Orion Properties Inc.

Greetings. Welcome to Orion Properties Year-End 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Emma Little, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter and year-ended December 31, 2025, filed its 2025 Form 10-K 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 2026 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 10-K 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 relief 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 Davin 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.

Good morning, everyone, and thank you for joining us on Orion Properties' 2025 Year-End Earnings Call. As recently announced, Orion has begun a strategic options review process as management and the Board of Directors continue to explore pathways to unlock value for our shareholders. Since this process is in the early stages, we will focus today's call on our operating performance and the tremendous progress we made further stabilizing the portfolio and executing our business plan during 2025, which has now positioned us for core FFO earnings growth in 2026 and beyond. Starting with leasing, we completed over 900,000 square feet of leasing in 2025, on top of the 1.1 million square feet we leased in 2024, reflecting an improving market backdrop. We also signed an additional 183,000 square feet after year end. These are meaningful volumes, particularly given the reduced size of our portfolio, and have really moved the needle to enhance the quality and stability of our lease role. One critical metric to measure our success is weighted average lease term, or WALT, which averaged nearly 10 years on new leases signed in 2025. This is nearly double our portfolio average WALT. Overall, the average WALT for all leasing activity in 2025 was 7.5 years, which continues to move in the right direction and is approaching six years for the total portfolio. Cash rent spreads on fourth quarter renewals were up for the third straight quarter at 12.8%, though overall 2025 rent spreads remained volatile and were down 7.1% for the year, but were up an average of 3.7%, when comparing ending rents in the current term versus ending rents in the renewal term. Importantly, our 2025 leasing momentum and non-core dispositions translated into a 600 basis point improvement in our lease rate year over year to over 80% at year end and a 500 basis point improvement in our occupancy rate to 78.7% at year end. Equally significant, our lease rollover profile has improved and we entered 2026 with scheduled lease expirations totaling just $11.4 million of annualized base rent in 2026. This is relative to the nearly $16.2 million of annualized base rent that was scheduled to expire in 2025. and $39.4 million in 2024. This positions us to drive further occupancy gains and stabilize revenues as we continue to lease, sell vacant properties, and selectively recycle capital into new cash-flowing assets throughout this year and into next. Leasing momentum remains constructive so far in 2026. Our pipeline is robust, and we have over 1 million square feet in either discussion or documentation stages, which includes several full building leases, as well as longer duration renewals and new leases with terms materially greater than the average of our portfolio. Our accelerating portfolio improvement through increased disposition activity was another key story for the year. During 2025, we sold 10 properties totaling more than 960,000 square feet for approximately $81 million of gross proceeds, which included two vacant traditional office properties and one stabilized traditional office property sold in the fourth quarter for $32 million. Subsequent to year end, we sold two more vacant properties in Bedford, Massachusetts and Malvern, Pennsylvania, totaling an additional 516,000 square feet for over $13 million, and are under contract to sell additional non-core properties for gross proceeds of roughly $36 million in the near term, including the 37.4-acre Deerfield, Illinois property, where we completed the demolition of the six buildings formerly leased to Walgreen during the fourth quarter. While the Perth square foot price of these sales varied from $17 per square foot to $216 per square foot, our focus was on selling properties where we felt the releasing prospects did not outweigh the burden of continuing to carry them. These sale transactions will substantially reduce the estimated carry costs associated with these vacant properties by a combined $10.3 million annually. Our 2025 and near-term dispositions will generate a total of roughly $130 million, which has allowed us to maintain reasonable debt levels while still funding vital tenant improvement allowances, leasing commissions, and other capital expenditures to support our strong leasing activity. We are also actively evaluating opportunities to recycle a modest percentage of these proceeds into acquisitions. as we continue to shift our portfolio concentration away from traditional suburban office properties and toward 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 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. A terrific example of this strategy is the Barilla Americas Headquarters building we just purchased at the end of last week in Northbrook, Illinois. In addition to serving as Barilla's headquarters, the building also houses their sole test kitchen and R&D facility in the U.S., Worldwide, the Barilla Group is the world's largest maker of pasta, and their pasta and sauces are a familiar sight on U.S. grocery shelves. The 75,000 square foot building is subject to a 10.8 year lease with current net rents at approximately $15.30 per square foot and growing 2.5% annually. We bought the property for $15 million, equating to a going in cash capitalization rate of 8.1% and an average capitalization rate over the approximately 11 year lease term of 9%. At year end, approximately 35.8% of our portfolio by annualized base rent consisted of dedicated use assets versus 31.8% at the end of 2024. and we expect this percentage will continue to increase over time through disposition activity and targeted acquisitions. We recognize as a small cap REIT that G&A expense is a very important consideration, and we remain disciplined on expenses at the corporate level. In 2025 and early 2026, we reduced headcount by more than 10%, including at the executive and senior vice president levels, and managed controllable G&A. We estimate these initiatives will generate about $1.8 million of annualized savings. These efforts are, however, offset by inevitable inflation, expected increased accounting fees associated with SOC's 404 internal control audit requirements beginning in 2026 for us, and legal and other expenses associated with managing an activist investor. Turning very briefly to the balance sheet, as Gavin will give more detail in his remarks, in February, we were able to deal with both our major debt maturities that had been scheduled to come due within the next year. First, with the support of our existing lenders, we entered into a new $215 million secured revolving facility which will mature in February 2029, inclusive of two six-month extension options. Second, we extended our existing $355 million CMBS loan by three and a half years to August 2030, inclusive of two extension options totaling 18 months. These very significant achievements give us the financial flexibility and term to continue to execute on our business plan. A final note on our strategic options process. While we have increasing confidence in our standalone prospects, over the past three years, as we have consistently disclosed, management and the board have devoted time to considering avenues for Orion to potentially pursue in addition to our business plan. Our ongoing public strategic options review process will provide further opportunity to consider with our board and our financial advisors what could be a range of potential strategic alternatives to maximize stockholder value. And as we've said before, we remain very open to pursuing any actionable proposals. To sum up, the progress we've made over the past four years and which progress accelerated in 2025 has materially de-risked and stabilized our portfolio, and we are finally set set for meaningful growth from a core FFO standpoint over the next several years. Our priorities in 2026 remain improve portfolio quality, lengthen wall, renew tenants, and fill vacant space, reduce risk, lower expenses, prudently manage leverage, and position Orion with a more stable and durable earnings profile. We believe these are the right steps to unlock long-term value, which will make Orion attractive to investors and potential strategic partners alike. With that, I'll turn the call over to Gavin. Thanks, Paul.