Earnings call transcript Q1 2023

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Operator

Greetings. Welcome to Orion Office REIT's First Quarter 2023 Earnings Call.

As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Paul Hughes, General Counsel for Orion. Thank you.

begin. may You

Paul Hughes

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

actual forward-looking during statements. like are to remind materially expectations estimates. statements, calendar information everyone this made call risks subject are results to statements historical for are beliefs a would and the I and based differ include number and certain constitute These which estimates our cause current company's of from strictly not that that uncertainties and to on guidance management's XXXX year could

our uncertainties The as our Form risks and filings. and discussed in are release well SEC other XX-Q as earnings in

on undertakes during update statements place You forward-looking and these not call. this forward-looking company the any undue should to duty statements reliance no made

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

for this financial information not presentation in accordance intended substitute GAAP. is as information a the Our isolation presented of to be or considered with in

business. ongoing do and our certain the in in exclude revised and call XXXX earnings performance reflect beginning which of year-end definition not amortization XX-Q, during FFO our conference charges, noncash As core discussed we our Form of our release to

for retrospectively We will definitional purposes. apply this comparison change

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

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

Paul McDowell

XXXX and will today. Quarter making you behalf our REIT's progress welcome us Orion are ongoing of to and the to everyone, Earnings morning, team, I Call. I highlight Office First joining Good thank for executing provide results performance we want On and turn all to the on first on operations. an our our Gavin the our year. I on then update rest over call our to outlook financial business strategy will the and of for quarter discuss

of We our inherited, but portfolio are from to were Income the we spun properties continuing reposition late in efforts intensive Realty XXXX. off we

and place retain on the we form right lease support cash remains ultimately the Our ensuring structure in sustained portfolio investments to company in the of capital lease focus CapEx have that in deliver to vacancy incentives flow position order and our core can we so to and grow. in tenants

remain question we us headquarter strong markets a on confident that of buildings notwithstanding, suburban office been over the to focus that lease-focused and for located high-quality conditions will our The Orion's economic by current platform for our backdrop and estate corporate real diversified to owning allow a in differentiated deteriorating pursuit mission-critical strategy build portfolio success. time, impacted no is net execute There has specifically investment on and persistent office. for

intensively will vacancies we a across require pending This next we that portion of few our continue over portfolio resolve lease maturities large must the years to and that manage.

external We always sources. not acknowledge will when capital precious include available making and that is decisions capital that allocation from needed

the We business. capital reposition and to is recycle to still of and do the not plan stabilize our to continue that capital over-leverage the appropriate. portfolio We use believe as best

triple portfolio The tenants. net primarily properties we in are end, and owned creditworthy six XX.X% either of or comprising properties, venture unconsolidated As feet XX that were properties joint X.X leased square the double quarter million to occupied.

XX, March grade, investment of of XXXX, XX, as March rent up base percentage were a of XX.X% as XXXX. from annualized As XX%

Our diversified and tenant, by industry assets well are geography. tenant

Our and of and government Over and are from Sunbelt representing our tenant markets. largest two rent base XX.X% base XX.X% rent tenant our healthcare by annualized derived industries respectively. States base largest government XX% rent, is United the on in annualized an annualized

for to many state, work largest and on and and large to Texas Jersey, last to Our and respectively. the the of to corporations by office. be return believe attitudes XX.X% few we sustained represent some a of comments resolve XX.X% time, incentive base the a over are value in-person these of will by over markets Interestingly, mandate return increasing changing employees. an begin a seen months, corporate have by New new annualized rent, which leaders number We for more the enforce office

However, to stay work and return change office the here practices office even to momentum, industry will utilization hybrid moves are the space forward. as as gains

result, will we footage some a continue office are like square renewal, As this development likely tenants office other the and less seeing landlords, on foreseeable future. seeking for

Nonetheless, has lengthened. As has remain on slowed and the leasing decision-making we stated process renewals last tenant the front. early of pace the active we quarter, signing

In we leases in our signed XX,XXX and of properties their respective and pursuit new remain by feet. markets. We of to the the lease aggressive for surrounding each first tenants extensions quarter, four square staying close

for Specifically foot U.S. West renewed quarter, square XX with we years. in government the in lease XX,XXX Virginia Parkersburg,

Woodlands square leases now an for lease feet. XX,XXX leasable tenant expansion single Houston, the We on One at the for feet three a XXX% signed existing feet square remaining occupies with in rated XX-year in Texas A term. also building of an lease or square was amended XX,XXX The who

new nature foot we given given transactions caution spreads of multi-tenant renewal. will there the Overall, about property first variability quarter two foot granular leasing a spreads into and XX%, on so significant square the at the be square other X,XXX were during the any in very where were Woodlands own we lease The a entered in The we portfolio. X,XXX period

remain leases properties. and documentation new at in of renewals stages negotiation We also and various for multiple

volatile will timing quarter-to-quarter of and retention year-to-year, size the the of of needs be the tenant Given depending our leases on our tenants. and portfolio,

quarter-end. term at years lease weighted four was portfolio's Our average

intend objectives assets as dispose We maximized stance aggressive to where do the us. our identified we and our believe non-core well been to that also assets as for of vacant value long-term has not fit continue investment

Specifically, eight assets the vacant million, call, sale a pressure impact as expenses reduce earnings we in particularly actively earnings. today's other the and and will we for number the are of to six have negatively contract lease. expense marketing grow properties our our short-term, We $XX non-core properties whose or operating smaller drag vacant negotiating assets size. in for with Selling of under given but operating quarter future, ability ended

high-quality, to know of respect pricing value to this our we said, improvement suburban trade have maximize right buyer's the perspective asset to levels. or in portfolio. growth, With long-term overall that That is a the at begun have properties to begun we approach near an single-tenant as long-term from the see attractive

The success However, market of for and financing environments. intact. we long-term Orion's prospects the overall remain cognizant remain

good We leverage. stable of portfolio low have a profitability assets, and

work grow forward, and Looking beyond and we but goals, we vacant it can flow will time require a it non-core we portfolio tenants, the and that look accomplish our to be vision is of retain cash as dispose core today's challenges. there assets, of persistence, space portfolio clear meaningfully will plenty fill that as

options value energized to will committed all and our of and continue shareholders providing our We examine for long-term. over are to the

call to turn the Gavin. With that, I over Gavin? now will

Gavin Brandon

total of million GAAP loss $X.X reported as We of common of compared for million $X.X a in to to compared the year. I'll attributable to results Thanks, $X.XX million first per a revenue the net Orion discussing per of by net quarter. Orion's $XX.X begin reported $X.XX share same loss as stockholders the in Paul. quarter share million prior generated $XX.X or XXXX. or

Core to in are The the compared in million $X.X $XX.X vacancies or quarter properties. EBITDA funds the of year-over-year of the Adjusted or $XX.X million of the $X.X first per quarter same share disposition related G&A million XXXX. $XX.X changes $X.XX operations XXXX. was to versus per was share and from first current was compared million quarter million for as $XX.X XXXX. quarter million in the of to $X.XX primarily

will $X.X income, the expense improvements year-over-year $X.X leasing of and achievement $X.X in of associated subsidies million other improvements comparisons. million from reality this to of property's discussed additional we XXXX $XXX,XXX, headcount leasing the tenant compensation calls, expiration million CapEx and with optimal were additional on of activity was stock-based the impact during an year of As quarter prior XXXX XXXX, commissions including property $XXX,XXX. compared an spin-related

increase will roll over tenant dependent As time existing CapEx on likely leases on a properties. tenants be what completed is when upon the and as new reminder, allowances. will draw CapEx improvement and signed and over timing are leases

to note XX%. we the years million or Turning is balance no in the of revolving than was have less credit sheet. important reduced It public approximately with and there ended debt company, outstanding quarter as outstanding to million $XXX.X $XX facility. by a on We $XXX million the borrowings two that debt,

X.Xx liquidity end, rate of which EBITDA quarter to year-end Orion quarter rate. the fixed $XXX.X of cash credit outstanding end, on consisting $XX.X At for cash to fixed total swapped XXXX available million is was or X.Xx. range XXX% X.XXx and to $XXX debt debt adjusted Net million guidance had annualized in equivalents. facility the of capacity is the revolving million our and of below

the mature to $XXX progress revolving XXXX, that on on facility mature on November XXXX. to loan continue the is to term scheduled or refinance scheduled to XX, million repay extend, facility We and that efforts credit is November XX,

enough so. more term if than the to while to on the do facility refinance the at still flexibility the on maturity the running loan have choose facility to business We capacity we revolver revolving retain to

financing to to financing We make our currently flexibility us financial our a real In a quarter. the with leverage which deliberately to shares we year, the business maintained liquidity as the low recognize on conditions or work on in have remain office We any plan. execute business refinancing, result. for And balance estate we the any not is portfolio lending as group acquisitions past first repurchase did and basis, gives of sheet the on to line market advance we light the good over continue the committed for our significant operating assets dislocated.

dividend. Board to our XXXX to share July stockholders Directors to paid dividend declared of XX, Turning of cash second per as $X.XX of quarterly June Orion's be of the record of XXXX. quarter a XX, XXXX for

diluted per our $X.XX $X.XX share. XXXX FFO of We are reaffirming to range core

million G&A million $XX.XX of range debt-to-adjusted Our X.Xx. X.Xx to EBITDA of XXXX to range XXXX year-end and our net $XX.XX

additional One note.

our not we given share of expect reductions to the sequential vacancies year, lease While on flow financial per our during position and We FFO and strategy scheduled provide amount longer-term strong and years a company through a generating as are that operating excited business to the quarterly basis have low is execute objectives, core we to the move in cash and in strong the business we the believe year. on puts achieve the leverage near guidance, do for come. quarterly to earnings we

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

Operator

Thank you.

We now a session. [Operator Instructions]. conducting be question-and-answer will

question first Mitch with ahead. Securities. from comes Our Please JMP Germain go

Mitch Germain

or inherited under? Has it public. you Thank assessing line six been it you. transpired? expectations? ahead? just I'm since that's to Paul, the thoughts curious some that today, so you've with I'm your about Has the of somewhat it And leasing in curious, when Is has in somewhat been portfolio there. quarters how been

Paul McDowell

we accomplish quickly the but morning. of had originally largely Mitch. able with had to started been than we line properties expected, more in are backfill that -- to been couple been when Good we to do that been a to I'd we we've hoped leases leasing have today, that where say able we Thanks, we've from what we've had we so. has

So the from is to it's a slow I we've renewal tenants been expected. as very to much ability properties. say what perspective, But been to new attract develop has pretty would vacant

been now We overall, where backfilling potentially space. have say, vacant But is that very vacant opportunities space. what's have I active slow several properties backfilling would for we that's

Mitch Germain

Got you. your with probably decision-making I comments slowdown. mean consistent on

an You asset in pricing. mentioned improvement

bit inconsistent that could it's I downside. there what we've discussions our So a with further guess suggest be little been hearing.

for that on topic, your love I'd So please. commentary

Paul McDowell

look looking say for I to mean eight, a for we're actually right? long same were I as rates When were starting compared that sellers to So cap pricing rates six, cap Yes. the seller's time, saying pricing, I seemed on while was buyers available buyers thing, stubborn mean a persistently asset improvement months perspective, from the we a ago, seen XX forward. I think and that Mitch.

long what to significantly seen of transactions, is the period over cap starting and looked Recently, to is the of dating mid-XXXXs get that so through now in rates as long a we've to our marketplace levels are are possible good pipeline levels starting over for widen long-duration, properties attractive. markets, that to those periods we've back out we've time, seen are my well-leased good in the relatively career the

We in we've So careful, we been noted but the make -- you quarter. first noted. didn't very as any acquisitions

In acquisitions balance the fact, any haven't we made spun. sheet from we since

cautious So or see being asset pretty getting cautious portfolio. to or to not while we add whether we're quite still in pricing deciding the better,

Mitch Germain

you acquisition forward? the loan? guess that motivating I my the would of on term is, you or can the some question before status the Or potentially using to capital going revolver consider regards last really with factor an determine is capacity

Paul McDowell

look a both perspective, have on the capacity -- we holistic got line Mitch. we it the from think capacity credit. I at of the We've to

balance the sheet. cash have We on

to But so, our outcome financing term chose retain to balance not. markets are So hope we asset loan. where we lenders, be and for the the the we're that we we working if also through tough, best the flexibility an add far, so with the have we recognize to can do sheet

So a definitive market. we're give I'm cognizant to overall say not answer going than the you other of to

Mitch Germain

you. Thank

Paul McDowell

Thank you, Mitch.

Operator

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

Paul McDowell

hosting on Thank first quarter you. to call, later this our for you joining we quarter Goodbye. look you Thank and call conference summer. this us again second all conference on forward

Operator

today's concludes This teleconference.

You your your may lines Thank time. you this participation. disconnect at for

Orion Office REIT (ONL) 10 May 232023 Q1 Earnings call transcript