)$(1,180)
Net cash used in financing activitiesNet cash used in financing activities$(73.3)$(186.2)$112.9 Net cash used in financing activities$(2,168)$(14,285)$12,117 
Net cash provided by operating activities decreased $0.9increased $17.0 million during the ninethree months ended September 30, 2021,March 31, 2022, compared to the ninethree months ended September 30, 2020March 31, 2021 primarily due to the dispositionincrease in our portfolio size. At March 31, 2022, we had 92 office properties with an aggregate of three10.5 million leasable square feet as compared to 40 properties that were sold to the unconsolidated joint venture during the year ended Decemberwith approximately 3.0 million leasable square feet at March 31, 2020.2021.
Net cash used in investing activities was $5.9increased $1.2 million during the ninethree months ended September 30, 2021, asMarch 31, 2022, compared to net cash provided by investing activities of $106.4 million during the ninethree months ended September 30, 2020.March 31, 2021. The change was
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primarily due to an increase in capital expenditures and leasing costs associated with lease renewals, partially offset by $0.6 million of distributions received from the three properties sold to theCompany’s unconsolidated joint venture during ninethe three months ended September 30, 2020 for proceeds of $116.4 million after closing costs.March 31, 2022.
Net cash used in financing activities decreased $112.9$12.1 million during the ninethree months ended September 30, 2021,March 31, 2022, compared to the ninethree months ended September 30, 2020,March 31, 2021, primarily due to a decrease of $160.2 million in netno distributions to parent offset by an increase of $46.9 million induring the repayment of mortgage notes payable.
Critical Accounting Policies
Real Estate Investments
VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates.
When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24three months VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability. In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets have been adjusted to their respective fair values and an impairment loss has been recognized. There are inherent uncertainties in making estimates of expected future cash flows suchended March 31, 2022 as market conditions and performance and sustainability of the tenants.
Goodwill Impairment
VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable. To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including, but not limited to macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no quantitative testing is required. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount, the provisions of guidance require that the fair value be compared to the carrying value. Goodwill is considered impaired ifsame period in 2021. Following the carrying value exceedsMerger Effective Time, Realty Income was no longer the fair value. No impairmentsparent of VEREIT’s goodwillRealty Income Office Assets, and therefore, no further distributions occurred. The reduction in distributions to parent were recordedpartially offset by payments of deferred financing costs related to the CMBS Loan entered into by the Company during the three and nine months ended September 30, 2021 and 2020. The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying statements of operations.
Recent Accounting Pronouncements
New accounting guidance that VEREIT Office Assets has recently adopted, as well as accounting guidance that has been recently issued but not yet adopted, is included in Note 1 — Organization and Summary of Significant Accounting Policies of the annual combined and consolidated financial statements of VEREIT Office Assets, included elsewhere in this Report on Form 10-Q.March 31, 2022.
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REALTY INCOME OFFICE ASSETS

Critical Accounting Policies
The accounting policies and estimates used in the preparationTable of the Realty Income Office Assets combined financial statements are more fully described in the notes to the combined financial statements included elsewhere in this Form 10-Q. However, certain significant accounting policies are considered critical accounting policies due to the increased level of assumptions used or estimates made in determining their impact on Realty Income Office Assets’ combined financial statements.
Realty Income Office Assets’ management must make significant assumptions in determining if, and when, impairment losses should be taken on its properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. If estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property, a fair value analysis is performed and, to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value. Key inputs that are utilized in this analysis include projected rental rates, estimated holding periods, capital expenditures, and property sales capitalization rates. If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The carrying value of real estate is the largest component of Realty Income Office Assets’ combined balance sheets. The strategy of primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being recoverable, thus requiring the recognition of an impairment. However, if that strategy, or one or more of the above assumptions were to change in the future, an impairment may need to be recognized. If events should occur that require reducing the carrying value of the real estate by recording provisions for impairment, they could have a material impact on the results of operations.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. Realty Income Office Assets is currently evaluating the impact that the expected market transition from LIBOR to alternative references rates will have on the financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.
Results of Operations
Comparison of the three and nine months ended September 30, 2021 to the three and nine months ended September 30, 2020 (dollars in millions)
The following tables set forth the summary historical combined financial data of certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”), which were carved out from the financial information of Realty Income. The summary historical financial data set forth below for the three and nine months ended September 30, 2021 and 2020 has been derived from Realty Income Office Assets’ unaudited combined financial statements and the notes related thereto, which are included elsewhere in this Quarterly Report on Form 10-Q.
The summary historical combined financial data set forth below does not indicate results expected for any future periods. The summary historical combined financial data is qualified in its entirety by, and should be read in conjunction with Realty Income Office Assets’ combined financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the audited combined financial statements of Realty Income Office Assets and related notes thereto as of and for the year ended December 31, 2020, included in the Information Statement.
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Three Months Ended September 30,Nine Months Ended September 30,
20212020Increase / (Decrease)20212020Increase / (Decrease)
REVENUE
Rental revenue (including reimbursable)$13.3 $13.2 $0.1 $38.9 $40.2 $(1.3)
EXPENSES
Depreciation and amortization5.9 6.5 (0.6)17.919.7 (1.8)
Property (including reimbursable)1.7 1.4 0.3 4.64.4 0.2 
General and administrative0.5 0.5 — 1.61.6 — 
 Interest0.3 0.7 (0.4)1.12.3 (1.2)
Provisions for impairments— 18.7 (18.7)— 18.7 (18.7)
Total expenses8.4 27.8 (19.4)25.2 46.7 (21.5)
Loss on extinguishment of debt3.5 — 3.5 3.5— 3.5 
NET INCOME$1.4 $(14.6)$16.0 $10.2 $(6.5)$16.7 
Rental Revenue (Including Reimbursable). Rental revenue (including reimbursable) increased $0.1 million, or 0.8%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Rental revenue (including reimbursable) decreased $1.3 million, or 3.2%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These decreases were primarily due to vacancies in two office properties that have remained vacant since December 2020 and a third property that became vacant in April 2021.
Depreciation and Amortization. Depreciation and amortization expense decreased $0.6 million, or 9.2%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Depreciation and amortization expense decreased $1.8 million, or 9.1%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These decreases primarily relate to two in-place lease intangible assets that were fully amortized during 2020, which reduced amortization expense by $0.4 million and $1.1 million during the three and nine months ended September 30, 2021, respectively, and a $0.2 million and $0.5 million reduction in 2021 depreciation expense for the three and nine months ended September 30, 2021, respectively, as a result of a building impairment on one office property reducing the carrying amount of the asset.
Property (Including Reimbursable). Property (including reimbursable) expenses increased $0.3 million, or 21.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, while property (including reimbursable) expenses increased $0.2 million, or 4.5%, for nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These increases were primarily due to an increase in vacant properties’ utilities and insurance costs which otherwise would have been paid by tenants.
General and Administrative Expenses. General and administrative expenses remained constant at $0.5 million and $1.6 million during both the three and nine months ended September 30, 2021 and 2020, respectively. General and administrative expenses for Realty Income Office Assets are primarily an allocation from Realty Income general and administrative expenses.
Interest Expense. Interest expense decreased $0.4 million, or 57.1%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, while interest expense decreased $1.2 million, or 52.2%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These decreases were primarily due to Realty Income repaying five outstanding mortgages in full, on behalf of Realty Income Office Properties, with respect to five office properties, two of which occurred in April 2021 for $14.0 million and September 2021 for $12.5 million, and the other three which occurred in the second half of 2020 for $31.8 million.
Provisions for Impairment. During the three and nine months ended September 30, 2020, Realty Income Office Assets recorded a $18.7 million pre-tax non-cash impairment loss related to one office property in the Other Manufacturing industry that was triggered by a near term lease expiration, combined with a mortgage obligation. Realty Income Office Assets did not record any impairment losses on properties during the three and nine months ended September 30, 2021.
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Loss on Extinguishment of Debt. During the three and nine months ended September 30, 2021, Realty Income Office Assets recognized a $3.5 million loss associated with the early repayment of an outstanding mortgage by Realty Income Corporation. Realty Income Office Assets did not record any losses on extinguishment of debt during the three and nine months ended September 30, 2020.
Net Income (Loss). Realty Income Office Assets had net income of $1.4 million for the three months ended September 30, 2021 and had net loss of $14.6 million for the three months ended September 30, 2020. Realty Income Office Assets had net income of $10.2 million for the nine months ended September 30, 2021 and had net loss of $6.5 million for the nine months ended September 30, 2020.
Liquidity and Capital Resources
Cash Flows
Cash was centrally managed at Realty Income and, therefore, Realty Income Office Assets maintained no separate cash or cash equivalents balances. Restricted cash was $0.5 million and $3.9 million at September 30, 2021 and December 31, 2020, respectively. The following tables summarize the changes in cash flows for the periods presented (in millions):
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020Increase (Decrease)
Net cash provided by operating activities$32.3 $33.2 $(0.9)
Net cash used in investing activities$(0.2)$(0.4)$(0.2)
Net cash used in financing activities$(35.5)$(32.3)$3.2 
Net cash provided by operating activities decreased $0.9 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the decrease in revenues from vacancies in two office properties that have remained vacant since December 2020 and one property that become vacant in April 2021, partially offset by a decrease in interest expense from the repayment of five outstanding mortgages with respect to five office properties, two of which occurred in April 2021 and September 2021, and the other three which occurred in the second half of 2020.
Net cash used in investing activities decreased $0.2 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to less capital expenditures related to property, plant and equipment during the nine months ended September 30, 2021
Net cash used in financing activities increased $3.2 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an increase of $17.6 million in mortgage notes principal repayments and $4.0 million of payments upon an early extinguishment of mortgage debt, partially offset by a decrease of $18.4 million in distributions to Realty Income Corporation during the same period.
The following summarizes Realty Income Office Assets’ mortgages payable as of September 30, 2021 and December 31, 2020, respectively (in millions):
Office PropertiesFixed RateMaturity DateSeptember 30, 2021December 31, 2020
East Windsor, NJ (1)
4.9 %6/1/2022$9.6 $9.6 
Columbus, OH (2)
5.6 %6/1/2032— 12.8 
Tucson, AZ5.4 %7/1/2021— 14.0 
Remaining principal balance9.6 36.4 
Unamortized premium, net— 0.6 
     Total mortgages payable, net$9.6 $37.0 
(1) The mortgage related to the East Windsor, NJ property was paid in full on October 1, 2021. As a result of the early repayment, Realty Income Office Assets incurred a $0.3 million prepayment penalty.
(2) In April 2021, Realty Income Office Assets repaid the mortgage related to its property in Tucson, AZ in full for $14.0 million and, in September 2021, repaid the mortgage related to its property in Columbus, OH for $12.5 million.
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Contractual Obligations and Commitments
Realty Income Office Assets was subject to the following contractual obligations and commitments at September 30, 2021 (in millions):
Total
Less than 1 Year (1)
1 to 3 Years3 to 5 YearsGreater than 5 Years
Contractual Obligations
     Debt:
           Mortgage notes payable$9.6 $— $9.6 $— $— 
           Interest payments - mortgage notes0.3 0.1 0.2 — — 
      Operating Leases3.8 — 0.2 0.2 3.4 
      Other1.2 1.2 — — — 
             Total contractual obligations$14.9 $1.3 $10.0 $0.2 $3.4 
(1) Obligations due in the remainder of calendar year 2021. Other includes commitments of $0.8 million for building improvements as well as $0.4 million for leasing commissions.
Non-GAAP Financial Measures
Funds from Operations (FFO) Attributable to Realty Income Office Assets
Realty Income Office Assets defines FFO, a non-GAAP financial measure, consistent with the National Association of Real Estate Investment Trusts’ (“Nareit”) definition, as net income or loss, plus depreciation and amortization of real estate assets, plus provisions for impairments of depreciable real estate assets.
Realty Income Office Assets considers FFO to be an appropriate supplemental measure of the operating performance of a real estate company as it is based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a real estate company, using historical accounting for depreciation, could be less informative. The use of FFO is recommended by the real estate industry as a supplemental performance measure.
Adjusted Funds From Operations (AFFO) Attributable to Realty Income Office Assets
Realty Income Office Assets defines AFFO, a non-GAAP financial measure, as FFO, excluding (i) Loss on extinguishment of debt, (ii) Amortization of premiums and discounts on debt, net, (iii) Leasing costs and commissions, (iv) Straight-line rent, and (v) Amortization of above-market lease assets and deferred lease incentives.
Realty Income Office Assets believes the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different real estate companies without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s ongoing operating performance. Therefore, Realty Income Office Assets believes that AFFO is an appropriate supplemental performance metric, and that the most appropriate GAAP performance metric to which AFFO should be reconciled is net income (loss).
Other companies in Realty Income’s industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms. Realty Income Office Assets’ AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently, including VEREIT Office Assets.
Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the operating performance of different real estate companies, although it should be noted that not all real estate companies calculate FFO and AFFO in the same way, so comparisons with other real estate companies may not be meaningful. Furthermore, FFO and AFFO
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are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net (loss) income as an indication of Realty Income Office Assets’ performance. FFO and AFFO should not be considered as alternatives to reviewing Realty Income Office Assets’ cash flows from operating, investing, and financing activities. In addition, FFO and AFFO should not be considered as measures of liquidity or of the ability to pay interest payments.
The table below presents a reconciliation from net income (loss) attributable to Realty Income Office Assets to FFO and AFFO for the three and nine months ended September 30, 2021 and 2020 (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net income (loss) attributable to Realty Income Office Assets$1.4 $(14.6)$10.2 $(6.5)
Depreciation and amortization of real estate assets5.9 6.5 17.9 19.7 
Impairment of real estate— 18.7 — 18.7 
     FFO attributable to Realty Income Office Assets7.3 10.6 28.1 31.9 
Loss on extinguishment of debt3.5 — 3.5 — 
Amortization of premiums and discounts on debt, net— (0.1)(0.1)(0.3)
Leasing costs and commissions(0.1)— (0.1)— 
Straight-line rent0.2 0.1 0.2 0.2 
Amortization of above-market lease assets and deferred lease incentives(0.3)(0.2)(0.8)(0.7)
    AFFO attributable to Realty Income Office Assets$10.6 $10.4 $30.8 $31.1 
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Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See information appearing under the captions “Orion Office REIT, Inc. — Liquiditycaption “Liquidity and Capital Resources,” “VEREIT Office Assets — Liquidity and Capital Resources,” and “Realty Income Office Assets — Liquidity and Capital Resources,”Resources” appearing in “Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.”Operations” in this Quarterly Report on Form 10-Q.
Market Risk
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to variable-rate borrowings. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, caps, collars, treasury locks, options and forwards in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes.
Interest Rate Risk
As of March 31, 2022, our debt included fixed-rate debt, with a fair value and carrying value of $359.2 million and $355.0 million, respectively. Changes in market interest rates on our fixed-rate debt impact the fair value of the debt, but they have no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points, and the fixed-rate debt balance remains constant, we expect the fair value of our debt to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from March 31, 2022 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt of $14.8 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt of $15.6 million.
As of March 31, 2022, our debt included variable-rate debt that was swapped-to-fixed through the use of derivative instruments with a fair value and carrying value of $175.0 million. The sensitivity analysis related to our variable-rate debt that was swapped-to-fixed assumes an immediate 100 basis point move in interest rates from March 31, 2022 levels and excludes the impact of the derivative instrument, with all other variables held constant. A 100 basis point increase in variable interest rates would result in a decrease in the fair value of our variable-rate debt that was swapped-to-fixed of $0.2 million. A 100 basis point decrease in variable interest rates would result in an increase in the fair value of our variable-rate debt that was swapped-to-fixed of $0.3 million.
As of March 31, 2022, our debt included variable-rate debt with a fair value and carrying value of $91.0 million. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from March 31, 2022 levels, with all other variables held constant. A 100 basis point increase in variable interest rates would result in a decrease in the fair value of our variable-rate debt of $0.1 million. A 100 basis point decrease in variable interest rates would result in an increase in the fair value of our variable-rate debt of $0.2 million. A 100 basis point increase or decrease in variable interest rates on our variable-rate debt would increase or decrease our interest expense by $0.9 million annually. See Note 6 – Debt, Netto our consolidated financial statements.
As of March 31, 2022, our interest rate swaps had a fair value that resulted in net assets of $4.4 million. See Note 7 – Derivatives and Hedging Activities to our consolidated financial statements for further discussion.
As the information presented above includes only those exposures that existed as of March 31, 2022, it does not consider exposures or positions arising after that date. The information presented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs and assume no other changes in our capital structure.
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Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. See “Item 1. Business” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us.
The factors we consider in determining the credit risk of our tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality and diversity of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021.March 31, 2022. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2021,March 31, 2022, were effective at a reasonable assurance level.
Changes in Internal Control overOver Financial Reporting
The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules that generally require every company that files reports with the SEC to evaluate its effectiveness of internal controls over financial reporting. As an emerging growth company, our management is not required to evaluate the effectiveness of our internal controls over financial reporting until the filing of our Annual Report on Form 10-K for the year in which the CompanyThere were no longer qualifies as an emerging growth company. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in our internal control over financial reporting. We intendreporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934) during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to include an evaluation ofmaterially affect, our internal controlscontrol over financial reporting when such evaluation is required in accordance with SEC rules.reporting.
PART II —- OTHER INFORMATION
Item 1. Legal Proceedings.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.Factors
For a discussion of potential risks and uncertainties, please referThere have been no material changes to the section titledrisk factors previously disclosed in Part I, Item 1A. “Risk Factors” included inof the Information Statement.Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In connection with the Separation and the Distribution, on November 10, 2021, the Company issued 56,525,650 additional shares of the Company’s common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Company’s common stock. The issuance of this common stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering.
On November 12, 2021, in connection with the entry into the LLCA, the Company granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of the Company’s common stock. The issuance of such warrants was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering.None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
None.
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Item 6. Exhibits
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterperiod ended September 30, 2021March 31, 2022 (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No.Description
2.1
Separation and Distribution Agreement, by and among Realty Income Corporation, Orion Office REIT Inc., and Orion Office REIT LP (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).


2.2
Transition Services Agreement by and among Realty Income Corporation and Orion Office REIT Inc.(filed (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
2.3
Tax Matters Agreement by and among Realty Income Corporation and Orion Office REIT Inc. (filedInc. (filed as Exhibit 2.3 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
2.4
Employee Matters Agreement by and among Realty Income Corporation, VEREIT, Inc., Orion Office REIT Inc. and Orion Office REIT LP (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
3.1
Articles of Amendment and Restatement of Orion Office REIT Inc.(filed (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
3.2
Amended and Restated Bylaws of Orion Office REIT Inc. (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
4.1
Form of Warrant(filed (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
10.14.2
AgreementDescription of Limited Partnership of Orion Office REIT LP (filedSecurities(filed as Exhibit 2.24.2 to the Company’s Registration Statement on Form 10, 10-K, filed on October 4, 2021March 24, 2022 and incorporated herein by reference).
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10.210.1
10.3
Credit Agreement, dated November 12, 2021, by and among Orion Office REIT Inc., Orion Office REIT LP, the financial institutions party thereto, and Wells Fargo Bank, National Association, as administrative agent, relating to the CMBS Bridge Facility(filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
10.4
10.510.3†
10.6
Amended & Restated Limited Liability Company Agreement of OAP/VER Venture, LLC, dated November, 12, 2021(filed as Exhibit 10.5 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
10.7
Right of First Offer Agreement, dated November 12, 2021, by and between Orion Office REIT Inc. and OAP/VER Venture, LLC(filed as Exhibit 10.6 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
10.8†
Orion Office REIT Inc. 2021 Equity Incentive Plan ((filed as Exhibit 10.710.15 to the Company's Current Report onCompany’s Form 8-K,10-K, filed on November 15, 2021March 24, 2022 and incorporated herein by reference).
10.9†
Form of Employment Agreement, by and among Orion Services, LLC, Orion Office REIT Inc. and each named executive officer of Orion Office REIT Inc. (filed as Exhibit 10.1 to the Company's Registration Statement on Form 10, filed on October 4, 2021 and incorporated herein by reference).
10.10†
10.11†*
10.12†*
31.1*
31.2*
32.1*
32.2*
101.SCH**Inline XBRL Taxonomy Extension Schema Document.
101.CAL**Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**Inline XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB**Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104**Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*).
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__________________________
*     Filed herewith
**    In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
†     Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, eachthe registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
Orion Office REIT Inc.
By:/s/ Gavin B. Brandon
Gavin B. Brandon
Chief Financial Officer, Executive Vice President and Treasurer

Dated: December 1, 2021May 4, 2022

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