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, 20212023
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.)
23252398 E. Camelback Road, Suite 8501060PhoenixAZ85016
(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 xo*
* 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☐xNon-accelerated filer☒o
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
There were 56,625,65055,780,054 shares of common stock of Orion Office REIT Inc. outstanding as of November 30, 2021.3, 2023.








1


EXPLANATORY 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, and the Company’s predecessors, Realty Income Office Assets (as defined below) and VEREIT Office Assets (as defined below), as of and for the three and nine months ended September 30, 2021 and 2020.
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, (“Merger Sub 2”) and Rams MD Subsidiary I, Inc. (“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”). 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 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 ending December 31, 2021. The Company’s common stock trades on the New York Stock Exchange under the symbol “ONL”.
The financial statements of the Company covered in this report present the financial condition of the Company as of September 30, 2021, which is prior to the consummation of the Mergers, the Separation and the Distribution. Therefore, the discussion of the Company’s results of operations, cash flows and financial condition set forth in this report is not necessarily indicative of the future results of operations, cash flows or financial condition of the Company as an independent, publicly traded company. Moreover, the combined financial statements for Realty Income Office Assets and 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. For more information regarding the risks related to our business, refer to risk factors contained in the Form 10 and the Information Statement.
2


ORION OFFICE REIT INC.
For the quarterly period ended September 30, 20212023
Page
PartPART I
Item 1. Unaudited Financial Statements
43
Orion Office REIT Inc. Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
3
Orion Office REIT Inc. Consolidated Balance Sheets asStatements of Operations for the Three and Nine Months Ended September 30, 20212023 and July15,2021(date of capitalization)2022
4
Orion Office REIT Inc. Consolidated StatementStatements of OperationsComprehensive Income (Loss) for the Three and Nine Months Ended the Seperiod fromptember July15,2021 (date of capitalization) to September 30, 20212023 and 2022
5
Orion Office REIT Inc. Consolidated StatementStatements of Changes in Equity for the period from July 15, 2021 (date of capitalizationThree and ) toNine SeptemberMonths Ended September 30, 20212023 and 2022
6
Orion Office REIT Inc. Consolidated StatementStatements of Cash Flows for the period fromNine Months Ended July 15, 2021September (date of capitalization) to September 30, 2021
7
Notes to Orion Office REIT Inc. Consolidated Financial Statements2023 and 2022
8
VEREIT Office Assets Combined and Consolidated Balance Sheets as of September 30, 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
13
VEREIT Office Assets Combined and Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020
14
VEREITOffice Assets Combined and Consolidated Statements of Cash Flows for the Nine Months EndedSeptember 30, 2021 and 2020
15
169
26
27
28
29
30
Item 2. Management DiscussionManagement’s Discussion and Analysis of Financial ConditionCondition and Results of Operations
3725
Item 3. Quantitative and Qualitative Disclosures About Market Risk
5542
Item 4. Controls and Procedures
5544
PartPART II
Item 1. Legal Proceedings
5545
Item 1A. Risk Factors
5545
Item 2. Unregistered Sales of Equity Securities and, Use of ProceedsProceeds, and Issuer Purchases of Equity Securities
5645
Item 3. Defaults Upon Senior Securities
5645
Item 4. Mine Safety Disclosures
5645
Item 5. Other Information
5646
Item 6. Exhibits
5646
Signatures
5947


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Table of Contents
PART I — FINANCIAL INFORMATION
Item 1. Unaudited 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)		September 30, 2023December 31, 2022
ASSETSASSETSASSETS
Cash$1 $1 
Real estate investments, at cost:Real estate investments, at cost:
LandLand$227,203 $238,225 
Buildings, fixtures and improvementsBuildings, fixtures and improvements1,106,383 1,128,400 
Total real estate investments, at costTotal real estate investments, at cost1,333,586 1,366,625 
Less: accumulated depreciationLess: accumulated depreciation156,904 133,379 
Total real estate investments, netTotal real estate investments, net1,176,682 1,233,246 
Accounts receivable, netAccounts receivable, net26,911 21,641 
Intangible lease assets, netIntangible lease assets, net144,304 202,832 
Cash and cash equivalentsCash and cash equivalents32,286 20,638 
Real estate assets held for sale, netReal estate assets held for sale, net3,818 2,502 
Other assets, netOther assets, net120,390 90,214 
Total assetsTotal assets$1 $1 Total assets$1,504,391 $1,571,073 
LIABILITIES AND EQUITYLIABILITIES AND EQUITYLIABILITIES AND EQUITY
Mortgages payable, netMortgages payable, net$352,683 $352,167 
Credit facility term loan, netCredit facility term loan, net— 173,815 
Credit facility revolverCredit facility revolver175,000 — 
Accounts payable and accrued expensesAccounts payable and accrued expenses30,570 26,161 
Below-market lease liabilities, netBelow-market lease liabilities, net9,481 14,068 
Distributions payableDistributions payable5,578 5,664 
Other liabilities, netOther liabilities, net21,811 23,340 
Total liabilitiesTotal liabilities595,123 595,215 
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 55,780,054 and 56,639,040 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectivelyCommon stock, $0.001 par value, 100,000,000 shares authorized 55,780,054 and 56,639,040 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively56 57 
Additional paid-in capitalAdditional paid-in capital2,797 — Additional paid-in capital1,143,825 1,147,014 
Accumulated other comprehensive incomeAccumulated other comprehensive income986 6,308 
Accumulated deficitAccumulated deficit(2,797)— Accumulated deficit(237,026)(178,910)
Total stockholders’ equityTotal stockholders’ equity907,841 974,469 
Non-controlling interestNon-controlling interest1,4271,389 
Total equityTotal equity$1 $1 Total equity909,268 975,858 
Total liabilities and equityTotal liabilities and equity$1,504,391 $1,571,073 

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

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Table of Contents
ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTSTATEMENTS 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 September 30,Nine Months Ended September 30,
2023202220232022
Rental$48,876 $51,580 $150,690 $157,256 
Fee income from unconsolidated joint venture200 189 600 568 
Total revenues49,076 51,769 151,290 157,824 
Operating expenses:
Property operating15,506 15,303 46,337 45,773 
General and administrative4,367 4,672 13,241 11,480 
Depreciation and amortization27,013 32,693 83,056 100,874 
Impairments11,403 44,801 26,976 54,161 
Transaction related101 194 356 398 
Spin related— — — 964 
Total operating expenses58,390 97,663 169,966 213,650 
Other (expenses) income:
Interest expense, net(7,380)(7,904)(21,741)(22,618)
Gain on disposition of real estate assets18 1,059 18 1,059 
Loss on extinguishment of debt, net— — (504)(468)
Other income, net437 31 638 118 
Equity in loss of unconsolidated joint venture, net(108)(157)(326)(252)
Total other (expenses) income, net(7,033)(6,971)(21,915)(22,161)
Loss before taxes(16,347)(52,865)(40,591)(77,987)
Provision for income taxes(160)(164)(505)(494)
Net loss(16,507)(53,029)(41,096)(78,481)
Net income attributable to non-controlling interest(12)(18)(38)(43)
Net loss attributable to common stockholders$(16,519)$(53,047)$(41,134)$(78,524)
Weighted-average shares outstanding - basic and diluted56,54356,63556,62156,630
Basic and diluted net loss per share attributable to common stockholders$(0.29)$(0.94)$(0.73)$(1.39)

The accompanying notes are an integral part of this statement.these statements.
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Table of Contents
ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTSTATEMENTS 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)$1 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net loss$(16,507)$(53,029)$(41,096)$(78,481)
Total other comprehensive income (loss):
Unrealized gain on interest rate derivatives37 1,885 386 7,229 
Reclassification of previous unrealized gain on interest rate derivatives into net loss(2,077)(679)(5,708)(471)
Total other comprehensive income (loss)(2,040)1,206 (5,322)6,758 
Total comprehensive loss(18,547)(51,823)(46,418)(71,723)
Comprehensive income attributable to non-controlling interest(12)(18)(38)(43)
Total comprehensive loss attributable to common stockholders$(18,559)$(51,841)$(46,456)$(71,766)

The accompanying notes are an integral part of this statement.these statements.
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ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWSEQUITY
(In thousands)thousands, except for share data) (Unaudited)

For the Period from July 15, 2021 (date of capitalization) to September 30, 2021
Cash flows from operating activities:
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 
Common Stock
Number
of Shares		Par
Value		Additional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit		Total Stockholders’ EquityNon-Controlling InterestTotal Equity
Balance, January 1, 202356,639,040 $57 $1,147,014 $6,308 $(178,910)$974,469 $1,389 $975,858 
Net (loss) income— — — — (8,885)(8,885)11 (8,874)
Distributions— — — — (5,721)(5,721)— (5,721)
Repurchases of common stock to settle tax obligations(12,728)— (74)— — (74)— (74)
Equity-based compensation, net37,615 — 526 — — 526 — 526 
Other comprehensive income, net— — — (1,768)— (1,768)— (1,768)
Balance, March 31, 202356,663,927 $57 $1,147,466 $4,540 $(193,516)$958,547 $1,400 $959,947 
Net (loss) income— — — — (15,730)(15,730)15 (15,715)
Distributions— — — — (5,683)(5,683)— (5,683)
Equity-based compensation, net31,764 — 689 — — 689 — 689 
Other comprehensive income, net— — — (1,514)— (1,514)— (1,514)
Balance, June 30, 202356,695,691 $57 $1,148,155 $3,026 $(214,929)$936,309 $1,415 $937,724 
Net (loss) income— — — — (16,519)(16,519)12 (16,507)
Distributions— — — — (5,578)(5,578)— (5,578)
Repurchases of common stock under Share Repurchase Program(915,637)(1)(5,017)— — (5,018)— (5,018)
Equity-based compensation, net— — 687 — — 687 — 687 
Other comprehensive income, net— — — (2,040)— (2,040)— (2,040)
Balance, September 30, 202355,780,054 $56 $1,143,825 $986 $(237,026)$907,841 $1,427 $909,268 



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Table of Contents
ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except for share data) (Unaudited)

Common Stock
Number
of Shares		Par
Value		Additional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit		Total Stockholders’ EquityNon-Controlling InterestTotal 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, net— — — 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 
Net (loss) income— — — — (15,571)(15,571)1 (15,570)
Distributions— — — — (5,663)(5,663)— (5,663)
Equity-based compensation, net9,388 — 439 — — 439 — 439 
Other comprehensive income, net— — — 1,495 — 1,495 — 1,495 
Balance, June 30, 202256,635,038 $57 $1,145,987 $5,851 $(95,562)$1,056,333 $1,394 $1,057,727 
Net (loss) income— — — — (53,047)(53,047)18 (53,029)
Distributions— — — — (5,664)(5,664)— (5,664)
Equity-based compensation, net— — 444 — — 444 — 444 
Other comprehensive income, net— — — 1,206 — 1,206 — 1,206 
Balance, September 30, 202256,635,038 $57 $1,146,431 $7,057 $(154,273)$999,272 $1,412 $1,000,684 

The accompanying notes are an integral part of this statement.these statements.
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Table of Contents
ORION OFFICE REIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Nine Months Ended September 30,
20232022
Cash flows from operating activities:
Net loss$(41,096)$(78,481)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization83,056 100,874 
Non-cash revenue adjustments, net(6,562)(2,683)
Impairments26,976 54,161 
Gain on disposition of real estate assets(18)(1,059)
Loss on extinguishment of debt, net504 468 
Amortization of deferred financing costs3,041 3,295 
Equity-based compensation1,902 1,153 
Equity in loss of unconsolidated joint venture, net326 252 
Changes in assets and liabilities:
Accounts receivable, net and other assets, net(2,545)502 
Accounts payable, accrued expenses and other liabilities, net4,004 7,435 
Net cash provided by operating activities69,588 85,917 
Cash flows from investing activities:
Capital expenditures and leasing costs(12,746)(7,392)
Proceeds from disposition of real estate, net13,767 22,281 
Return of investment from unconsolidated joint venture1,374 1,798 
Deposits for real estate assets(2,340)— 
Refunds of deposits for real estate assets2,340 — 
Proceeds from the settlement of property-related insurance claims757 — 
Net cash provided by investing activities3,152 16,687 
Cash flows from financing activities:
Repayment of bridge facility, including debt extinguishment costs— (355,026)
Proceeds from mortgages payable— 355,000 
Proceeds from credit facility revolver175,000 70,000 
Repayments of credit facility revolver— (129,000)
Repayment of credit facility term loan(175,000)— 
Payments of deferred financing costs(5,654)(3,096)
Repurchases of common stock under Share Repurchase Program(5,018)— 
Repurchases of common stock to settle tax obligations(74)— 
Payments of deferred equity offering costs(41)— 
Distributions paid(17,000)(11,327)
Other financing activities(68)(46)
Net cash used in financing activities(27,855)(73,495)
Net change in cash and cash equivalents and restricted cash44,885 29,109 
Cash and cash equivalents and restricted cash, beginning of period55,311 29,318 
Cash and cash equivalents and restricted cash, end of period$100,196 $58,427 
Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period$20,638 $29,318 
Restricted cash at beginning of period34,673 — 
Cash and cash equivalents and restricted cash at beginning of period$55,311 $29,318 
Cash and cash equivalents at end of period$32,286 $23,282 
Restricted cash at end of period67,910 35,145 
Cash and cash equivalents and restricted cash at end of period$100,196 $58,427 

The accompanying notes are an integral part of these statements.
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Table of Contents
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20212023 (Unaudited)
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
Orion Office REIT Inc. (“the Company”(the “Company”, “Orion”, “we” or “us”) is an internally managed real estate investment trust (“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. The Company was incorporated in the state of Maryland on July 1, 2021 and was capitalized on July 15,has been operating in a manner so as to qualify and has elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with its initial taxable year ended December 31, 2021. As of September 30, 2021, the
The Company was an indirect wholly ownedinitially formed as a wholly-owned subsidiary of Realty Income Corporation (“Realty Income”).
On April 29, 2021, Following completion of the merger transaction involving 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 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, Office Assets and certain office real properties and related assets previously owned by subsidiaries of VEREIT Office Assets (the “Separation”), to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On, and 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, 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 ending December 31, 2021.
The Company’sits 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 predecessorsAs of the Company.
Following the Mergers, the Separation and the Distribution,September 30, 2023, the Company ownsowned and operates 92operated 79 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.59.3 million leasable square feet located within 29 states and Puerto Rico.states. In addition, the Company owns an equity interest in OAP/VER Venture, LLC (the “Arch Street Joint Venture”), an unconsolidated joint venture with an affiliate of Arch Street Capital Partners, which, asLLC (“Arch Street Capital Partners”). As of September 30, 20212023, the Arch Street Joint Venture owned a portfolio consisting of 5six office properties totaling approximately 0.81.0 million leasable square feet located within 5six 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 Presentation
The accompanying consolidated 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 (“GAAP”).
For periods presented prior to the date of the Distribution, the historical consolidated financial results for the Company reflect charges for certain legal, accounting and other costs related to the Distribution, which were incurred and paid by Realty Income on the Company’s behalf, and are reflected as capital contributions.
Organizational Costs
Organizational costs are expensed as incurred. Such costs are comprised of the legal and professional fees associated with the formation and organization of the Company and are included in transaction costs in the accompanying consolidated statement of operations.
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”GAAP”). 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 includesreflect all adjustments and accruals of a normal recurring nature, which are, in the opinion of management, are necessary forto a fair presentationstatement of the results for the interim periods. periods presented. These adjustments are considered to be of a normal, recurring nature.
The operating results of operationspresented for the three and nine months ended September 30, 2021 and 2020interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year or any subsequent interim period.year. These combined and consolidated financial statements should be read in conjunction with the Company’s audited combined and consolidated financial statements of VEREIT Office Assets and notes thereto as of and for the year ended December 31, 2020,2022, which are included in the Information Statement.Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2023. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC and U.S. GAAP.
16
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTSPrinciples of Consolidation
September 30, 2021 (Unaudited) - (Continued)

The consolidated financial statements include the accounts of the Company and its 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 Company’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of equity.
For legal entities being evaluated for consolidation, VEREIT Office Assetsthe 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. VEREIT Office Assets’The Company’s evaluation includes consideration of fees paid to VEREIT Office Assetsthe Company where VEREIT’s management, on behalf of VEREIT Office Assets,the Company acts as a decision maker or service provider to the entity being evaluated. If VEREIT Office Assetsthe 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
9
Table of Contents
ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
its activities without additional subordinated financial support or where equity investors, as a group, lack one or more of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance,performance; (b) the obligation to absorb the expected losses of the entity,entity; or (c) the right to receive the expected returns of the entity. VEREIT Office AssetsThe Company 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 AssetsThe 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, VEREIT Office Assets’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. VEREIT Office Assets consolidates any VIEs when theThe 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 U.S. 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 U.S. 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 ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTSRevenue Recognition
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.Rental Revenue
For operating leases with minimum scheduled rent increases, the Company recognizes 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 asCertain 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. Thethe Company’s leases also contain provisions for tenants to reimburse VEREIT Office Assetsthe Company for real estate taxes, and insurance which are considered noncomponents of the lease, and maintenance and other property operating expenses. Such reimbursements are included in rental revenue on a gross basis. Property operating expenses whichpaid directly by tenants are considered to be non-lease components. VEREIT Office Assets electedrecorded on a net basis (i.e., treated as fully offset by an identical amount of assumed reimbursement revenue) and, therefore, are not included in 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.Company’s consolidated financial statements.
VEREIT Office AssetsThe Company 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. 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 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 and nine months ended September 30, 2021 and 2020, it could negatively impact tenant operations at VEREIT Office Assets’ properties in2023, the future, which could result inCompany recorded a material impactreduction to VEREIT Office Assets’ future resultsrental revenue 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 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 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 $0.2less than $0.1 million and $0.5 million, respectively. Amounts are included in provision for income taxes in the accompanying combined and consolidated statementsnot probable of operations.
VEREIT Office Assets had no unrecognized tax benefits as of or duringcollection. During the three and nine months ended September 30, 20212022, the Company recorded a reduction to rental revenue of $0.5 million for property operating expense reimbursements not probable of collection.
Rental revenue also includes lease termination income collected from tenants to allow for the tenants to settle their lease obligations and/or to vacate their space prior to their scheduled termination dates, as well as amortization of above and 2020. Any interestbelow-market leases and penalties relatedlease incentives. During the three and nine months ended September 30, 2023, the Company recognized $1.0 million and $4.1 million of lease termination income, respectively. During the nine months ended September 30, 2022, the Company recognized $0.9 million of lease termination income.
Fee Income from Unconsolidated Joint Venture
The Company provides various services to unrecognized tax benefits would be recognizedthe Arch Street Joint Venture in provisionexchange for income taxesmarket-based fees. Total asset and property management fees earned in connection with this entity was $0.2 million for the accompanying combinedthree months ended September 30, 2023 and consolidated statements2022 and $0.6 million for the nine months ended September 30, 2023 and 2022.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
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 insurance 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 high quality of the institutions where the deposits are held.
Restricted Cash
The Company had $67.9 million and $34.7 million in restricted cash as of September 30, 2021, VEREIT Office Assets had no material uncertain income tax positions.2023 and December 31, 2022, primarily comprised of reserves held by the lender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances and excess cash held by the administrative agent under the Revolving Facility (as defined in Note 6 – Debt, Net) to be used to prepay borrowings under the Revolving Facility upon the scheduled expiration in November 2023 (or earlier termination) of the Company’s interest rate swap agreements with respect to $175.0 million of borrowings thereunder. Restricted cash is included in other assets, net on the Company’s consolidated balance sheets.
Recent Accounting Pronouncements
DuringThere are no recent accounting pronouncements that the first quarterCompany has yet to adopt as of 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). 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 may be elected over time as reference rate reform activities occur. VEREIT Office Assets continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
20
VEREIT OFFICE ASSETS
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited) - (Continued)2023, that are expected to have a significant impact on its consolidated financial statements.

Note 23 – Real Estate Investments and Related Intangibles
Property DispositionsAcquisitions
During the three and nine months ended September 30, 2023, the Company had no acquisitions. During the nine months ended September 30, 2020, VEREIT Office Assets disposed2022, the Company acquired for no consideration the fee interest in one parcel of 3 properties, selling themland in connection with the maturity of the tax advantaged bond and ground lease structure. 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 ventureground lease was reclassified from other assets, net to real estate investments in the Company’s consolidated balance sheet as of September 30, 2022. The Company did not have any other acquisitions during the three and nine months ended September 30, 2022.
Property Dispositions and Real Estate Assets Held for an aggregateSale
The following table summarizes the Company’s property dispositions for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Total dispositions2 4 2 5 
Aggregate gross sales price$14,050 $19,530 $14,050 $23,130 
Gain on disposition of real estate assets$18 $1,059 $18 $1,059 
Property count2 3 2 3 
Impairments on disposition of real estate assets$— $21 $— $1,098 
Property count— 1 — 2 
As of September 30, 2023, the Company had two properties classified as held for sale with a carrying value of $3.8 million, primarily comprised of land of $1.1 million and building, fixtures and improvements, net, sales price of $135.5 million. The dispositions resulted in proceeds of $116.4$2.7 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 held for sale, net in the accompanying combinedconsolidated balance sheets, which it expects to be sold in the next 12 months as part of its portfolio management strategy. During the nine months ended September 30, 2023 and 2022, the Company recorded losses of $4.4 million and $6.0 million, respectively, related to held for sale properties, which are included in impairments in the accompanying consolidated statements of operations. One of the properties classified as held for sale as of September 30, 2023 was sold during October 2023. See Note 15 – Subsequent Events, below.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
Intangible Lease Assets and Liabilities
Intangible lease assets and liabilities consisted of the following (amounts in(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)September 30, 2023December 31, 2022
Intangible lease assets:
In-place leases, net of accumulated amortization of $185,587 and $144,798, respectively6.1$121,165 $177,698 
Leasing commissions, net of accumulated amortization of $2,651 and $1,553, respectively12.413,493 13,614 
Above-market lease assets, net of accumulated amortization of $13,798 and $11,391, respectively6.56,052 9,826 
Deferred lease incentives, net of accumulated amortization of $303 and $116, respectively9.13,594 1,694 
Total intangible lease assets, net$144,304 $202,832 
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $21,769 and $17,249, respectively9.9$9,481 $14,068 
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 and $0.8 million for the three and nine months ended September 30, 2021.2023, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2022, respectively. The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was $31,000 for the three months ended September 30, 2020 and $12,000 and $35,000$0.2 million for the nine months ended September 30, 20212023, as compared to less than $0.1 million for the three and 2020, respectively.nine months ended September 30, 2022. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $4.1$18.5 million and $4.0$57.4 million for the three months ended September 30, 2021 and 2020, respectively, and $11.8 million and $13.7 million for the nine months ended September 30, 20212023, respectively, and 2020,$23.7 million and $73.5 million for the three and nine months ended September 30, 2022, 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, 2021 (amounts in2023 (in thousands):
Remainder of 20212022202320242025Remainder of 202320242025202620272028
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$17,157 $49,039 $21,608 $15,499 $7,441 $4,592 
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$373 $1,450 $1,382 $1,379 $1,356 $1,207 
Above-market lease assets and deferred lease incentives:
Above-market lease assets:Above-market lease assets:
Total projected to be deducted from rental revenueTotal projected to be deducted from rental revenue$1,042 $2,964 $850 $682 $237 $115 
Deferred lease incentives: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$84 $338 $321 $223 $200 $186 
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$1,407 $3,786 $1,036 $817 $655 $571 
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NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20212023 (Unaudited) - (Continued)

ConsolidatedInvestment in Unconsolidated Joint Venture
VEREIT Office Assets had an interestThe following is a summary of the Company’s investment in 1 consolidated joint venture that owned 1 propertythe Arch Street Joint Venture, as of September 30, 20212023 and December 31, 2020. As of September 30, 20212022 and December 31, 2020, the consolidated joint venture had total assets of $30.7 million and $33.0 million, respectively, of which $27.8 million and $29.1 million, respectively, 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 $14.8 million as of December 31, 2020. Duringfor the nine months ended September 30, 2021, VEREIT,2023 and 2022 (dollars in thousands):
Ownership % (1)
Number of PropertiesCarrying Value of
Investment		Equity in Loss, Net
Nine Months Ended
InvestmentSeptember 30, 2023September 30, 2023December 31, 2022September 30, 2023September 30, 2022
Arch Street Joint Venture (2) (3)
20%6$14,124 15,824 $(326)(252)

(1)The Company’s ownership interest reflects its legal ownership interest. The Company’s legal ownership interest 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 behalfcapital account balances and allocations of VEREIT Office Assets, repaidprofits and losses. As a result, the balanceCompany’s actual economic interest (as distinct from its legal ownership interest) in fullcertain of the properties could fluctuate from time to time and there were no amounts outstandingmay not wholly align with its legal ownership interest.
(2)During the three and nine months ended September 30, 2023 and 2022, the Arch Street Joint Venture did not acquire any properties.
(3)The total carrying value of the Company’s investment in the Arch Street Joint Venture was greater than the underlying equity in net assets by $0.5 million and $0.9 million as of September 30, 2021. VEREIT Office Assets had2023 and December 31, 2022, respectively. This difference is related to a step up in the ability to control operating and financing policiesfair value of the consolidated joint venture. There were restrictionsinvestment in the Arch Street Joint Venture in connection with the Separation and the Distribution. The step up in fair value was allocated based on the use of theseunderlying assets as VEREIT Office Assets was generally required to obtain the approvaland liabilities of the joint venture partnerArch Street Joint Venture and is being amortized over the estimated useful lives of the respective assets and liabilities in accordance with the joint venture agreementCompany’s accounting policies.
Note 4 – Receivables and Other Assets:
Accounts receivable, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Accounts receivable, net$11,961 $10,461 
Straight-line rent receivable, net14,950 11,180 
Total$26,911 $21,641 

Other assets, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Restricted cash$67,910 $34,673 
Right-of-use assets, net (1)
25,650 26,422 
Investment in unconsolidated joint venture14,124 15,824 
Deferred costs, net (2)
8,444 4,619 
Prepaid expenses2,203 1,305 
Derivative assets986 6,308 
Other assets, net1,073 1,063 
Total$120,390 $90,214 
____________________________________
(1)Amortization expense for any major transactions. VEREIT Officebelow market right-of-use asset was less than $0.1 million and $0.1 million, respectively, for the three and nine months ended September 30, 2023 and 2022. Includes right-of-use finance leases of $9.0 million, right-of-use operating leases of $9.9 million, and a below-market right-of-use asset, net of $6.7 million as of September 30, 2023. Includes right-of-use finance leases of $9.0 million, right-of-use operating leases of $10.6 million, and a below-market right-of-use asset, net of $6.8 million as of December 31, 2022.
(2)Amortization expense for deferred costs related to the Revolving Facility totaled $0.8 million and $1.8 million for the three and nine months ended September 30, 2023, respectively, as compared to $0.5 million and $1.6 million for the three and nine months ended September 30, 2022, respectively. Accumulated amortization for deferred costs related to the Revolving Facility was $4.3 million and $2.5 million as of September 30, 2023 and December 31, 2022, respectively. Additional deferred costs related to the Revolving Facility of $5.6 million were capitalized during the nine months ended September 30, 2023 in connection with the second amendment to the Credit Agreement, as defined below and discussed in Note 6 – Debt, Net. Deferred costs, net also includes outstanding deferred equity offering costs of $0.6 million and $0.5 million, which will be offset against additional paid in capital for future issuances of shares of the Company’s common stock, as of September 30, 2023 and December 31, 2022, respectively.
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ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
Note 5 – Fair Value Measures
Items Measured at Fair Value on a Recurring Basis
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):
Level 1Level 2Level 3Balance as of September 30, 2023
Derivative assets$— $986 $— $986 
Level 1Level 2Level 3Balance as of December 31, 2022
Derivative assets$— $6,308 $— $6,308 
Derivative Assets–The Company’s derivative financial instruments relate to interest rate swap agreements entered into in order to hedge interest rate volatility with respect to the Company’s borrowings with an aggregate notional amount of $175.0 million (as described in Note 6 – Debt, Net). The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, 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 joint venture partner wereperformance 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 September 30, 2023 and December 31, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Items Measured at Fair Value on a Non-Recurring Basis
Certain financial and nonfinancial 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 Arch Street Joint Venture, 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 3six and 410 properties of VEREIT Office Assets were deemed to be impaired during the nine months ended September 30, 2023 and 2022, respectively, resulting in impairment charges of $6.4$27.0 million and $28.1$54.2 million during the three and nine months ended September 30, 2021,2023 and 2022, respectively. During each of the three and nine months ended September 30, 2020, netThe impairment charges were incurred primarily with respect to real estate assets related to 1 property, were deemedexpected to be impaired resultingsold and reflect changes in the Company’s future cash flow assumptions for agreed-upon or estimated sale proceeds, as well as changes to assumptions with regard to management’s intent to sell or lease the real estate assets.
The following table summarizes our provisions for impairment chargesduring the periods indicated below (dollars in thousands):
Nine Months Ended September 30,
20232022
Number of properties6 10 
Carrying value of impaired properties$54,803 $98,633 
Provisions for impairment(26,976)(54,161)
Estimated fair value$27,827 $44,472 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (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;rates; (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’s impairment tests for the real estate assets during the three months ended September 30, 2021, VEREIT used a weighted-average discount rate of 9.7% and a weighted-average capitalization rate of 9.2%. For VEREIT’sCompany’s impairment tests for the real estate assets during the nine months ended September 30, 2021, VEREIT2023, the fair value measurement for five properties was determined based on sales prices under definitive agreements and the one remaining property was determined by applying an estimated sales price based on market data. During the nine months ended September 30, 2023, impairment charges of $14.0 million were recorded for held and used a weighted-average discount rate of 9.0%properties, $8.4 million impairment charges were recorded for held for sale properties and a weighted-average capitalization rate of 8.5%. $4.6 million for disposed properties.
For VEREIT’sthe Company’s impairment tests for the real estate assets during the three and nine months ended September 30, 2020,2022, the fair value measurement for eight impaired properties was determined by applying an estimated sales price based on market data and two impaired properties by applying a discount ratesrate of 8.5% and capitalization ratesrate of 8.0%. During the nine months ended September 30, 2022, impairment charges of $44.0 million were not applicablerecorded for held and used properties, and $1.6 million impairment charges were recorded for held for sale properties and $8.6 million for disposed properties.
The following table presents certain of the Company’s assets measured at fair value on a non-recurring basis as VEREIT determinedof September 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those assets fall (in thousands):
Level 1
Level 2(1)
Level 3(1)
Balance as of September 30, 2023
Assets of properties held and used$— $10,000 $2,762 $12,762 
Assets of properties held for sale— 1,316 — 1,316 
Total$— $11,316 $2,762 $14,078 
Level 1
Level 2 (1)
Level 3 (1)
Balance as of December 31, 2022
Assets of properties held and used$— $38,900 $11,957 $50,857 
Assets of properties held for sale— 2,502 — 2,502 
Total$— $41,402 $11,957 $53,359 
____________________________________
(1)The fair value of the level 2 category was derived using negotiated sales prices with third parties and the fair value of the real estate assetslevel 3 category was derived using discounted cash flow analysis and management estimates of VEREIT Office Assets based on sale scenariosselling prices.
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 properties had leases expiring within 12 monthsaccompanying consolidated balance sheets due to their short-term nature. The fair values of the impairment analysis.Company’s long-term financial instruments are reported below (dollars in thousands):
LevelCarrying Value at September 30, 2023Fair Value at September 30, 2023Carrying Value at December 31, 2022Fair Value at December 31, 2022
Assets:
Derivative assets2$986 $986 $6,308 $6,308 
Liabilities (1):
Mortgages payable2355,000 332,924 355,000 332,323 
Credit facility term loan2— — 175,000 175,000 
Credit facility revolver2175,000 175,000 — — 
Total$530,000 $507,924 $530,000 $507,323 
____________________________________
(1)Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.
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NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20212023 (Unaudited) - (Continued)

Debt – The fair value is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of credit spreads and observable market interest rates, representing level 2 on the fair value hierarchy.
Note 36 – Mortgage Notes Payable,Debt, Net
As of September 30, 2021, VEREIT Office Assets2023, the Company had mortgage notes payable$527.7 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 1.13.1 years and a weighted-average interest rate of 4.43%. 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%4.63%. The weighted average interest rate for fixed rate loans is computed usingfollowing table summarizes 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 effectcarrying value of debt as of September 30, 2021. As of2023 and December 31, 2022, and the debt activity for the nine months ended 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.2023 (in thousands):
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.
Nine Months Ended September 30, 2023
Balance as of December 31, 2022Debt IssuancesRepayments, Extinguishment and AssumptionsAccretion and AmortizationBalance as of September 30, 2023
Mortgages payable:
Outstanding balance$355,000 $— $— $— $355,000 
Deferred costs(2,833)— — 516 (2,317)
Mortgages payable, net352,167 — — 516 352,683 
Credit facility term loan:
Outstanding balance175,000 — (175,000)— — 
Deferred costs(1,185)— 504 681 — 
Credit facility term loan, net173,815 — (174,496)681 — 
Credit facility revolver— 175,000 — — 175,000 
Total debt$525,982 $175,000 $(174,496)$1,197 $527,683 
The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent tothe Company’s debt outstanding as of September 30, 20212023 (in thousands):
Total
October 1, 2021 - December 31, 2021$178 
202260,875 
202382,451 
Total$143,504 
Total
October 1, 2023 to December 31, 2023$— 
2024— 
2025— 
2026 (1)
175,000 
2027355,000 
Total$530,000 
____________________________________
(1)As described below, the Company’s Revolving Facility is scheduled to mature on November 12, 2024 and Orion OP has an option to extend the maturity date to May 12, 2026. This table assumes exercise of the extension option.
Credit Agreement
In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Credit Agreement”) providing for a three-year, $425.0 million senior revolving credit facility (the “Revolving Facility”), including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “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”) providing for a six-month, $355.0 million senior bridge term loan facility (the “Bridge Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
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. In June 2023, as further described below, the Term Loan Facility was repaid and retired with borrowings under the Revolving Facility and, as of September 30, 2023,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
$175.0 million of principal amount was outstanding under the Revolving Facility with $250.0 million available for future borrowings thereunder, including the $25.0 million letter of credit sub-facility.
The Company and Orion OP have entered into two amendments to the Credit Agreement. The purpose of the first amendment entered into in December 2022 was to change the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York). The purpose of the second amendment entered into in June 2023 was to repay and retire $175.0 million of outstanding borrowings under the Term Loan Facility with borrowings from the Revolving Facility which was undrawn at the time of the second amendment, provide Orion OP with the option to extend the maturity of the Revolving Facility for an additional 18 months to May 12, 2026 from November 12, 2024 and to effect certain other modifications. The extension option may be exercised beginning on May 16, 2024 and is subject to customary conditions including there being no default or event of default and the payment of an extension fee.
Giving effect to the amendments described above, the interest rate applicable to the loans under the Revolving Facility may be determined, at the election of Orion OP, on the basis of Daily Simple SOFR, Term SOFR or a base rate, in the case of a SOFR loan, plus a SOFR adjustment of 0.10% per annum, and in the case of a SOFR loan or a base rate loan, plus an applicable margin of 3.25% for SOFR loans and 2.25% for base rate loans. Loans under the Revolving Facility may be prepaid and reborrowed, and unused commitments under the Revolving Facility may be reduced, at any time, in whole or in part, by Orion OP, without premium or penalty (except for SOFR breakage costs).
In December 2022, the Company entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, which has effectively fixed the interest rate on $175.0 million of principal under the Revolving Facility at 3.92% per annum until November 12, 2023. Upon the scheduled expiration of the interest rate swap agreements, the Company’s borrowing cost on the Revolving Facility will no longer be effectively fixed, but rather will float and, therefore, the Company’s borrowing cost on the Revolving Facility will immediately shift to prevailing short-term interest rates based on the benchmark and applicable margin described above, and the Company will be exposed to interest rate fluctuations on these borrowings.
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 Revolving Facility is guaranteed pursuant to a guaranty 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 Revolving Facility is secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.
The Revolving Facility requires that Orion OP comply with various covenants, including covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. Pursuant to the second amendment described above, if, on any day, Orion OP has unrestricted cash and cash equivalents in excess of $25.0 million (excluding amounts that are then designated for application or use and are subsequently used for such purposes within 30 days), Orion OP will use (or, under certain circumstances, set aside in an escrow account established by the administrative agent) such excess amount to prepay loans under the Revolving Facility, without premium or penalty and without any reduction in the lenders’ commitment under the Revolving Facility. As of September 30, 2023, the Company had $33.2 million of restricted cash deposited in an escrow account with the administrative agent under the Revolving Facility as additional cash collateral. These funds will, in accordance with Orion OP’s obligations described above, be used to prepay borrowings under the Revolving Facility upon the scheduled expiration in November 2023 (or earlier termination) of the Company’s interest rate swap agreements with respect to $175.0 million of borrowings thereunder.
In addition, the Revolving Facility giving effect to the modifications pursuant to the second amendment described above, requires that Orion OP satisfy the following financial covenants:
•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 0.40 to 1.00;
•ratio of unsecured debt to unencumbered asset value of not more than 0.60 to 1.00;
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ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
•ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00; and
•the unencumbered asset value maintained by Orion OP must be at least $600.0 million.
Pursuant to the second amendment described above, if the ratio of unsecured debt to unencumbered asset value exceeds 0.35 to 1.00 as of the end of two consecutive fiscal quarters, Orion OP will be required, within 90 days and subject to cure rights, to grant the administrative agent a first priority lien on all the properties included in the pool of unencumbered assets (other than properties identified for disposition by the Company so long as such properties are sold within one year of such identification).
As of September 30, 2023, Orion OP was in compliance with the Revolving Facility financial covenants.
The Revolving Facility includes 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 Revolving Facility. The Revolving Facility also includes 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 Revolving Facility to be immediately due and payable and foreclose on the collateral securing the Revolving Facility.
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 at 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 defined in the CMBS Loan Agreement) (generally in March 2024, two years after the CMBS 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 September 30, 2023, 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.
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ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
The CMBS Loan Agreement includes customary representations, warranties and covenants of the Mortgage Borrowers and the Company. The CMBS Loan Agreement also includes 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 to be immediately due and payable and foreclose on the Mortgaged Properties.
The Company’s mortgages payable consisted of the following as of September 30, 2023 (dollars in thousands):
Encumbered Properties
Net Carrying Value of Collateralized Properties (1)
Outstanding BalanceWeighted-Average
Interest Rate		Weighted-Average Years to Maturity
Fixed-rate debt19 $441,293 $355,000 4.97 %3.4
____________________________________
(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 associated with the Arch Street Joint Venture of $136.7 million as of September 30, 2023.
Note 47 – Derivatives and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
As of each of September 30, 2023 and December 31, 2022, 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 entered into in order to hedge interest rate volatility. The initial interest rate swap agreements were effective on December 1, 2021 and were scheduled to terminate on November 12, 2023. During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR, the Company terminated the initial interest rate swap agreements and entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2022 and terminating on November 12, 2023. These interest rate swap agreements remain in effect for the $175.0 million of borrowings under the Revolving Facility as of September 30, 2023 until 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 September 30, 2023 and December 31, 2022 (in thousands):
Derivatives Designated as Hedging InstrumentsBalance Sheet LocationSeptember 30, 2023December 31, 2022
Interest rate swapsOther assets, net$986 $6,308 
During the three and nine months ended September 30, 2023, the Company recorded unrealized gains of less than $0.1 million and $0.4 million, respectively, for changes in the fair value of its cash flow hedge in accumulated other comprehensive income. During the three and nine months ended September 30, 2022, the Company recorded unrealized gains of $1.9 million and $7.2 million, respectively, for changes in the fair value of its cash flow hedge in accumulated other comprehensive income.
During the three and nine months ended September 30, 2023, the Company reclassified previous gains of $2.1 million and $5.7 million, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings. During the three and nine months ended September 30, 2022, the Company reclassified previous gains of $0.7 million and $0.5 million, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.
The Company estimates that an additional $1.0 million will be reclassified from other comprehensive income as a decrease to interest expense through November 12, 2023.
Derivatives Not Designated as Hedging Instruments
As of each of September 30, 2023 and December 31, 2022, the Company had no interest rate swaps that were not designated as qualifying hedging relationships.
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ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
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 September 30, 2023 and December 31, 2022 (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
September 30, 2023$986 $— $— $986 $— $— $— $986 
December 31, 2022$6,308 $— $— $6,308 $— $— $— $6,308 
Note 8 – Supplemental Cash Flow Disclosures
Supplemental cash flow information was as follows during the periods indicated below (in thousands):
Nine Months Ended September 30,
20232022
Supplemental disclosures:
Cash paid for interest$18,727 $18,729 
Cash paid for income taxes$453 $678 
Non-cash investing and financing activities:
Accrued capital expenditures and leasing costs$4,628 $1,251 
Distributions declared and unpaid$5,578 $5,664 
Land acquired upon finance lease termination$— $4,707 
Note 9 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Accrued real estate and other taxes$15,497 $10,191 
Accrued operating and other7,599 10,034 
Accrued capital expenditures and leasing costs4,183 2,333 
Accrued interest1,708 1,810 
Accounts payable1,583 1,793 
Total$30,570 $26,161 
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 amounts paid directly to tenants to improve their space and/or building systems, or tenant improvement allowances, landlord agreements to perform and pay for certain improvements, and leasing commissions. These rent concession and leasing cost commitments could be significant and are expected to vary due to factors such as competitive market conditions for leasing of commercial office space and the volume of square footage subject to re-leasing by the Company. As of September 30, 2023, the Company had total commitments of $44.3 million outstanding for tenant improvement allowances and $0.3 million for leasing commissions. The timing of the Company’s cash outlay for tenant improvement allowances is significantly uncertain and will depend upon the applicable tenant’s schedule for the improvements and corresponding use of capital, if any. For assets financed on the CMBS Loan, the Company has funded reserves with the lender for tenant improvement allowances and rent concession commitments.
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ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
The restricted cash included in the reserve totaled $34.7 million as of September 30, 2023, including $23.6 million for tenant improvement allowances and $11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets.
Litigation
VEREIT Office Assets isFrom time to time, the Company may be 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 tosuch legal proceedings will have a material adverse effect upon its consolidated financial 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 position or results of operations.
Note 511 – Leases
Lessor
As of September 30, 2021, VEREIT Office Assets is2023, the lessor for its 52 office properties. VEREIT Office Assets’Company’s operating leases have non-cancelable lease terms ranging from 0.08 years to 11.67 years as of September 30, 2021 and 0.2 years to 8.75 years as of December 31, 2020, respectively.15.6 years. Certain leases with tenants include tenant 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)index). 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 leasebase rent payments due to VEREIT Office Assetsthe Company under the terms of its operating lease agreements, excluding expense reimbursements, over the next five years and thereafter as of September 30, 20212023 (in thousands).
Future Minimum
Operating Lease Payments		Future Minimum
Base Rent Payments
October 1, 2021 - December 31, 2021$24,188 
2022109,604 
202392,259 
October 1, 2023 - December 31, 2023October 1, 2023 - December 31, 2023$32,890 
2024202469,414 2024112,183 
2025202535,956 202575,683 
2026202626,847 202672,381 
2027202751,814 
2028202840,104 
ThereafterThereafter30,409 Thereafter158,714 
TotalTotal$388,677 Total$543,769 
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 a2023, the Company’s operating leases had remaining lease term of 35.9terms ranging from 0.2 years to 61.3 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%3.50% as of September 30, 2021.2023. 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 commencement date or the lease guidance adoption date, as applicable, in determining the present value of lease payments.
Operating lease costs were $0.3 million and $0.9 million for each ofthe three months ended September 30, 2021 and 2020 and for each of the nine months ended September 30, 20212023, respectively, and 2020 was $0.1$0.3 million and $0.2$0.8 million for the three and nine months ended September 30, 2022, respectively. No cash paid for operating lease liabilities was capitalized.capitalized for the three and nine months ended September 30, 2023 and 2022.
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ORION OFFICE ASSETSREIT INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20212023 (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, 20212023 (in thousands).
Future Minimum Lease PaymentsFuture Minimum Lease Payments
October 1, 2021 - December 31, 2021$82 
2022329 
2023329 
October 1, 2023 - December 31, 2023October 1, 2023 - December 31, 2023$278 
20242024329 2024883 
20252025329 2025892 
20262026329 2026478 
20272027445 
20282028447 
ThereafterThereafter10,064 Thereafter12,492 
TotalTotal11,791 Total15,915 
Less: imputed interestLess: imputed interest6,426 Less: imputed interest5,799 
TotalTotal$5,365 Total$10,116 
Note 612 – Subsequent EventsStockholders’ Equity
VEREIT Office Assets evaluated subsequent events and no items have comeCommon Stock
The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock to the attentionRealty Income for a total 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.$1,000.
On November 1,10, 2021, the Mergers were completed. FollowingCompany issued 56,525,650 additional shares of common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Merger Effective Time, the Separation was completed.Company’s common stock. On November 12, 2021, following the Separation, the Distribution was completed.
25
REALTY INCOME OFFICE ASSETS
COMBINED BALANCE SHEETS
(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

The accompanying notes are an integral part of this statement.
26
REALTY INCOME OFFICE ASSETS
COMBINED STATEMENTS OF OPERATIONS
(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)

The accompanying notes are an integral part of this statement.
27
REALTY INCOME OFFICE ASSETS
COMBINED STATEMENTS OF STOCKHOLDER’S EQUITY
(In thousands) (Unaudited)

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.
28
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.
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REALTY INCOME OFFICE ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2021 (Unaudited)
Note 1 – 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. Realty Income Office Assets includes the combined accounts related to the legacy office properties of Realty Income, which contains certain corporate costs.Distribution.
As of September 30, 2021, Realty Income Office Assets owned 40 properties, located in 19 U.S. states, containing approximately 3.0 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.Dividends

On March 11, 2020, the World Health Organization announced that a new strain of coronavirus (“COVID-19”) was reported worldwide, resulting 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 infection in the United States and abroad, with national, state and local authorities imposing social distancing, quarantine 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 duringDuring the nine months ended September 30, 20212023 and 2020, respectively, as a result2022, the Company’s Board of Directors declared quarterly cash dividends on shares of the COVID-19 pandemic; therefore, lease revenue continuesCompany’s common stock as follows:
Declaration DateRecord DatePaid DateDistributions Per Share
March 7, 2023March 31, 2023April 17, 2023$0.10 
May 8, 2023June 30, 2023July 17, 2023$0.10 
August 8, 2023September 29, 2023October 16, 2023$0.10 
Declaration DateRecord DatePaid DateDistributions Per Share
March 22, 2022March 31, 2022April 15, 2022$0.10 
May 3, 2022June 30, 2022July 15, 2022$0.10 
August 2, 2022September 30, 2022October 17, 2022$0.10 
On November 9, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the fourth quarter of 2023, payable on January 16, 2024, to stockholders of record as of December 29, 2023.
Arch Street 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 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, 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”).
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ORION OFFICE REIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 (Unaudited)
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 recognizedexercised, 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) 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.
Share Repurchase Program
On November 1, 2022, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s outstanding common stock until December 31, 2025, as market conditions warrant (the “Share Repurchase Program”). Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with applicable securities laws and other legal requirements. The Share Repurchase Program does not obligate the lease contracts in effect.
Note 2 – Basis of Presentation and Combination
The accompanying combined financial statements include the accounts of Realty Income Office Assets presented on a combined basis as the ownership interests were under common control and ownership of Realty Income as of September 30, 2021. All intercompany balances and transactions have been eliminated.
These combined financial statements were derived from the books and records of Realty Income, were carved out from Realty IncomeCompany to make any repurchases at a carrying value reflective of such historical costspecific time or in such Realty Income records, and include all adjustments (consisting of only normal recurring accruals) necessarya specific situation. Repurchases are subject to present a fair statement of results forprevailing market conditions, the interim periods presented. Realty Income Office Assets’ historical financial results reflect charges for certain corporate costs and, we believe such charges are reasonable. Coststrading price of the services that were chargedCompany’s common stock, the Company’s liquidity and anticipated liquidity needs, financial performance and other conditions. Shares of common stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to Realty Income Office Assets were based on actual costs incurred, except for General and administrative expenses, which were allocated as a proportionthe status of costs estimated to be applicable to this entity based on Realty Income Office Assets’ pro rata shareauthorized but unissued shares of Realty Income’s total rental revenue. The expenses allocated forcommon stock. During the three months ended September 30, 20212023, the Company repurchased approximately 0.9 million shares of common stock in multiple open market transactions, at a weighted average share price of $5.46 for an aggregate purchase price of $5.0 million as part of the Share Repurchase Program, which are currently deemed to be authorized but unissued shares of common stock.
Note 13 - Equity-Based Compensation
The Company has an equity-based incentive award plan (the “Equity Plan”) for officers, other employees, non-employee directors and 2020, were $0.6 millionconsultants 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 requisite service period, which is generally the vesting period. 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 RSUs”) and $0.5 million, respectively,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 RSUs”) and based on certain operational performance metrics (“Metrics-Based RSUs” and collectively with the TSR-Based RSUs, “Performance-Based RSUs”), in each case for officers and other employees during a three-year performance period. The Company also granted Time-Based RSUs to its non-employee directors which are scheduled to vest on the earlier of the one-year anniversary of the grant date and the next annual meeting, subject to the recipient’s continued service with the Company.
During the nine months ended September 30, 20212023 and 2020, were2022, the Company granted Time-Based RSUs and/or Performance-Based RSUs to non-employee directors and officers and other employees of the Company. The fair value of the Time-Based RSUs is 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 RSUs 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 RSUs is determined using the closing stock price on the grant date and is expensed over the requisite service period to the extent that the likelihood of achieving the performance metrics is probable. As of September 30, 2023, the Company determined that the likelihood of achieving some of the performance metrics was probable and, accordingly, the Company recognized compensation expense for such Metrics-Based RSUs and determined that the likelihood of achieving the remaining performance metrics was improbable and the Company recognized no compensation expense for the remaining Metrics-Based RSUs.
Time-Based RSUs and Performance-Based RSUs 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 Time-Based RSUs and Performance-Based RSUs for the three and nine months ended September 30, 2023, was $0.6 million and $1.7 million, respectively. Equity-based compensation expense related to Time-Based RSUs and $1.6Performance-Based RSUs for the three and nine months ended September 30, 2022, was $0.4 million and $0.8 million, respectively. As of September 30, 2023, total unrecognized compensation expense related to Time-Based RSUs and Performance-Based RSUs was approximately $4.0 million, with an aggregate weighted-average remaining term of 1.9 years.
The historical combined financial information presented may therefore not be indicativeCompany is also required under U.S. GAAP to recognize equity-based compensation expense for awards to its former employees of Realty Income time-based restricted stock units and stock options granted in connection with 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.Separation and
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REALTY INCOMETable of Contents
ORION OFFICE ASSETSREIT INC.
NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
September 30, 20212023 (Unaudited) - (Continued)
Readers of this quarterly report should refer to the audited combined financial statements of Realty Income Office AssetsDistribution. Equity-based compensation expense for the year ended December 31, 2020, included in the Information Statement, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included 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
Note 4 – Investments in Real Estate
Realty Income Office Assets acquires land, buildingsthree and improvements necessary for the successful operations of its commercial clients.
A.     Acquisitions during the first Nine Months of 2021 and 2020
There were no acquisitions for the nine months ended September 30, 20212023, related to such Realty Income equity-based compensation awards, was less than $0.1 million 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$0.2 million, respectively. Equity-based compensation expense for all in-place leases for the three and nine months ended September 30, 2021 and 2020 were $4.82022, related to such Realty Income equity-based compensation awards, was $0.1 million and $6.0$0.3 million, respectively.
The values As of the above-marketSeptember 30, 2023, total unrecognized compensation expense related to Realty Income time-based restricted stock units and below-market leases are amortized over thestock options was less than $0.1 million with an aggregate weighted-average remaining 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 ended
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REALTY INCOME OFFICE ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2021 (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 
0.4 years.
Note 5 – Mortgages Payable14 - Net Income (Loss) Per Share
During the first nine monthsThe computation 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 presentedbasic and diluted earnings per share is 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 $3.5 million loss on extinguishment of debtfollows for the three and nine months ended September 30, 2021. The loss on extinguishment2023 and 2022 (in thousands, except share and per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net loss$(16,507)$(53,029)$(41,096)$(78,481)
Income attributable to non-controlling interest(12)(18)(38)(43)
Net loss available to common stockholders used in basic and diluted net income per share(16,519)(53,047)(41,134)(78,524)
Weighted average shares of common stock outstanding - basic56,543,379 56,635,038 56,621,362 56,630,086 
Effect of dilutive securities (1)
— — — — 
Weighted average shares of common stock - diluted56,543,379 56,635,038 56,621,362 56,630,086 
Basic and diluted net loss per share attributable to common stockholders$(0.29)$(0.94)$(0.73)$(1.39)
____________________________________
(1)As 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 was2023 and 2022, there were no adjustments to the weighted average common shares outstanding used in compliance with these covenants.the diluted calculation given that all potentially dilutive shares were anti-dilutive.
The following summarizes Realty Income Office Assets’ mortgages payablewere excluded from diluted net loss per share attributable to common stockholders, as of September 30, 2021 and December 31, 2020, respectively (dollars in thousands):the effect would have been antidilutive:
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
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Weighted average unvested Time-Based RSUs (1)
25,559 — 3,337 — 
Weighted average stock warrants1,120,000 1,120,000 1,120,000 1,120,000 
____________________________________
(1)The mortgage related toNet of assumed repurchases in accordance with the East Windsor, NJ property was paid in full on October 1, 2021. As a resulttreasury stock method and exclude Performance-Based RSUs for which the performance thresholds have not been met by the end 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.
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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.reporting period.
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 ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 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
Note 10 – Commitments and Contingencies
In the ordinary course of business, Realty Income Office Assets is party to various legal actions which are believed to be routine in nature and incidental to the operation of the business. Realty Income Office Assets believes that the outcome of the proceedings will not have a material adverse effect upon the combined financial position or results of operations.
Realty Income Office Assets has certain properties that are subject to ground leases, which are accounted for as operating leases.
At September 30, 2021, Realty Income Office Assets had commitments of $0.8 million for building improvements as well as $0.4 million for leasing commissions.
Note 1115 – Subsequent Events
Realty Income Office Assets evaluated subsequent events and no items have comeDistributions
On November 9, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the fourth quarter of 2023, payable on January 16, 2024, to stockholders of record as of December 29, 2023.
Dispositions
On October 23, 2023, the attentionCompany closed on the sale of management that require recognition or disclosure, except as set forth below.one property for a gross sales price of approximately $1.4 million.

Leasing Activity
InDuring October 2021, Realty Income repaid 1 mortgage in full2023, the Company entered into a 10.0-year early lease renewal for $9.6 million on behalf of Realty Income Office Assets related toapproximately 90,000 square feet at its property in East Windsor, NJ. AsMemphis, Tennessee. Also during October 2023, the Company entered into a resultnew 10.0-year lease for 3,000 square feet of retail space at its property in Covington, Kentucky leased primarily to the early repayment, Realty Income Office Assets incurred a $0.3 million prepayment penalty.
United States of America. On November 1, 2021, Realty Income completed its acquisition2023, one additional lease comprising 0.3 million square feet terminated at one of VEREIT, and the Mergers were consummated. On November 12, 2021, Realty Income completed the Separation and the Distribution.our properties.
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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. 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" included 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 Current Report on Form 8-K filed with the SEC on October 25, 2021 (the “Information Statement”).
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” which reflect ourOrion Office REIT Inc.’s (the “Company, “Orion”, “we”, or “us”) 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,expected borrowings and financing costs and the payment of future dividends, 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).dividends. 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 and in a timely manner, 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, 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 and geopolitical conditions;
•the extent to which changes in workplace practices and office space utilization, including remote work arrangements, will continue and the impact that may have on demand for office space at our properties;
•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;properties, including our ability to satisfy the conditions to extend our Revolving Facility;
•our ability to access the availability of refinancing currentcapital markets to raise additional equity or refinance maturing debt obligations;
•existingon favorable terms and potential co-investments with third-parties;
•changes in any credit rating we may subsequently obtain;a timely manner, 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;tenants defaulting on their lease obligations, which is heightened due to our focus on single tenant properties;
•our ability to enter intorenew leases with existing tenants or re-let vacant space to new leases or renewal leasestenants on favorable terms;terms and in a timely manner, 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;
•risks accompanying the management of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), our unconsolidated joint venture, in which we hold a non-controlling ownership interest;
•our ability to close pending real estate transactions, which may be subject to conditions that are outside of our control;
•our ability to accurately forecast the payment of future dividends on our common stock, and the amount of such dividend;
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•risks associated with our joint venture with an affiliate of Arch Street Capital Partners and any potential future equity investments;
•the outcome of claims and litigation involving or affecting the company;
•the ability to satisfy conditions necessary to close pending transactions and the ability to successfully integrate pending transactions;
•applicable regulatory changes;
•risks associated with acquisitions, including the integration of VEREIT Office Assets and Realty Income Office Assets (each,risk that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions will fail to perform as defined under “Overview - Merger with Realty Income” below) into Orion;expected;
•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;
•the risk that we may fail to maintain our qualification as a REIT; 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, 2022.
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 fixed contractually obligated reimbursements by our tenants), as of September 30, 2023, multiplied by 12, including the Company’s pro rata share of such amounts from the Arch Street Joint Venture, the Company’s unconsolidated joint venture with an affiliate of Arch Street Capital Partners, LLC (“Arch Street Capital Partners”). Annualized base rent is not indicative of future performance.
Under a “net lease,”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
MergerOrion 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 has been operating in a manner so as to qualify and has elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with Realty Incomeits initial taxable year ended December 31, 2021.
On AprilAs of September 30, 2023, we owned and operated 79 office properties with an aggregate of 9.3 million leasable square feet located in 29 2021, Realty Income entered intostates with an Agreementoccupancy rate of 80.1% and Plana weighted-average remaining lease term of Merger (as amended,3.9 years. Including our pro rata share of leasable square feet and annualized base rent from the “Merger Agreement”)Arch Street Joint Venture, we owned an aggregate of 9.5 million leasable square feet with VEREIT, Inc. (“VEREIT”)an occupancy rate of 80.5%, its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc.,or 88.7% adjusted for properties that have been sold following September 30, 2023 or are currently under agreement to be sold, and a wholly ownedweighted-average remaining lease term of 3.9 years as of September 30, 2023.
Business Environment
Our efforts to address upcoming lease maturities and vacancies continue to be adversely impacted by economic conditions, which have included rising interest rates, rising inflation and recession fears, along with remote working trends which resulted from the COVID-19 pandemic and have persisted even after many other economic and social activities have returned to at or near pre-COVID-19 levels. We have experienced and we expect we will continue to experience slower new leasing and there remains uncertainty over existing tenants’ long-term space requirements. Some of the anticipated leasing we expected to realize is either going to be delayed, reduced or eliminated. Overall, this could reduce our future rental revenues. We cannot provide any assurance as to whether we will be able to renew leases with existing tenants or re-let vacant space to new tenants on favorable terms and in a timely manner, or at all.
The regional bank crisis earlier this year, together with inflation, the high interest rate environment and recessionary fears, have caused dislocations in the commercial real estate markets generally and may negatively impact our business and prospects,
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such as by adversely affecting the Company’s leasing efforts and access to debt or equity capital or the terms under which it may do so, and by causing the values of our properties to decline.
The Separation and the Distribution
The Company was initially formed as a wholly-owned subsidiary of Realty Income Corporation (“Merger Sub 1”Realty Income”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary. Following completion of the merger transaction involving Realty Income and VEREIT, Inc. (“Merger Sub 2”VEREIT”). On 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 the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On, and, 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, wethe Company became an independent and publicly traded company and intend to qualify and elect to be taxed as a REIT, commencing with our initial taxable year ending December 31, 2021.
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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 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$1.235 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$700.0 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$1.0 billion in non-convertible debt during the preceding three-year period. As of June 30, 2023, the market value of our common stock held by non-affiliates was less than $700.0 million, and therefore, we expect to remain an “emerging growth company” for our fiscal year ending December 31, 2023.
Basis of Presentation
For periods presented prior to the datethree and nine months ended September 30, 2023 and 2022, the consolidated financial statements of the Distribution, the historical combined financial results for the Realty Income Office Assets and VEREIT Office AssetsCompany include the accounts of Realty Income Office Assets and VEREIT Office Assets on a combined basis as the ownership interests have historically been under common control and ownership of Realty Income and VEREIT, respectively. 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.
The combined historical financial statements of Realty Income Office Assets and the combined and consolidated financial statements of 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 and 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, based on Realty Income Office Assets’ pro-rata share of total rental revenue and VEREIT Office Assets’ pro-rata share of annualized rental income. 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. Such historical combined 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 and 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.and its consolidated subsidiaries and a consolidated joint venture.
Election as a REIT
We intend to electThe Company 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, 2021. To qualifymaintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute
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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 willare 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.
Critical 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 invest in real estate assets and subsequently monitor those investments quarterly for impairment. The risks and uncertainties involved in applying the principles related to real estate impairment include, but are not limited to, the following:
•The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the value of assets and recognize an impairment loss.
•The evaluation of real estate assets for potential impairment requires our management to exercise significant judgment and make certain key assumptions, including the following: (1) capitalization rate; (2) discount rate; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions including the 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 our tenants.
•Changes related to management’s intent to sell or lease the real estate assets used to develop the forecasted cash flows may have a material impact on our financial results.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are described in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.
Significant Transactions Summary
Activity through September 30, 2023
Real Estate Operations
•During the nine months ended September 30, 2023, we closed on the sale of two vacant properties for an aggregate gross sales price of $14.1 million. On October 23, 2023, we closed on the sale of one vacant property for a gross sales price of $1.4 million. As of November 9, 2023, we had pending agreements to dispose of an additional nine properties for an aggregate gross sales price of $46.6 million. These pending 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.
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•During the nine months ended September 30, 2023, we completed approximately 0.1 million square feet of lease renewals and new leases across three different properties. We also entered into a lease expansion covering 11,000 square feet with an existing tenant at one property. During October 2023, the Company entered into a 10.0-year early lease renewal for approximately 90,000 square feet at its property in Memphis, Tennessee. Also during October 2023, the Company entered into a new 10.0-year lease for 3,000 square feet of retail space at its property in Covington, Kentucky leased primarily to the United States of America.
•During the nine months ended September 30, 2023, 12 leases expired or terminated, including the six property former Walgreens campus in Deerfield, Illinois, comprising a total reduction in occupied space of approximately 1.1 million rentable square feet. As of September 30, 2023, the Company had a total of 13 vacant properties, one of which was sold subsequent to quarter end as discussed above and another seven are organizedbeing marketed for sale. On November 1, 2023, one additional lease comprising 0.3 million square feet terminated at one of our properties which is being marketed for sale. The Company’s plans with respect to vacant properties are subject to change.
Debt
•On June 29, 2023, the Company closed an amendment of its credit agreement. Under the terms of the amendment, the Company used borrowings from its $425.0 million-capacity credit facility revolver to repay and operatingretire its $175.0 million credit facility term loan which was scheduled to mature on November 12, 2023. The amendment also provides the Company with the option to extend the credit facility revolver for an additional 18 months to May 12, 2026 from the current scheduled maturity of November 12, 2024.
•As of September 30, 2023, we had $250.0 million of borrowing capacity under our revolving credit facility and $175.0 million of outstanding borrowings thereunder. Our interest rate swap agreements with an aggregate notional amount of $175.0 million remain in sucheffect for these borrowings until November 12, 2023.
Equity
•The Company’s Board of Directors declared quarterly cash dividends of $0.10 per share for each of the first three quarters of 2023, which were paid on April 17, 2023, July 17, 2023 and October 16, 2023. On November 9, 2023, the Company’s Board of Directors declared a mannerquarterly cash dividend of $0.10 per share for the fourth quarter of 2023, payable on January 16, 2024 to stockholders of record as to qualifyof December 29, 2023.
•During the three months ended September 30, 2023, the Company repurchased approximately 0.9 million shares of Common Stock in multiple open market transactions, at a weighted average share price of $5.46 for an aggregate purchase price of $5.0 million as part of the Share Repurchase Program, which are currently deemed to be taxed as a REIT for the taxable year ending December 31, 2021.
Inflation
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 shareauthorized but unissued shares of operating expenses, including common area maintenance costs, real estate taxes and insurance, may reduce our exposure to increases in costs and operating expenses resulting from inflation.Common Stock.
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ORION OFFICE REIT INC.Real Estate Portfolio Metrics
ResultsOur financial performance is impacted by the timing of Operations
Foracquisitions and dispositions and the periods presented prior to the dateoperating performance of our operating properties. The following table shows certain property statistics of our operating properties as of September 30, 2023, including our pro rata share of the Distribution, our historical consolidated financial results reflect charges for certain legal, accountingapplicable statistics of the properties owned by the Arch Street Joint Venture:
September 30, 2023December 31, 2022
Portfolio Metrics
Operating properties7981
Arch Street Joint Venture properties66
Rentable square feet (in thousands) (1)
9,4599,732
Occupancy rate (2)
80.5%89.0%
Investment-grade tenants (3)
72.0%73.3%
Weighted-average remaining lease term (in years)3.94.1

(1)Represents leasable square feet of operating properties and other costs related to the Distribution, which were incurred and paidCompany’s pro rata share of leasable square feet of properties owned by Realty Income on our behalf, and are reflectedthe Arch Street Joint Venture.
(2)Occupancy rate equals the sum of leased square feet divided by rentable square feet. The occupancy rate as capital contributions.
Liquidity and Capital Resources
From July 1, 2021 (inception) toof September 30, 2021,2023 equals 88.7% adjusted for properties that have been sold following September 30, 2023 or are currently under agreement to be sold.
(3)Based on annualized base rent of our principal sourcesreal estate portfolio, including the Company’s pro rata share of liquidity were 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 requiredannualized base rent for us to qualify as a REIT; (iv) fund capital expenditures at properties we own; and (v) fund acquisitions, investments and commitments, including commitments to fund acquisitions related toowned by the Arch Street Joint Venture, as defined below. We expect that these liquidity needs generally will be satisfiedof September 30, 2023. Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC or a combinationcredit rating of cash flows from operations and borrowings underBaa3 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 Revolving Facility (as defined below).lease guarantor or the parent company, as applicable.
Credit FacilityOperating Performance
In connection withaddition, management uses the Separationfollowing financial metrics to assess our operating performance (in thousands, except per share amounts).
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Financial Metrics
Total revenues$49,076 $51,769 $151,290 $157,824 
Net loss attributable to common stockholders$(16,519)$(53,047)$(41,134)$(78,524)
Basic and diluted net loss per share attributable to common stockholders$(0.29)$(0.94)$(0.73)$(1.39)
FFO attributable to common stockholders (1)
$22,317 $23,829 $70,194 $76,782 
FFO attributable to common stockholders per diluted share (1)
$0.39 $0.42 $1.24 $1.36 
Core FFO attributable to common stockholders (1) (2)
$24,053 $25,598 $76,271 $83,245 
Core FFO attributable to common stockholders per diluted share (1) (2)
$0.43 $0.45 $1.35 $1.47 

(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.
(2)The Company has revised its definition of Core FFO beginning in 2023 and has applied this change retrospectively for comparison purposes. See the Non-GAAP Measures section below for further discussion of the change.
Leasing Activity and Capital Expenditures
The Company remains highly focused on leasing activity, given the 3.9 year weighted-average remaining lease term and the Distribution,significant lease maturities which will occur across the portfolio over the next few years. If our tenants decide not to renew their leases, terminate their leases early or default on November 12, 2021,their leases, we as parent, and Orion Office REIT LP (“Orion OP”), as borrower, enteredwill seek to re-lease the space to new tenants. We also seek to lease our vacant properties to new tenants. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all. Even if we are able to renew leases with existing tenants or enter 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”),new leases with replacement tenants, the terms of renewals or new leases, including a $25 million letterthe cost 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 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 LIBORrequired renovations, improvements 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 requiredconcessions 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:

•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 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 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 (astenants, particularly commercial tenants, 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, throughless favorable to us than current lease terms. As 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 result, 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 as 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 distributions to our stockholders to satisfy the requirements to qualify as a REIT.
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 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 holdersstockholders could be materially adversely affected. Further, if any of our common stock.properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property; however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations. In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all.
Contractual ObligationsAs an owner of commercial real estate, the Company is required to make capital expenditures with respect to its portfolio, which include normal building improvements to replace obsolete building components and expenditures to extend the useful life of existing assets and lease related expenditures to retain existing tenants or attract new tenants to our properties. The Company has agreed to provide rent concessions to tenants and incur leasing costs with respect to its properties, including amounts paid directly to tenants to improve their space and/or building systems, or tenant improvement allowances, landlord agreements to perform and pay for certain improvements, and leasing commissions. The Company anticipates it will continue to agree to tenant improvement allowances, the amount of which may increase in future periods. These rent concession and leasing cost commitments could be significant and are expected to vary due to factors such as competitive market conditions for leasing of commercial office space and the volume of square footage subject to re-leasing by the Company.
As of September 30, 2021,2023, the Company had outstanding commitments of $44.3 million for tenant improvement allowances and $0.3 million for leasing commissions. The actual amount we were not subjectpay for tenant improvement allowances may be lower than the commitment in the applicable lease and will depend upon the tenant’s use of the capital on the agreed upon timeline. The timing of the Company’s cash outlay for tenant improvement allowances is significantly uncertain and will depend upon the applicable tenant’s schedule for the improvements and corresponding use of capital, if any. The Company estimates that the foregoing tenant improvement allowances and leasing commissions will be funded between 2023 and 2035.
The Company has funded and intends to any contractual obligations or commitments.
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Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements that have had or are reasonably likelycontinue to have a current or future effectfund tenant improvement allowances with cash on hand, which may include proceeds from dispositions. For assets financed on our financial condition, changesCMBS Loan, the Company has funded reserves with the lender for tenant improvement allowances and rent concession commitments. The restricted cash included in financial condition, revenuesthis reserve totaled $34.7 million as of September 30, 2023, including $23.6 million for tenant improvement allowances and $11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets.
During the nine months ended September 30, 2023, we entered into new and renewal leases as summarized in the following table (dollars and square feet in thousands):
Nine Months Ended September 30, 2023
New LeasesRenewalsTotal
Rentable square feet leased18111129
Weighted average rental rate change (cash basis) (1) (2)
(19.8)%17.3 %13.5 %
Tenant leasing costs and concession commitments (3)
$748 $1,065 $1,813 
Tenant leasing costs and concession commitments per rentable square foot$41.38 $9.62 $14.09 
Weighted average lease term (by rentable square feet) (years)7.89.89.5
Tenant leasing costs and concession commitments per rentable square foot per year$5.29 $0.98 $1.48 

(1)Represents weighted average percentage increase or expenses, resultsdecrease in (i) the annualized monthly cash amount charged to the applicable tenants (including monthly base rent receivables and certain contractually obligated reimbursements by the applicable tenants) as of operations, liquidity, capital expendituresthe commencement date of the new lease term (excluding any full or capital resources.

partial rent abatement period) compared to (ii) the annualized monthly cash amount charged to the applicable tenants (including the monthly base rent receivables and certain contractually obligated reimbursements by the applicable tenants) as of the expiration date of the prior lease term. If a space has been vacant for more than 12 months prior to the execution of a new lease, the lease will be excluded from this calculation.

(2)Excludes one new lease for approximately 4,000 square feet of space that had been vacant for more than 12 months at the time the new lease was executed.
(3)Includes commitments for tenant improvement allowances and base building allowances, leasing commissions and free rent (includes estimates of property operating expenses, where applicable).
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VEREIT OFFICE ASSETSDuring the three and nine months ended September 30, 2023 and 2022, amounts capitalized by the Company for lease related costs, lease incentives and building, fixtures and improvements were as set forth in the following table.
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Lease related costs (1)
$— $— $977 $2,216 
Lease incentives (2)
2,088 1,325 2,088 1,325 
Building, fixtures and improvements (3)
6,271 2,405 10,804 4,971 
Total capital expenditures$8,359 $3,730 $13,869 $8,512 
____________________________________
(1)Lease related costs generally include lease commissions paid in connection with the execution of new and/or renewed leases.
(2)Lease incentives generally include expenses paid on behalf of the tenant or reimbursed to the tenant, including expenditures related to the construction of tenant-owned improvements.
(3)Building, fixtures and improvements generally include expenditures to replace obsolete building or land components, expenditures that extend the useful life of existing assets and expenditures to construct landlord owned improvements.
Results of Operations
ComparisonThe results of operations discussed in this section include the accounts of the threeCompany and nine months ended September 30, 2021 to the three and nine months ended September 30, 2020 (dollars in thousands)
The following tables set forth the summary historical combined financial data of certain office real properties and related assets previously owned byits consolidated 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 for the three and nine months ended September 30, 20212023 and 2020 has been derived from VEREIT Office Assets’ unaudited combined and consolidated financial statements2022.
Revenues
The table below sets forth, for the periods presented, revenue information and the notes related thereto, which are included elsewhere in this Quarterly Report on Form 10-Q.dollar amount change year over year (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
202320222023 vs 2022
Increase/(Decrease)		202320222023 vs 2022
Increase/(Decrease)
Rental$48,876 $51,580 $(2,704)$150,690 $157,256 $(6,566)
Fee income from unconsolidated joint venture200 189 11 600 568 32 
Total revenues$49,076 $51,769 $(2,693)$151,290 $157,824 $(6,534)
Rental
The summary historical combineddecreases in rental revenue of $2.7 million and consolidated financial data set forth below does not indicate results expected for any future periods. The summary historical combined financial data is qualified$6.6 million during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in its entirety by,2022 were primarily due to the decrease in our overall occupied square footage due to scheduled vacancies and should be read in conjunctiondispositions. Our portfolio occupancy rate was 80.1% and we had 79 properties 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 statementsan aggregate of VEREIT Office Assets and related notes thereto9.3 million leasable square feet as of September 30, 2023, as compared to a portfolio occupancy rate of 88.0% and 87 properties with an aggregate of 10.0 million leasable square feet as of September 30, 2022. During the three and nine months ended September 30, 2023, the Company recognized $1.0 million and $4.1 million, respectively, of lease termination income. During the nine months ended September 30, 2022 the Company recognized $0.9 million of lease termination income.
Fee income from unconsolidated joint venture
Fee income from unconsolidated joint venture consists of fees earned for providing various services to the yearArch Street Joint Venture. Fee income from unconsolidated joint venture remained consistent at $0.2 million and $0.6 million during the three and nine months ended December 31, 2020, includedSeptember 30, 2023, respectively, as compared to the same periods 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)

2022.
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Rental Revenue. Rental revenueOperating 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 September 30,Nine Months Ended September 30,
202320222023 vs 2022
Increase/(Decrease)		202320222023 vs 2022
Increase/(Decrease)
Property operating15,506 15,303 203 $46,337 $45,773 $564 
General and administrative4,367 4,672 (305)13,241 11,480 1,761 
Depreciation and amortization27,013 32,693 (5,680)83,056 100,874 (17,818)
Impairments11,403 44,801 (33,398)26,976 54,161 (27,185)
Transaction related101 194 (93)356 398 (42)
Spin related— — — — 964 (964)
Total operating expenses$58,390 $97,663 $(39,273)$169,966 $213,650 $(43,684)
Property operating expenses
Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses. Property operating expenses remained consistent during the three and nine months ended September 30, 2023, as compared to the same periods in 2022, which is the net result of increases due primarily to property taxes accrued for near-term vacancies and increases in property taxes for certain properties, offset by decreases in expenses resulting from property dispositions.
General and administrative expenses
General and administrative expenses decreased $1.9$0.3 million and $7.2increased $1.8 million during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The cumulative increase year to date was primarily due to higher employee headcount and increased stock compensation expense for additional equity award issuances during the nine months ended September 30, 2023 as compared to the same period in 2022.
Depreciation and amortization expenses
The decreases in depreciation and amortization expenses of $5.7 million and $17.8 million during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022 were primarily due to the full amortization of certain intangible assets as a result of leases expiring in accordance with their terms, as well as disposition and impairment of real estate assets.
Impairments
Impairments decreased $33.4 million and $27.2 million during the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022. The impairment charges of $11.4 million and $27.0 million in the three and nine months ended September 30, 2023, respectively, include a total of six properties and the charges were incurred primarily with respect to real estate assets expected to be sold and reflect the Company’s future cash flow assumptions for agreed-upon or estimated sale proceeds, as well as changes to assumptions with regard to management’s intent to sell or lease the real estate assets. Impairment charges totaling $44.8 million and $54.2 million, respectively, with respect to 10 properties were recorded during the same periods in 2022. See Note 5 – Fair Value Measures for further information.
Transaction related expenses
Transaction related expense remained relatively consistent during the three and nine months ended September 30, 2023 as compared to the same periods in 2022.
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Spin related expenses
During the three and nine months ended September 30, 2023, the Company incurred no spin related expenses. During the nine months ended September 30, 2022, the Company incurred $1.0 million of spin related expenses, which primarily consist of legal and accountant fees related to the Separation and the Distribution and the Company’s start-up activities.
Other (Expense) Income and Provision for Income Taxes
The table below sets forth, for the periods presented, certain financial information and the dollar amount change year over year (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
202320222023 vs 2022
Increase/(Decrease)		202320222023 vs 2022
Increase/(Decrease)
Interest expense, net$(7,380)$(7,904)$(524)$(21,741)$(22,618)$(877)
Loss on extinguishment of debt, net$— $— $— $(504)$(468)$36 
Other income, net$437 $31 $406 $638 $118 $520 
Equity in loss of unconsolidated joint venture, net$(108)$(157)$(49)$(326)$(252)$74 
Gain on disposition of real estate assets$18 $1,059 $(1,041)$18 $1,059 $(1,041)
Provision for income taxes$(160)$(164)$(4)$(505)$(494)$11 
Interest expense, net
Interest expense, net decreased $0.5 million and $0.9 million during the three and nine months ended September 30, 2023 as compared to the same periods in 2022, which was primarily due to lower outstanding debt during the three and nine months ended September 30, 2023, partially offset by higher interest rates. The Company’s average debt outstanding for the three and nine months ended September 30, 2023 was $530.0 million, as compared to $581.0 million and $590.5 million during the three and nine months ended September 30, 2022, respectively. Interest expense for the three and nine months ended September 30, 2023 included offsets of $2.1 million and $5.7 million, respectively, of reclassified previous gains on interest rate swaps from accumulated other comprehensive income, compared with $0.7 million reclassified gains in the three months ended September 30, 2022 and $0.5 million of reclassified losses in the nine months ended September 30, 2022.
Loss on extinguishment of debt, net
Loss on extinguishment of debt, net during the nine months ended September 30, 2023 related to the write off of deferred financing costs due to the early extinguishment of the Company’s Term Loan Facility, as defined below and discussed in Note 6 – Debt, Net. Loss on extinguishment of debt, net during the nine months ended September 30, 2022 related to the write off of deferred financing costs due to the early extinguishment of the Company’s Bridge Facility, as defined below and discussed in Note 6 – Debt, Net.
Other income, net
Other income, net increased $0.4 million and $0.5 million during the three and nine months ended September 30, 2023 as compared to the same periods in 2022, which was primarily due to interest income from money market accounts and an escrow account with the administrative agent under the Revolving Facility.
Equity in loss of unconsolidated joint venture, net
Equity in loss of the unconsolidated joint venture remained relatively consistent during the three and nine months ended September 30, 2023 as compared to the same periods in 2022.
Gain on disposition of real estate assets
Gain on disposition of real estate assets was less than $0.1 million for the three and nine months ended September 30, 2021, respectively,2023 as compared to $1.1 million during 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.

Fee Income from Unconsolidated Joint Venture. Fee income from unconsolidated joint venture increased $0.1 million for both2022. The gain recognized in the three and nine months ended September 30, 2021 compared2023 was related to the Company’s two dispositions. These properties were subject to cumulative impairment losses of $7.6 million in prior periods.
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Provision for income taxes
The provision for income taxes consists of certain state and local income and franchise taxes. The provision for income taxes remained consistent at $0.2 million and $0.5 million during the three and nine months ended September 30, 2020, 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 operating expenses decreased $2.0 million and $3.8 million, for the three and nine months ended September 30, 2021,2023, 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.

General and Administrative Expenses. General and administrative expenses remained relatively constant at $1.5 million and $1.6 million for the three months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021 and 2020, general and administrative expenses remained relatively constant at $5.1 million and $5.3 million, respectively. General and administrative expenses for 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 related to the sale of one property to the unconsolidated joint venture. No such losses were recorded during the three months ended September 30, 2021. Gain on disposition of real estate assets, net was $9.8 million for the nine months ended September 30, 2020, which was related to the three properties sold to the unconsolidated joint venture during the nine months ended September 30, 2020 for an aggregate net sales price of $135.5 million. No such gain was recorded during the nine months ended September 30, 2021.
Loss on Extinguishment of Debt, Net. Loss on extinguishment of debt, netdecreased $1.6 million for nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. During the nine months ended September 30, 2020, VEREIT Office Assets incurred $1.7 million in losses on the early extinguishment of a mortgage note payable.
Equity in Income of Unconsolidated Joint Venture. Equity in income of unconsolidated joint venture remained relatively constant at $0.2 million for both the three months ended September 30, 2021 and 2020. During the nine months ended September 30, 2021, equity in income of unconsolidated joint venture increased $0.2 million compared to the nine months ended September 30, 2020, primarily due to three properties acquired by the unconsolidated joint venture during the year ended December 31, 2020.
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 for income taxes remained constant at $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, 2021 as compared to the three months ended September 30, 2020. During the nine months ended September 30, 2021 and 2020, net 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 compared to the nine months ended September 30, 2020.same periods in 2022.
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 forrelated to the 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 provisionsjoint 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-cash items tothat we believe do not reflect the extent applicable,ongoing operating performance of our business such as impairments of goodwill, intangibletransaction related expenses, spin related expenses and right of use assets, straight-line rent, net direct financing lease adjustments, gains or losses on derivatives, reserves for loan loss, gains or losses on the extinguishment of swaps and/or forgiveness of debt, and our pro rata share of Core FFO adjustments related to the unconsolidated joint venture. Beginning in 2023, the Company revised its definition of Core FFO to also exclude the following non-cash charges which management believes do not reflect the ongoing operating performance of our business: (i) amortization of intangible assets,deferred lease incentives, (ii) amortization of deferred financing costs, (iii) equity-based compensation, and (iv) amortization of premiums and discounts on debt, above-market lease assets, deferred lease incentivesnet. This change in definition has also been applied retrospectively for comparison purposes.
We believe that FFO 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, isare 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 attributable to common stockholders, the Non-GAAP Measures section belowmost directly comparable U.S. GAAP financial measure, for descriptionsthe three and nine months ended September 30, 2023 and 2022 (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net loss attributable to common stockholders$(16,519)$(53,047)$(41,134)$(78,524)
Depreciation and amortization of real estate assets26,988 32,674 82,982 100,822 
Gain on disposition of real estate assets(18)(1,059)(18)(1,059)
Impairment of real estate11,403 44,801 26,976 54,161 
Proportionate share of adjustments for unconsolidated joint venture463 460 1,388 1,382 
FFO attributable to common stockholders$22,317 $23,829 $70,194 $76,782 
Transaction related101 194 356 398 
Spin related (1)
— — — 964 
Amortization of deferred financing costs (2)
933 1,067 3,041 3,295 
Amortization of deferred lease incentives (2)
(14)36 187 36 
Equity-based compensation (2)
687 444 1,902 1,153 
Loss on extinguishment of debt, net— — 504 468 
Proportionate share of adjustments for unconsolidated joint venture29 28 87 149 
Core FFO attributable to common stockholders$24,053 $25,598 $76,271 $83,245 
Weighted-average shares of common stock outstanding - basic56,543,379 56,635,038 56,621,362 56,630,086 
Effect of weighted-average dilutive securities (3)
25,559 — 3,337 — 
Weighted-average shares of common stock outstanding - diluted56,568,938 56,635,038 56,624,699 56,629,467 
FFO attributable to common stockholders per diluted share$0.39 $0.42 $1.24 $1.36 
Core FFO attributable to common stockholders per diluted share$0.43 $0.45 $1.35 $1.47 
____________________________________
(1)Spin related primarily consist of VEREIT Office Assets’ non-GAAP measuresattorney fees and reconciliationsaccountant fees related to the most comparable measureSeparation and the Distribution and the Company’s start-up activities.
(2)The Company has revised its definition of Core FFO beginning in 2023 and has applied this change retrospectively for comparison purposes.
(3)Dilutive securities include unvested restricted stock units net of assumed repurchases in accordance with generally accepted accounting principles in 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 
treasury stock method and exclude Performance-Based RSUs for which the performance thresholds have not been met by the end of the applicable reporting period. Such dilutive securities are not included when calculating net loss per diluted share applicable to the Company for the three and nine months ended September 30, 2023 and 2022, as the effect would be antidilutive.
Liquidity and Capital Resources
General
ContractualOur principal liquidity needs for the next twelve months are to: (i) fund operating expenses; (ii) pay interest on our debt; (iii) pay dividends to our stockholders; (iv) fund capital expenditures and leasing costs 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, proceeds from real estate dispositions, and borrowings under the Revolving Facility, are sufficient to meet our liquidity needs for the next twelve months. As of September 30, 2023, we had $32.3 million of cash and cash equivalents and $250.0 million of borrowing capacity under the Revolving Facility. As discussed in more detail below under “Credit Agreements – Revolving Facility Covenants,” we also had $33.2 million of restricted cash deposited in an escrow account with the administrative agent under the Revolving Facility as of September 30, 2023, which funds will be used to prepay borrowings under the Revolving Facility during November 2023, and will thereby create an equal amount of additional borrowing capacity to the Company under the Revolving Facility.
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Our principal liquidity needs beyond the next twelve months are to: (i) repay or refinance debt at or prior to maturity; (ii) pay dividends to our stockholders; (iii) fund capital expenditures and leasing costs at properties we own; and (iv) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture. 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, and issuances of equity securities. 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
The following is a summary of the interest rate and scheduled maturities of our consolidated debt obligations as of September 30, 2023 (in thousands):
Principal Amounts Due During the Years Ending December 31,
Interest RateMaturityTotal20232024202520262027
Credit facility revolver (1) (2)
SOFR + 3.35%May 2026$175,000 $— $— $— $175,000 $— 
Mortgages payable (3)
4.971 %February 2027355,000————355,000
Total$530,000 $— $— $— $175,000 $355,000 

(1)Includes interest rate margin of 3.25% plus SOFR adjustment of 0.10%. As of September 30, 2023, we had $175.0 million of variable rate debt outstanding under the Revolving Facility which was effectively fixed through the use of interest rate swap agreements.
(2)The credit facility revolver matures on November 12, 2024 with an option to extend the maturity an additional 18 months to May 12, 2026. This table assumes exercise of the extension option.
(3)The table above does not include mortgage notes associated with the Arch Street Joint Venture of $136.7 million as of September 30, 2023.
Credit Agreement Obligations
VEREIT Office AssetsIn connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Credit Agreement”) providing for a three-year, $425.0 million senior revolving credit facility (the “Revolving Facility”), including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “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”) providing for a six-month, $355.0 million senior bridge term loan facility (the “Bridge Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
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. In June 2023, as further described below, the Term Loan Facility was repaid and retired with borrowings under the Revolving Facility.
As of September 30, 2023, the Company had $530.0 million of total consolidated debt outstanding, consisting of a $355.0 million CMBS Loan and $175.0 million outstanding under our Revolving Facility. In addition, the Company’s pro rata share of the mortgage notes of the Arch Street Joint Venture was $27.3 million as of September 30, 2023.
We have entered into two amendments to the Credit Agreement. The purpose of the first amendment entered into in December 2022 was to change the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York). The purpose of the second amendment entered into in June 2023 was to repay and retire $175.0 million of outstanding borrowings under the Term Loan Facility with borrowings from the Revolving Facility (which was undrawn at the time of the second amendment), provide us with the option to extend the maturity of the Revolving Facility for an additional 18 months to May 12, 2026 from November 12, 2024 and to effect certain other modifications. The extension option may be exercised beginning on May 16, 2024 and is subject to customary conditions including there being no default or event of default and the payment of an extension fee.
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Giving effect to the amendments described above, the interest rate applicable to the loans under the Revolving Facility may be determined, at the election of Orion OP, on the basis of Daily Simple SOFR, Term SOFR or a base rate, in the case of a SOFR loan, plus a SOFR adjustment of 0.10% per annum, and in the case of a SOFR loan or a base rate loan, plus an applicable margin of 3.25% for SOFR loans and 2.25% for base rate loans. Loans under the Revolving Facility may be prepaid and reborrowed, and unused commitments under the Revolving Facility may be reduced, at any time, in whole or in part, by Orion OP, without premium or penalty (except for SOFR breakage costs).
In December 2022, we entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, which has effectively fixed the interest rate on $175.0 million of principal under the Revolving Facility at 3.92% per annum until November 12, 2023. Upon the scheduled expiration of the interest rate swap agreements, the Company’s borrowing cost on the Revolving Facility will no longer be effectively fixed, but rather will float and, therefore, the Company’s borrowing cost on the Revolving Facility will immediately shift to prevailing short-term interest rates based on the benchmark and applicable margin described above in Note 6 – Debt, Net to the Company’s consolidated financial statements, and the Company will be exposed to interest rate fluctuations on these borrowings. The Company may enter into new derivative transactions in the future to fix the borrowing cost on all or part of its floating rate borrowings.
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 Revolving Facility is guaranteed pursuant to a 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 Revolving Facility is secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.
Revolving Facility Covenants
The Revolving Facility requires that Orion OP comply with various covenants, including covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. Pursuant to the second amendment described above, if, on any day, Orion OP has unrestricted cash and cash equivalents in excess of $25.0 million (excluding amounts that are then designated for application or use and are subsequently used for such purposes within 30 days), Orion OP will use (or, under certain circumstances, set aside in an escrow account established by the administrative agent) such excess amount to prepay loans under the Revolving Facility, without premium or penalty and without any reduction in the lenders’ commitment under the Revolving Facility. As of September 30, 2023, we had $33.2 million of restricted cash deposited in an escrow account with the administrative agent under the Revolving Facility as additional cash collateral. These funds will, in accordance with our obligations described above, be used to prepay borrowings under the Revolving Facility upon the scheduled expiration in November 2023 (or earlier termination) of our interest rate swap agreements with respect to $175.0 million of borrowings thereunder.
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In addition, the Revolving Facility requires that Orion OP satisfy certain financial covenants. The following is a summary of financial covenants for the Company’s Revolving Facility and the Company’s compliance therewith as of September 30, 2023, as calculated per the terms of the Credit Agreement, giving effect to the modifications pursuant to the second amendment described above. These calculations are presented to show the Company’s compliance with the financial covenants and are not measures of the Company’s liquidity or performance.
Revolving Facility Financial CovenantsRequiredSeptember 30, 2023
Ratio of total indebtedness to total asset value≤ 60%38.3%
Ratio of adjusted EBITDA to fixed charges≥ 1.5x4.23x
Ratio of secured indebtedness to total asset value≤ 40%25.0%
Ratio of unsecured indebtedness to unencumbered asset value
≤ 60% (1)
14.9%
Ratio of unencumbered adjusted NOI to unsecured interest expense≥ 2.00x10.74x
Unencumbered asset value≥ $600.0 million$832.5 million

(1)Pursuant to the second amendment described above, if the ratio of unsecured debt to unencumbered asset value exceeds 35% as of the end of two consecutive fiscal quarters, Orion OP will be required, within 90 days and subject to cure rights, to grant the administrative agent a first priority lien on all the properties included in the pool of unencumbered assets (other than properties identified for disposition by us so long as such properties are sold within one year of such identification).
As of September 30, 2023, Orion OP was in compliance with these financial covenants.
The Revolving Facility includes 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 Revolving Facility. The Revolving Facility also includes 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 Revolving Facility to be immediately due and payable and foreclose on the collateral securing the Revolving Facility.
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 at 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 defined in the CMBS Loan Agreement) (generally in March 2024, two years after the CMBS Loan has been fully securitized), subject to the following contractualpayment 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.
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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 atand 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 September 30, 2023, 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 CMBS Loan Agreement includes customary representations, warranties and covenants of the Mortgage Borrowers and the Company. The CMBS Loan Agreement also includes 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 to be immediately due and payable and foreclose on the Mortgaged Properties.
Arch Street Warrants
On November 12, 2021, (in thousands).in connection with the Distribution, Orion OP entered into an amendment and restatement of the limited liability agreement (the “LLCA”) for 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.
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 
Also on November 12, 2021, in connection with the entry into the LLCA, we granted the Arch Street Partner and Arch Street Capital Partners 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 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.
In accordance with our obligation under the Arch Street Warrants, on November 2, 2022, we filed with the SEC a registration statement on Form S-3 for the registration, under the Securities Act, of the shares of our common stock issuable upon exercise of the Arch Street Warrants, and the registration statement was declared effective by the SEC on November 14, 2022. We will use our commercially reasonable efforts 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.
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 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. The ROFO Agreement will expire upon the earlier of (1) November 12, 2024 (the third anniversary of its execution), (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 real estate investments, although it could result in us acquiring future properties through the Arch Street Joint Venture rather than as sole owner.
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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 terminating on November 12, 2023, which were designated as cash flow hedges, in order to hedge interest rate volatility. During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR, the Company terminated the interest rate swap agreements that had been entered into during the year ended December 31, 2021, and entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2022 and terminating on November 12, 2023, which were designated as cash flow hedges, to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility. As of September 30, 2023, these interest rate swap agreements remain in effect for the $175.0 million of borrowings under the Revolving Facility until November 12, 2023.
Dividends
We have been operating in a manner so as to qualify and have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2021. We intend to make regular distributions to our stockholders to satisfy the requirements to maintain our qualification as a REIT.
During the nine months ended September 30, 2023, the Company’s Board of Directors declared quarterly cash dividends on shares of our common stock as follows:
Declaration DateRecord DatePaid DateDistributions Per Share
March 7, 2023March 31, 2023April 17, 2023$0.10
May 3, 2023June 30, 2023July 17, 2023$0.10
August 8, 2023September 29, 2023October 16, 2023$0.10
On November 9, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the fourth quarter of 2023, payable on January 16, 2024, to stockholders of record as of December 29, 2023.
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 for the years ended December 31, 2023 and 2024, our dividends will exceed our net income under U.S. GAAP because of non-cash expenses, mainly depreciation and amortization expense and impairment charges, 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 maintain our qualification 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 share dividends. In addition, our organizational documents permit 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.
Universal Shelf Registration Statement
On November 2, 2022, the Company filed a universal shelf registration statement on Form S-3 (the “Universal Shelf”) with the SEC, and the Universal Shelf was declared effective by the SEC on November 14, 2022. Pursuant to the Universal Shelf, the Company is able to offer and sell from time to time in multiple transactions, up to $750.0 million of the Company’s securities, including through “at the market” offering programs or firm commitment underwritten offerings. These securities may include shares of the Company’s common stock, shares of the Company’s preferred stock, depository shares representing interests in shares of the Company’s preferred stock, debt securities, warrants to purchase shares of the Company’s common stock or shares of the Company’s preferred stock and units consisting of two or more shares of common stock, shares of preferred stock, depository shares, debt securities and warrants.
ATM Program
In November 2022, the Company established, as part of its Universal Shelf, an “at the market” offering program for its common stock (the “ATM Program”). Pursuant to the ATM Program, the Company may from time to time offer and sell shares of its common stock, having an aggregate offering price of up to $100.0 million. Such offers or sales of shares of the
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Company’s common stock may be made in privately negotiated transactions, including block trades, brokers’ transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the New York Stock Exchange, or through forward transactions under separate master forward sale confirmations and related supplemental confirmations for the sale of shares of the Company’s common stock on a forward basis. As of September 30, 2023, we had not sold any shares of common stock pursuant to the ATM Program.
Net proceeds from the securities issued, if any, may be used for general corporate purposes, which may include funding potential acquisitions and repaying outstanding indebtedness. The Company has no immediate plans to issue any securities for capital raising purposes pursuant to the Universal Shelf or otherwise.
Share Repurchase Program
On November 1, 2022, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s outstanding common stock until December 31, 2025, as market conditions warrant (the “Share Repurchase Program”). Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with applicable securities laws and other legal requirements. The Share Repurchase Program does not obligate the Company to make any repurchases at a specific time or in a specific situation. Repurchases are subject to prevailing market conditions, the trading price of the Company’s common stock, the Company’s liquidity and anticipated liquidity needs, financial performance and other conditions. Shares of common stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to the status of authorized but unissued shares of common stock. During the three months ended September 30, 2023, the Company repurchased approximately 0.9 million shares of Common Stock in multiple open market transactions, at a weighted average share price of $5.46 for an aggregate purchase price of $5.0 million as part of the Share Repurchase Program, which are currently deemed to be authorized but unissued shares of Common Stock.
Cash FlowsFlow Analysis for the Nine Months Ended September 30, 2023
The following table summarizes the changes in cash flows for the nine months ended September 30, 20212023 and 2020 (dollars in millions)2022 (in thousands):
Nine Months Ended September 30,
9-months 2021 versus 2020		Nine Months Ended September 30,2023 vs 2022 Increase/(Decrease)
2021202020232022
Net cash provided by operating activitiesNet cash provided by operating activities$79.3 $80.2 $(0.9)Net cash provided by operating activities$69,588 $85,917 $(16,329)
Net cash (used in) provided by investing activities$(5.9)$106.4 $(112.3)
Net cash provided by investing activitiesNet cash provided by investing activities$3,152 $16,687 $(13,535)
Net cash used in financing activitiesNet cash used in financing activities$(73.3)$(186.2)$112.9 Net cash used in financing activities$(27,855)$(73,495)$45,640 
Net cash provided by operating activities decreased $0.9$16.3 million during the nine months ended September 30, 2021,2023, compared to the nine months ended September 30, 20202022, primarily due to the dispositiona decrease in revenue overall as a result of three properties that were sold to the unconsolidated joint venture during the year ended December 31, 2020.dispositions and vacancies, and an increase in accounts receivable, net and other assets, net.
Net cash used inprovided by investing activities was $5.9decreased $13.5 million during the nine months ended September 30, 2021,2023, compared to the nine months ended September 30, 2022. The change was primarily due to a $8.5 million decrease in proceeds from the disposition of real estate in the nine months ended September 30, 2023 as compared to the same period in 2022, and a $5.4 million increase in capital expenditures and leasing costs in the nine months ended September 30, 2023 compared to the same period in 2022.
The Company used $45.6 million less of net cash providedin financing activities during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to net repayment on the Company’s Revolving Facility during the nine months ended September 30, 2022 of $59.0 million, partially offset by investing activitiesincreased cash dividends to stockholders of $106.4$5.7 million, repurchases of common stock under the Share Repurchase Program of $5.0 million and payments of deferred financing costs of $2.6 million during the nine months ended September 30, 2020. The change was
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primarily due to the three properties sold to the unconsolidated joint venture during nine months ended September 30, 2020 for proceeds of $116.4 million after closing costs.
Net cash used in financing activities decreased $112.9 million during the nine months ended September 30, 2021,2023 compared to the nine months ended September 30, 2020, primarily due to a decrease of $160.2 millionsame period in net distributions to parent, offset by an increase of $46.9 million in the repayment of mortgage notes payable.2022.
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 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.
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 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.
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REALTY INCOME OFFICE ASSETS

Critical Accounting Policies
The accounting policies and estimates used in the preparation 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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Item 3. Quantitative and Qualitative Disclosures About Market RiskRisk.
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.
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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 September 30, 2023, our debt included fixed-rate debt, with a fair value and carrying value of $332.9 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 September 30, 2023 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 $9.7 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 $10.1 million.
As of September 30, 2023, our debt included variable-rate debt with a fair value and carrying value of $175.0 million and that was swapped-to-fixed through the use of derivative instruments. 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 September 30, 2023 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 less than $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 that was swapped-to-fixed of less than $0.1 million.
As of September 30, 2023, we did not have any outstanding variable-rate debt that was not swapped-to-fixed through the use of derivative instruments. See Note 6 – Debt, Net to our consolidated financial statements.
As of September 30, 2023, our interest rate swaps had a fair value that resulted in net assets of $1.0 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 September 30, 2023, 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. The Company’s interest rate swap agreements effectively fixing the interest rate on the Revolving Facility are scheduled to expire on November 12, 2023. Upon the expiration of the interest rate swap agreements, the Company’s borrowing cost on the Revolving Facility will no longer be effectively fixed, but rather will float and, therefore, the Company’s borrowing cost on the Revolving Facility will immediately shift to prevailing short-term interest rates based on the benchmark and applicable margin described above in Note 6 – Debt, Net to the Company’s consolidated financial statements, and the Company will be exposed to interest rate fluctuations on these borrowings. The Company may enter into new derivative transactions in the future to fix the borrowing cost on all or part of its floating rate borrowings.
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.
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, 2022. 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.
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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 ProceduresProcedures.
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, 2021.2023. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2021,2023, 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 September 30, 2023 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.
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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.
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, 2022.
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Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds.Proceeds, and Issuer Purchases of Equity Securities.
In connectionRecent Sales of Unregistered Securities
None.
Use of Proceeds from Sales of Registered Securities
Not applicable.
Issuer Purchases of Equity Securities
On November 1, 2022, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s outstanding common stock until December 31, 2025, as market conditions warrant (the “Share Repurchase Program”). Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with the Separationapplicable securities laws and the Distribution, on November 10, 2021,other legal requirements. The Share Repurchase Program does not obligate the Company issued 56,525,650 additional sharesto make any repurchases at a specific time or in a specific situation. Repurchases are subject to prevailing market conditions, the trading price of the Company’s common stock, the Company’s liquidity needs, financial performance and other conditions. Shares of common stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to Realty Income, such that Realty Income owned 56,625,650the status of authorized but unissued shares of the Company’s common stock. The issuance
Share repurchase activity under the Share Repurchase Program for the three months ended September 30, 2023, was as follows:
PeriodTotal Number of Shares of Common Stock Repurchased
Average Price Paid per Share of Common Stock Repurchased (1)
Total Number of Shares of Common Stock Purchased as Part of Share Repurchase ProgramApproximate Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Share Repurchase Program
July 1, 2023 - July 31, 2023— $— — $50,000,000 
August 1, 2023 - August 31, 2023— — — 50,000,000 
September 1, 2023 - September 30, 2023915,637 5.46915,637 45,000,000 
Total915,637 915,637 

(1)Average price paid per share 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 connectionexcludes costs associated 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.repurchases.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
None.Rule 10b5-1 Trading Agreements
During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(c) of Regulation S-K.
Item 6. ExhibitsExhibits.
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterperiod ended September 30, 20212023 (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 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. (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
3.2
Second Amended and Restated Bylaws of Orion Office REIT Inc. (filed as Exhibit 3.23.1 to the Company's Current Report onCompany’s Form 8-K, filed on November 15, 2021September 8, 2023 and incorporated herein by reference).
4.1
Form of Warrant(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).
10.1
Agreement of Limited Partnership of Orion Office REIT LP (filed as Exhibit 2.2 to the Company’s Registration Statement on Form 10, filed on October 4, 2021 and incorporated herein by reference).
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10.2
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 Revolver/Term Loan Facilities (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
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
Guaranty, dated November 12, 2021, by and among Orion Office REIT Inc. and certain subsidiaries of Orion Office REIT LP in favor of Wells Fargo Bank, National Association, as administrative agent under the Revolver/Term Loan Facilities (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
10.5
Guaranty, dated November 12, 2021, by and among Orion Office REIT Inc. and certain subsidiaries of Orion Office REIT LP in favor of Wells Fargo Bank, National Association, as administrative agent under the CMBS Bridge Facility (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).
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 10.7 to the Company's Current Report on Form 8-K, filed on November 15, 2021 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.*).
______________________________________________________________
*     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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Table of Contents
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, 2021November 9, 2023
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