ONL - Earnings call transcript Q1 2024

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Operator

Greetings. Welcome to Orion Office REIT's First Quarter 2024 Earnings Call.

As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Paul Hughes, General Counsel for Orion. may you and you, now begin. Thank

Paul Hughes

Exchange and to today available the and are financial well forward-looking results you, the filed based other are estimates Form to this historical include and that to Securities of The guidance XX-Q documents our not risks Investors statements for are as made made forward-looking discussed statements. in company's certain are good supplement its from at constitute March SEC company's to strictly morning, management's no its released duty its calendar website The and in the onlreit.com. Certain and with These could company Orion and year Yesterday, expectations These materially during XX-Q update its and for XXXX undertakes section XXXX, any posted actual earnings everyone. results XX, estimates. differ Thank during statements Commission, are the as current website. cause Form risks in on ended the the call. our our subject filings. statements release earnings call information quarter

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

information accordance this a of financial in with presentation Our presented for is not substitute the GAAP. information

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

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

Paul McDowell

Orion First operations. performance discuss business progress highlight Office executing Good and XXXX on first are Call. Today, joining quarter will and we our our strategy thank you Quarter and the I Earnings REIT's morning, making us everyone, for on

remarks, outlook XX my X.X and end of Gavin to provide was square our joint We Following financial XX.X% for and rentable agreement million our feet own venture comprising that our the properties unconsolidated rest results the year. occupancy be for X will under properties at review the first at Adjusted sold, are that of quarter end. currently rate occupied quarter. XX.X% were the properties,

The properties tenants. net leased predominantly double triple the in portfolio are to or creditworthy either

a investment percentage were base As as annualized grade. of of of XX, our March rent XX.X% tenants

base industry by rent largest well base geography. Our our portfolio tenant health The our of XX% X care tenant, largest industries tenant assets tenant by of rent, remains annualized and from Sun annualized is Belt government. markets. diversified our and States government United derived Over and is are

markets QX, weighted by At lease at remained are portfolio's state years. steady X.X Jersey New term Our our end and York. Texas, largest of the New average

The story been of the and the beginning quarter has second leasing first into of the momentum.

year, we've of today, square year. feet this XXX,XXX we amount As last executed new renewal than more leasing doubling and of the completed

occupancy. the with traction our and we that X property new bring feet transactions lease a that Nebraska XX-year to for for square During a renewal on the of X,XXX leases, renewals one new long-term States lease Eagle United quarter, square signing will gained property back and lease feet properties Texas our government, at XX,XXX Pass, first XX-year at Lincoln, full

and of of our at first XXX,XXX this government of to square quarter, exercised year. expire set option which a July our after the in was a for X,XXX square on feet one and to than Tulsa, part, signed work in XXX,XXX Subsequent space feet renewal lease leases. all property, XX-year new restaurant Covington, Oklahoma more a square quarter our we the year properties. at Also, also end renewal of We executed new for States feet of Kentucky X-year United

We of footage tenant's for portion a also a substantial regarding longer-term GSA extension square with discussions at existing the this the significantly in remain property.

an However, government given those refine extended needs of continues the period new take over negotiations at to place the time extension, we as X-year its expect the will property.

move through which documentation. of As more in of negotiation the we have million we X.X see than year, forward our to various leasing stages continued discussion, in strength feet pipeline, signs totals and square

starting of see in our interested Importantly, in momentum we to some vacant new tenants space. are some

That leasing substantial of course, we green vacancy that these remains expectation than more have And to future those to are of overly expensive re-lease continue foreseeable with market a remain the While the costs said, recovers. carry slowly of for both the associated assets portfolio environment difficult. in that as the difficult very caution shoots or area or dispositions we, given is will the deem key welcome, owning focus. that vacancy, our to we

progress same proceeds of debt, this made the than to tremendous initiative. Since have with portfolio gone has the gross than period. reduced on has which much million, million pay by We $XX.X we $XXX have of XX% of been sold the down over which spin, more more

in we these do in totaling rollover our reduced ongoing portfolio process This long-term resources expected reduced focus where significantly and in square and environment. The capital forward grapple re-leasing the believe properties million costs, lease XX as CapEx to continue X.X sale freed this depressed with human has prospects. carry of materially we on selling those will feet up has properties

During April, square an agreement Charles, foot St. we into marketing in extensive to for approximately $X.X an following an Missouri XX,XXX million. entered sell property vacant process,

this expect close to We later this quarter. sale

approximately square the additional Walgreen campus under property agreement properties, former have intends buyer We redevelop. include to XXX,XXX feet sell in that properties the also Deerfield, Illinois still agreements X to in The place for $XX million. X representing

to can't the or closing occur. a to will delays has and project the financial the close. when experienced difficult have necessary the plans, While current its stage, this get going if made sale with redevelopment At to progress we up under early conditions all XXXX, in the since make lined contract buyer continues it components market for forecast

discussed intends property the have also scheduled quarter, the vacant to Denver, a And close be Colorado XXXX. residential a half use. under we is redevelop to property in to to contract As this buyer first in sale sold to last of who

these XXXX. In sale we addition to market continuously for and in properties likely our evaluate additional will portfolio properties, identify to

we've smaller it As grow to the over we quarters, in sales ability the last term lease. several to drag repeated pressure while expense fewer capital short asset requirements, the our as buildings earnings in future become with operating expenditure reduced and will

continue the the of long-term the Although the to current shrink maximize right base, overall in approach we this value to the asset is environment, portfolio.

is markets well-leased a will that attractive shareholders with alike. a cash long-term market portfolio. core attractive flows the strong properties maintaining participants in investments Part with of can structure stable that We are striving these establish in necessary core to be to capital parcel support other portfolio our and efforts and

flexibility manage sheet invest retain leverage loan need the we the balance the We prioritizing in remaining portfolio. to prudently to continue to

been the us in CMBS successful have a future. We good nonrecourse maturity paying our extend in position here place us loan, our as debt will same its and retiring by putting term low while in to down revolver keeping time, optionality give coupon that the well at

vacancy are which supported we change. by our FFO asset to progress time the and FFO substantial still remains not base, strong measured and we and on company a core portfolio have the basis, profitable do an While made to re-lease in expect years, both stabilize core

business and tenants, noncore place. plan, remains Our through streamlining filling asset current existing in retaining empty disposals spaces

to flexible and advisers With the remain business generate so operation our day-to-day the of also the we'll we company we changes look will our help of board, if outcome to to for continue and approach believe the and in best tactical our opportunity, of shareholders. strategic plan outside make doing our

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

Gavin Brandon

of year. as generated compared revenues total the $XX.X $XX.X Paul. the to in in quarter of the Orion prior same million Thanks, million quarter first

the $X.X funds $X.XX $X.XX Core quarter reported revenues or $XX.X stockholders tax and to share million the to to tax in reported expected Importantly, of million in million year. to million $XX.X former same EBITDA end quarter or was received share XXXX. obligation tenants. of quarter of compared million $XX.X $XX.X of first onetime XXXX. million Adjusted in $X.XX a million compared XXXX. a from million per in the per next of the quarter net as for we loss common $X.X were of revenues, real from benefited $X.X We be as the operations for attributable $XX.X net of or reimbursements loss estate the $X.XX was reimbursements quarter not share onetime or first from share until payments per per versus lease Of of

a result timing noncash G&A in expense due the an quarter was expenses year primarily additional and million as compensation expense. compared million to in the quarter stock-based XXXX of same higher compensation the $X.X of corporate-related first to of of $X.X

was quarter million million $X.X in to of the CapEx compared same XXXX. $X.X the in quarter

CapEx dependent over as allowances. is upon discussed, on likely previously signed leases tenant properties. have leases timing increase we when on work and tenants completed draw improvement will roll and and is time CapEx the existing new As are

the adjusted of debt, floating including debt $XXX We end, ended on million EBITDA of due representing revolving our to the At outstanding rate under debt, XXXX $XX.X is fixed the of with November our XX, $XXX on share May mature quarter million, and loan the swapped facility is to joint was X.XXx. nonrecourse debt until first XXXX. venture $XXX.X rate XXXX, to million rate February million net fixed credit Street and quarter annualized Arch which scheduled CMBS XX,

rightsized now proportionally other value maintain our are executed covenants. it subsequent unencumbered that asset end we to our and pool the discuss required our I well reduction to to modified agreement credit quarter as as borrowing capacity the to will minimum made financial revolving of a recent amendment

will the impact in us business to fees to to reduce the plan, we execution Given unused size to borrowing lenders. we lowering significant the are not the expect benefit slightly and capacity pay modestly adversely the of it the obligated portfolio, of by reduction do our

comfortably reduced even to note in XX, term of option to important term an XX, financial size. asset for we continue including the that months the We from through credit will is November our XXXX the near term certainty maturity amendments to able May that full provide our satisfy extend covenants facility, XXXX. the additional intend to the revolving to elect It to the be at extension the XX greater

their challenging and which Orion, continued group the financial for believe and approach support grateful backdrop for of continued climate. are our against we the in confidence further execution lender validates We this

revolving the As credit of Street we of joint facility. giving million and cash the amendment liquidity total venture of after comprised including Arch the the the rata to credit company's facility, million on and million, $XXX.X capacity $XX.X cash quarter and the cash of of available of share $XXX pro to equivalents, of strong company's the effect end from had million $XXX

on to We intend liquidity provide the flexibility years, for business including plan required financial the several funding our leasing to to to significant expected foreseeable maintain our future balance the of the capital support next commitments over on sheet future efforts. execute

As a X-year venture exercise joint be to relates debt, joint satisfy this the Arch the extension agreement. option is nonrecourse unable venture refinance to to obligation. loan to evaluating Therefore, it may the the venture the alternatives conditions Street joint under

cash quarterly $XX.X diluted Turning our share, quarterly for of quarter XXXX, dividend. our debt XXXX, a range to on of adjusted to July core to Based range of our the we guidance our of second for to June G&A EBITDA XXXX, per expectations year full record and of per to XX, are on Orion's $X.XX our FFO of and $XX.X payable declared X.Xx stockholders as $X.XX share range of Directors XX, million X.Xx. Board net to reaffirming $X.XX million of results XXXX. dividend for

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

Operator

And Instructions] first the of Mitch with our Germain Securities. is [Operator question line from JMP

Jyoti Yadav

Mitch. is Congratulations Jyoti leasing on year. the this This for on

So do towards more feel tenant now you making? decision conviction

Paul McDowell

Yes. Thank.

we've pretty of done. leasing that the it look quite received, that work leasing it some of renewals this get a year, is done forward expected to continues we but bit to expected we've was Our pipeline leasing healthy. took The still

sign of feel where of And some new some I'd starting that's tenants seeing And some where our say in conditions that the is to to transferring and high very feel vacant that lease competition we're forward we're was for vacant interest that pretty want the there is interest We to good about but also actually best we on and traction now space of interested from new leases just space. pipeline, sell. tough remain tenants. see it some stress I out very the straight

to want read about feel don't I but the into we much too So pipeline forward from better it, there. definitely

Jyoti Yadav

fair. That's

out pick U.S. the was playing you is but background how those on just I So in? When can negotiations little did year-long it a give bit, it you said government think some leases. now? one, if process, a for

Paul McDowell

I leased the to that is Covington, we renewed government the property in mean the federal large -- Well, government facility. a Kentucky,

a the had with what of of of needs property. property, conversations capital And that type to so property, needed that we the we lot government about put their into

for with them time. we worked a quite period So long of

think month depends officer the since some general, take to It negotiations. up year. government's summer, lease a the little property, the federal a from a bit anywhere interactions I the property of that So just with in the frankly, on our last government needs contracting and that's running to

I all eventualities. we're for So guess, prepared,

Jyoti Yadav

Yes, that's question. fair. switching on And here, just the last

and on expectations you Street give or insight Arch like term there's some Could the venture. history? if on On like some that any

Paul McDowell

are November have all and cash year. assets mortgage in of a flowing. With fully Arch occupied, performing facility, Yes. expires to respect this we joint venture, portfolio which nonrecourse all The are fully loan the Street

the comfortably support portfolio the debt. in that outstanding So assets

of the the debt. required initial our which can that are and average the meet working get several extend among conclusion to to At level so we're lease we we term that them, loan-to-value to weighted covenants term,

the that with well the plan portfolio. the portfolio itself hopefully refinance is lenders existing or strong is moment portfolio the facility right a performing is with not, our the to at if But debt away. So and extend to

Operator

Thank floor for the you. time, to any remarks. At further I'll this Mr. back McDowell Paul hand

Paul McDowell

summer. quarter you. all Bye-bye. Thank to on later us this quarter first call, second today our us we joining for and look Thank call forward you on joining you our

Operator

Thank will today's conclude you. This conference.

may disconnect this day. participation, time. and for lines have you your a You your at thank now wonderful We

Orion Office REIT (ONL) 9 May 242024 Q1 Earnings call transcript