Earnings call transcript Q3 2022

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Operator

Greetings. Welcome to Orion Office REIT's Third Quarter 2022 Financial Results.

As a reminder, this conference is being recorded.

I would now like to turn your call over to your host, Paul Hughes, General Counsel for Orion. Please go ahead.

Paul Hughes

operator. you, Thank everyone. Good morning, to released September its the the Orion earnings results and financial XXXX, filed ended supplement its XX, posted with Commission quarter website. its Exchange Yesterday, and for its Form Securities XX-Q section These website the at the company's of documents in are available Investors www.onlreit.com.

our guidance could differ to Forward-looking of a during company's risks such These cause year to calendar expectations. and as call made for from XXXX that actual and number materially results statements the uncertainties today's estimates risks are uncertainties in our the duty during that discussed company SEC our are statements well earnings made no as Form filings. course release of in to undertakes other forward-looking be as update today's any XX-Q call. and may subject The

call financial measures non-GAAP we certain and earned operations GAAP measures. conference discussing supplement operations funds from funds company's a today, measures, these most as FFO, core reconciliation be non-GAAP financial and or core release to comparable include or the from will Additionally, directly during The such FFO. the of

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

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

Paul McDowell

joining of and morning, behalf want XXXX team, our Quarter all us. On everyone, welcome Call. I for Good thank to Orion Third Office Earnings REIT's to you

an I and our I turn on of results are the call guidance. today, we will our call ongoing our quarter highlight portfolio. to financial to operations on Gavin the the On as full in then Orion's provide over making will well update discuss performance only as third progress

portfolio a United our suburban focused Income office corporate of merger since in we is detailed suburban Realty Orion the net from of the hard the that public lease that to buildings REIT and located owning is As November Income, following uniquely VEREIT. reposition portfolio on focused we we've States. headquarters positioned from align office and inherited as diversified Realty XXXX, are exclusively high-quality mission-critical throughout working the only markets and spin-off

the owns management, pruning, hesitancy, capital by high-quality economic all lease These backdrop rates, assets, and of have the stabilized to number asset maturities requires inflation, intensive and extend our given portion lease. to current efforts pause office or of which fears a Orion portfolio looking businesses interest repositioning and of While rising to address a complicated significant sign return are new current of vacancies. sizable to recession

widely an Since been we reported end the several for to of in would multiple into continued have spin-off rightsize stabilize trends third the portfolio the portfolio fourth. of began the has these of and notice late the impact our quarters, timing quarter, last While progress. have along consistently our efforts the it uptick to toward our our time commented consist that and way challenges and our year, that we take impact could in

our long-term tomorrow, up other negative in Orion. will as about for demographic of and growth that our provide net will prospects these remain we for lease a well solutions office Despite in assets, the owning long-term attractive quality suburban the portfolio markets of and result changes due turn workforces large recent trends in to that optimistic as the

X lease leased million on At are Properties end, basis. was XX.X% square representing unconsolidated a quarter XX to that joint portfolio. we to some creditworthy feet the owned XX.X venture on net updates and tenants, Turning properties predominantly properties primarily occupied.

triple or base double annualized was of XX.X% are percentage portfolio the across investment-grade a of rent, our leases there tenancy and XX% net. As approximately either

than tenant tenant and tenant, more annualized base XX.X% more no single makes geography. base and by industry rent. industry up No tenant diversified rent of up also makes than of are assets annualized Our XX.X%

Texas Sun are which XX.X% markets, rent XX.X% state represents derived of by annualized annualized a over XX.X% from approximately rent, and base markets of is respectively. Belt our to largest and New And proportion base Jersey, Our intend time. grow we

recalibrating companies space As and expectations are their growth. continuously for I mentioned,

the to is return or hesitancy anticipated be economic to While leasing slowing the environment reduced going result either and the rapidly the that continued believe temporary, we of is we realize employee office delayed, some eliminated. expected is to to

Subsequent for continue leases multiple tenants feet. in on third to have executing In million square in a XX,XXX we third notwithstanding renewal, X.X-year renewals, since properties quarter lease XXX,XXX momentum, expansion new continue had Brownsville, our so pipeline lease new When square of and Overall, slow Grangeville, terms completed we square This our in do at signing leases at the renew, and renew of property square quarter, leases. of in square of close documentation. Texas. and spin, of to had our the stages feet end, And far, an extensions. X.X thousand feet various lock we and year year we've new our X negotiation a feet to to executed several Idaho. in good of one we in years tenant about they leasing XX,XXX hundred quarter have feet active

have we on calls, will continue tenant to previous As be retention quarter-to-quarter. said lumpy

XX,XXX assets. improved by during our to we XX.X% vacant quarter from lease quarter at occupancy about and selling scheduled quarter, XX progress X slightly quarter, our had assets last feet, XX.X% had we in expirations square the vacant this though end, Specifically, totaling driven

portfolio's to lease X.X term years. declined Additionally, slightly average our weighted

expire. closed assets leases X us the equating and retenanting. square sale This avoid sale to reducing is and well. carry uncertainty To price costs expenditures progress of to totaling feet assets One significant and reduce will XXX,XXX million to and of for date, approximately have long-term strategies with both avoiding per we vacancy square foot associated do our on both continues a price of initiative dispositions existing that aggregate term $XX, of noncore $XX.X an near main as the asset vacancy identified objectives. capital not fit to our sell management allow these vacant investment The

X approximately to equating We properties $XX. about have these the also a for sale couple square know under remainder not renew. the where vacant, terms price feet will short lease tenant are totaling per contract about million XXX,XXX sale square for while $XX.X A additional price foot we of properties of an aggregate have currently of

We rent the occur that us other into several We are sales sale also that XXX,XXX same sale actively the marketing. bucket. feet to into We're planning next we closes. for a totaling square year, the these anticipate before to harvest to head assets of will as number continue auction allowing of over fall

initially average enhance portfolio's vacancies it the next remains significant by weighted we given changing our goal somewhat addressing longer believe environment. now it lease our lease While term stabilization to take reach economic in the and the rollover and years, anticipated than could portfolio's several

with headwinds, plan the portfolio on grow continues many to underlying to we experience, capital strong in a execute That and Notwithstanding properties $XXX of have to serve core to portfolio our total as our continue available our the the own expertise continues positive with of liquidity. platform. liquidity, business strength our million cash net flow over the will and coupled in

growth and portfolio. highly to adding Longer disciplined the environment, Orion's comes prospects set. and core properties opportunity excited it when about new our to term, Given we we remain strategic macroeconomic remain

own be expectations become that with are seller as Our continues balance rational. the some sheet acquisition more pricing joint to for venture beginning to both pipeline active indications Orion's as well

carefully borrowings decisions, allocation the evaluate basis. capital our flow, property our apply regular sales best operating proceeds Regarding a and the revolver where cash to on with we from our under Board

firmly in plans conditions remain market long-term dynamic, place. our are current While

We renewed have a strong some portfolio assets, as of tenants we our in place. of require will which outlays occupied capital significant

several and sense. the we new take assets merit capital retenanting carry have that and them makes occupancy. believe near-term These then current will location holding and also necessary We properties assets, amounts attract quality these vacancies as repositioning or significant where of the to of

preserving a weakness that investment. that shareholders' our approved they our shares capital Board important, plan million believes compelling that best the then along growing is belief circumstances market that to And certain All and by said, our our Our management a critically on over execute of company's be program. need is business point, repurchase with may our sustained while served will share offer $XX portfolio. under for core interest to time, have

it committed to remain I we to actively are want to that value in emphasize capital. disruptions long-term steady recycling up, notwithstanding, make market our I We progress ongoing and delivering continuing shareholders efforts. wrap managing our As for the portfolio through

now sheet, dividend will turn highlights, our for call I the outlook that, Gavin? the will remainder and With year. third balance who of to XXXX Gavin, quarter discuss our the financial over

Gavin Brandon

million third total public the by for is Thanks, GAAP Orion's company. for operations Paul. quarter $XX.X which million of $XX of I discussing Core stockholders common generated of quarter or $XX.X to share, attributable full the per from adjusted XXXX, a loss quarter million. and of million net $XX third begin $X.XX $X.XX funds was revenues EBITDA share. a our as a reported operating per and or loss will was Orion results

quarter G&A in improvements the were CapEx, and tenant leasing million. while million, $X.X $X.X and was property costs third

be work likely have time properties is roll. leases and will CapEx and as completed discussed, As leases signed timing we when on dependent our on will are over increase

outstanding the debt, ended in million of proportionate $XXX.X the with joint We venture. sheet. quarter including balance the Orion's to Turning share

end, $XX debt in balance we revolving million. cash from $XX proceeds available cash bring on share and we credit million, down Orion's of XX%. million through joint since the million consisting liquidity our million of million facility repay flows to our approximately the quarter, proportionate of quarter by credit we and dispositions During utilized is It $XX to or $XXX revolving $XX worth $XX At operations venture. million that spin asset to of $XXX total cash today, equivalents, combination the from capacity including and a on have from reduced outstanding had the noting facility in and

debt rate. maturities swapped over is and or this to rate of debt fixed have We fixed no our XX% year

for Our adjusted stockholders XXXX, Orion record declared a to net January as $X.XX quarterly the Board XX, paid X.XXx. XXXX. debt Directors to of dividend share of The quarter of be on EBITDA XXXX per to of December of was fourth annualized XX,

dispositions business to cash the flow and itself, liquidity, current anticipated whether our position our believe achieve generating current we are anticipated the to long-term near- from setting volatility financial in With is proceeds while a we objectives. out market the strong and and

and through have look will financial we enhanced public our reach As a further our few a statement. flexibility a weeks X-year shelf filing company we registration as in anniversary forward,

shelf, is do prudent have the plans in we option currently share to it While we done just as toolbox, financial believe program. the have Orion's have utilize any not buyback the to we with

the remainder of outlook our the year. to Turning for

and delay results related in allocations for price the primarily to These control we X-year noncash shared adjustments As requirement quarter, of of stock-based delay Income, a will last from spin-off additional XXXX for of and under compensation roles include the in the our benefit filled. internal some a Realty purchase GAAP finalization now in items. are onetime financial accounting hiring timing amortization of number the an and audit that from

As lower have raised core greater of of solid result for first for a certainty FFO year, the months the remainder we guidance. our and of of estimates in our XXXX, performance X the our the end

Importantly, given should smaller FFO the to the coupled in decline lease impact extrapolated of a over core portfolio with years range future due be expected to size. revenue next and year, the the portfolio updated X not years associated anticipated this the expirations in expirations

we be affected subsidies future have well G&A Income timing certain as expenses to from will of spin-off. the related Realty of end increased also the as the addition, received years as certain operating of In part by

from Specifically, to per quarter's is FFO $X.XX our increased from of $X.XX per range share, last expected share. up to $X.XX $X.XX to now core range

$XX the X.Xx, net to our And the with is consistent previous EBITDA expected range from anticipated range adjusted quarter. G&A is debt previous with X.Xx million to million, to quarter. to consistent Our from to also $XX.X

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

Operator

Instructions]. [Operator

with question first JMP Yadav Your Jyoti Securities. comes from

Jyoti Yadav

is Jyoti Mitch. for on This

first come one-off And it's just want to sales? to I the call can about bias? are thing you if great through. profile So of these out these dispositions What really say, see the

Paul McDowell

it all been the to the pace we that dispositions about of been which that The very we've balance year, we've have noncore get able these been -- at some to this are get buyer of to who -- of able are a and sheet. the been Yes. transactions, term accomplish they The assets pleased these long individual off who have the reposition been intend and investors for transactions. reposition users all buy the to buyers to generally themselves. the so one-off generally it combination asset have look And use asset,

Jyoti Yadav

Got Okay. it.

Secondly, believe remarks in I opening have mentioned -- tenants that you multiple your these extension renewals options.

talking were leases the renewal option... X you what the is that with about? So signed, That's

Paul McDowell

Yes.

that lease option straight was option. the signed So extension the a one of we -- just during quarter, that --

like we no tenant extension of with that. signed new So LCs, a the The quarter that subtenant. of conclusion a the that the nothing -- with previous where lease at were a TIs, after conclusion the lease X-year was building the no they a new in was

Jyoti Yadav

Right.

Okay.

you say normal new a a kind of renewals? would is So that X-year for term these

Paul McDowell

tenants always to of terms say shorter term tenants tenants during try us. to Well, the sort we able I year, to the had get course, of X-year leases typically of the And look longer a longer-term would a course of sign the term. being with with We, entice sign -- us. to variety for success in have

of the years. year, for course the X signed I of in think are we've excess that leases

that are looking than sign even years. have some have we may tenants longer some signed XX we So XX that be to that years, tenants that

how is typically providing in that's done get and tenants do So term. the landlord of improvements a lease lease, challenge, very additional we longer a by providing work to exchange course, sign for and always additional tenant longer-term

Operator

Next question comes Reily from Hutton. EF Edward with

Edward Reily

I might little uptick about a end your impact the portfolio But call this, of an the and of have missed you're QX bit. on cut QX. out my towards talking

a could would to tenants unpack tenants. behavioral you a Last taking want just for enter that the if from you about bit were little with of they considering bit. longer it to into that to talked little were me. that have just I any if wondering lease. a and unpack amount Just quarter, a time leases of be [indiscernible] shorter-term decisions do

Paul McDowell

Sure.

I too the that would in think that seen And other were headwinds lot in I reported portfolio. the been the a words, office much tenants until of our it's And widely are moved to third come quarter, tenants we reached that up market. we had there out In renewed say, that of of through that had their and not the us, the renewals roughly expected our properties and through. in the that. we term had they with end which came they that lease terms of expected we those

noted we last in noticed and as has process, case. get call to the Although elongated, continued that's we've the still quarter, decision-making

we to vacancy. and that the they earlier some potentially much as had looking However, during our expected space some renewal. eye some in the third come as we for quarter, to also on say us we fill as the some anticipated tenants We've for not back had anticipated tenants of they're renewal had

marketplace. They our we're portfolio, whether little to view taking of So is bit widely to of point a or requesting tenants expand. And starting reported I longer. some of they're entirely think their been inside see smaller what's That in changing are in space. the are not about broader cases,

We those here of but they're now some see we headwinds. So our they're think portfolio. in transitory,

some year will pushed thought as towards some leasing of we so next the of degree. -- be result, And out a this the end it's beginning might of to anticipated occur or

Edward Reily

tenants, multi-tenant up thinking how an single-tenant some a toward this towards more smaller does a shifting And the approach from maybe And approach? Okay. versus space guys opportunity the of are that? Got you just required you. given about open

Paul McDowell

owning I on the think is I the our we word like to Well, long-term business of would single-tenant basis a to credit maintain leased primarily. there good assets use quality primarily tenant. keyword But tenants. model

buildings over grow have that vacant us. own suspicion time, And sense of we somewhat size, that with few that full So we buildings less some that the done a option makes multi-tenant most if my as to for we'll to that that. are and We tenants fill that, are building looking have than for And do do have. properties to will vacancy the the a the we multi-tenant extent happy now. multi-tenant we we is,

tenant maintain tenancy it. I much the for find take we prefer wherever majority pretty the but of single as said, So to our portfolio, stance we'll can we

Edward Reily

Okay. in if if I those price those there was filled? and of dispositions, this. And Got had them Were I wondering maybe And you. that some versus about vacant vacant them, apologies, those per foot were missed the some tenants provide were on that properties properties could square information if were or on any. you all

Paul McDowell

Sure.

So for it first your -- combination. was a to point,

So they -- had lease -- cases, existing the general, short, very all in some tenant we very, But the tenancy place well properties continue under and in sold under of the an pay to where was in had rent. a year. we

So those we are leave. that tenants knew going were to

they had so on And few left a months the lease.

then So the -- and vacant. go would property

sold. and set, the So half of sort probably properties that that's of we was one about

The properties. other vacant half actually were

the With that a per small general, respect with the square -- found on somewhat bigger out the pleased foot, -- located, sold big foot. trade value. and of terms on is smaller-sized not the the a per square And more price to property trade I'd had on that properties what's these so of with not leases left price coming in where per vacant, higher properties unexpectedly, square a forth. given say we're where so the It's disparity at we've property, we properties sales the the square the value, versus there's foot lease foot lower properties. at per short overall, and the the we're and size

middle we spin, on I $XX these properties, be we average a for between right hope we'd did foot selling $XX of think we're and when that and in said the range. to the

we feel pretty about So good that.

type of savings having it's to from think it's reasonable get that not -- that And property, short-term we one with when only vacant more economic of course, or that and vacant One be terms. thing any foot, square final a the either more we properties per when we a price final get to not is it's asset it's carry thing. we unlikely also sell lease the on but

Operator

McDowell to for to remarks. I the turn would floor closing like Mr. over

Paul McDowell

look and updating on new year. the for to everyone, our in year-end we forward you, you joining Thank results us,

Operator

concludes This teleconference. today's

You you your and this your may disconnect time, for lines thank at participation.

Orion Office REIT (ONL) 3 Nov 222022 Q3 Earnings call transcript