Orion Properties Inc.

Orion Properties Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin.

Thank you and good morning, everyone. Yesterday, Orion released its results for the quarter ended September 30th, 2025. Filed its Form 10Q with the Securities and Exchange Commission. and posted its earnings supplement to its website at onlreit.com. During the call today, we will be discussing Orion's guidance estimates for calendar year 2025 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release, as well as in our Form 10Q and other SEC filings, and Orion undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures, such as funds from operations, or FFO, and core funds from operations, or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion's earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure. Hosting the call today are Orion's Chief Executive Officer, Paul McDowell, and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell.

Thank you, Paul. Good morning, everyone. And thank you for joining us on Orion Properties' third quarter earnings call. Today, I will highlight the substantial progress in executing on our business plan, and provide an update on our ongoing leasing, disposition, and acquisition activity for the quarter. Following my remarks, Gavin will review our financial results and improve guidance outlook for the rest of the year. We had another very productive leasing quarter with 303,000 square feet of space leased at a weighted average lease term, or WALT, of over 10 years, and an additional 57,000 square feet signed after quarter end. Our primary focus remains on continuing to enhance the quality and durability of our portfolio and its associated cash flows. One critical metric we use to measure that success is the weighted average lease term for the portfolio, which is now 5.8 years or approaching six years. This is a material improvement from the roughly 3.5 years at the time of our spins. This substantial progress reflects the steady execution of our business plan and the increasing stability of our tenant base. Year-to-date, through November 6, we have completed 919,000 square feet of leasing, which is in addition to the 1.1 million square feet we leased last year, reflecting the improving market backdrop. Included in the total for the third quarter is a 5.4-year new lease agreement for 80,000 square feet at our Kennesaw, Georgia property that we mentioned on the last call. We also signed several renewals during the quarter, including a 15-year extension with Agco Corporation for 126,000 square feet in Duluth, Georgia, a seven-year extension with T-Mobile for 69,000 square feet in Nashville, Tennessee, and a 15-year extension with the United States government for 16,000 square feet in Fort Worth, Texas. Importantly, rent spreads on lease renewal activity were again positive in the third quarter, up over 2% for renewals and over 4% for total leasing activity. Overall, leasing momentum remains constructive heading into year end and 2026. Our pipeline, which includes transactions in both the discussion and documentation stage, is over 500,000 square feet and includes several longer duration renewals and new leases with terms greater than the average of our portfolio. Orion's operating property occupancy rate was 72.8% at quarter end as compared to 73.7% at December 31st, 2024. The year-to-date change is impacted by lease rollovers during the year and resulting vacancies we are holding on the balance sheet, which we intend to sell or lease in the reasonably near term. Adjusted for operating properties that are currently under agreement to be sold or have been sold since quarter end, our property occupancy rate would be 74.5%. We continue to expect that our portfolio occupancy will rise materially next year and even further the next as we lease space. sell vacant properties, and selectively recycle capital into new assets. When talking about our occupancy expectations, it's important to note that our heavy lease rollover has improved markedly year over year. For example, in 2026, we have only $10.8 million of rent subject to rollover as compared to $39.4 million of rent that was subject to rollover risk last year in 2024. As further evidence of our active business plan execution, so far this year we have closed on the sale of seven vacant or soon to be vacant properties and one stabilized traditional office property totaling 761,000 square feet for a gross sales price of $64.4 million or about $85 per square foot. We also have agreements in place to sell another four properties, including three vacant or soon to be vacant properties and one stabilized traditional office property totaling over 500,000 square feet for $46.6 million or about $92 per square foot. These transactions are expected to close in the fourth quarter of 2025 and first quarter of 2026. Combined, that is close to 1.3 million square feet with gross proceeds of more than $110 million. Collectively, we have sold 27 properties since the spin, totaling 2.7 million square feet, which equates to more than 25% of the inherited portfolio's rentable square feet, saving an estimated $39 million of cumulative carry costs. Even with all this progress, we continue to evaluate our portfolio with particular focus on obsolete buildings and those assets requiring substantial capital investment. This includes the former Walgreens campus in Deerfield, Illinois, where we are close to completing the demolition of the outdated office buildings, and we expect to sell the 37.4 acre site in the coming quarters. 2025 marked a year of accelerating portfolio transformation, which positions us well for next year and beyond. We believe the sale transactions we've completed and are continuing to work on provide very attractive exit points for these properties and avoid the uncertainty and significant capital investment and carrying costs to re-tenant the assets. The stabilized asset sales we have announced will also allow us to continue to shift our portfolio away from traditional office properties. These transactions demonstrate our continued ability to monetize non-core assets and redeploy capital while improving the overall quality and durability of our remaining portfolio as demonstrated by our increasing wealth. We are also evaluating a number of opportunities to recycle the proceeds from our disposition activity as we continue to shift our portfolio concentration away from traditional suburban office properties and towards dedicated use assets or DUAs, where our tenants perform work that cannot be replicated from home or relocated to a generic office setting. These property types include medical, lab, R&D flex, and non-CBD government properties, all of which we already own. Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investment, and more durable cash flows. We are continuing to look carefully at limited targeted acquisitions of DUAs to recycle capital, stabilize rental revenues, increase portfolio wealth, and further enhance portfolio quality. At quarter end, approximately 33.9% of our portfolio by annualized base rent and approximately 24.6% by square footage were DUAs. And this percentage will increase over time through disposition activity and targeted acquisition. Orion has also been very proactive in managing leverage while maintaining significant liquidity to support our ongoing leasing efforts. To do so, We have sold vacant properties, used sale proceeds and cash flow to pay down debt, managed G&A, have been highly selective on acquisitions, and aligned our dividend policy. As a result, our net debt to annualized year-to-date adjusted EBITDA was a relatively conservative 6.7 times at quarter end. We will continue disciplined execution focused on portfolio stabilization and enhancement with the goal of further unlocking long-term value, which we believe will make Orion attractive to investors and potential strategic partners alike. We've made very significant progress de-risking the portfolio and executing the business plan this year with a portfolio wall now approaching six years, more than 900,000 square feet of leasing, and 12 properties sold or under contract for sale totaling 1.3 million square feet for over $110 million. Net of lease-related termination income, we believe 2025 should be the bottom for core FFO per share and that next year and subsequent years should show accelerating earnings growth coupled with rising occupancy. With that, I'll turn the call over to Gavin.