Orion Properties (ONL) Q3 2026 Earnings Call Transcript

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DATE

Friday, Nov. 6, 2026

CALL PARTICIPANTS

• General Counsel - Paul C. Hughes
• Chief Executive Officer - Paul H. McDowell
• Chief Financial Officer - Gavin Brandon
• Chief Operating Officer - Christopher Haviland Day

TAKEAWAYS

• Total Revenues -- $35.4 million, representing a decrease from $37.1 million due to property dispositions.
• Core FFO -- $11.4 million or $0.20 per diluted share, reflecting growth from $11.0 million or $0.19 per diluted share.
• Net Loss Attributable to Common Stockholders -- $3.3 million or $0.06 per share, narrowing from a net loss of $69.0 million or $1.23 per share.
• Full-Year Core FFO Guidance -- $0.75 to $0.78 per diluted share, raised from the previous range of $0.72 to $0.77 per diluted share based on strong leasing performance.
• Net Debt to Adjusted EBITDA Guidance -- 5.8x to 6.4x, improved from the prior range of 6.0x to 6.8x.
• Consolidated Portfolio Occupancy -- 78.3%, up from 72.1% driven by sustained leasing efforts across the portfolio.
• Weighted Average Lease Term -- 6.1 years, compared to 5.8 years, reflecting the execution of new long-term leases.
• Year-to-Date Leasing Volume -- 922,000 square feet, which includes 143,000 square feet in the third quarter and 222,000 square feet signed after the quarter ended.
• Quarterly Cash Rent Spreads -- 25% on third quarter renewals, demonstrating the company's ability to capture rental growth as leases roll.
• Year-to-Date Rent Spreads -- 1.8% when comparing ending rents to new starting rents and 8.6% when comparing previous ending rents to new ending rents.
• Dedicated Use Assets -- 40.6% of annualized base rent, up from 33.9% as the company continues to shift concentration away from traditional office properties.
• Year-to-Date Disposition Proceeds -- $83.7 million from the sale of four properties and a 37.4-acre campus.
• Pending Dispositions -- $14.4 million across three properties currently under agreement, including a proportionate share of one joint venture asset.
• Net Debt to Adjusted EBITDA -- 5.6x, improved from 6.4x following debt reduction and improved operational performance.
• Principal Outstanding -- $436.5 million, down from $483 million a year ago after successful capital recycling.
• Total Liquidity -- $177.2 million, comprised of $64.2 million in cash and restricted cash plus $113 million in available credit facility capacity.
• Interest Expense -- $21.7 million year to date, representing a reduction of $2.4 million from $24.1 million due to lower outstanding debt.
• Debt Composition -- 76.6% of debt is fixed rate, and 49% of the floating rate revolver is currently hedged.
• Capital Expenditures and Leasing Costs -- $6.9 million for the quarter, compared to $18.3 million, with full-year expectations in the mid-$40 million range.
• General and Administrative Expenses -- $19.8 million to $20.8 million, which remains unchanged and includes costs for the ongoing strategic review.
• Quarterly Cash Dividend -- $0.02 per share, declared for the fourth quarter of 2026 and payable in Jan. 2027.
• Strategic Review Costs -- $266,000 in the third quarter and $454,000 year to date, associated with the consideration of potential merger targets or a sale of the company.

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RISKS

• McDowell stated, "macro events, including a significant rise in treasury rates, have made that work more challenging and have further slowed the process," referring to the ongoing strategic options review.
• McDowell cautioned that "rent spreads can be volatile from quarter to quarter," despite encouraging recent trends in renewal rates.
• McDowell warned that the company "can offer no assurance that this process will result in Orion concluding any particular transaction" regarding the potential sale of the company or other strategic outcomes.

SUMMARY

Orion Properties Inc. (NYSE:ONL) reported a third quarter focused on portfolio stabilization and debt reduction, highlighted by a significant increase in occupancy and the raising of its full-year Core FFO guidance. Management indicated that while the strategic review process remains active, macroeconomic headwinds and higher interest rates have extended the timeline for exploring potential transactions. The company reported a transition toward dedicated use assets, which now represent more than 40% of annualized base rent, and noted that operational metrics across leasing volume and rent spreads showed year-over-year improvement.

• The company is close to finalizing a 15-year, 93,000 square foot lease in its Buffalo, New York property, which CEO McDowell stated would bring the asset from zero to 64% leased in just over a year.
• Management confirmed the company has no debt maturities until Feb. 2028 and holds an option to extend the credit facility maturity until Feb. 2029.
• CFO Brandon noted that the loss of emerging growth company status in 2026 drove increased expenses related to compliance with Sarbanes-Oxley Act Section 404.
• COO Day indicated that two Lakeside assets in Richardson, Texas are currently on the market for sale, with a disposition expected in the first half of 2027.
• Management stated it intends to use proceeds from pending dispositions to pay down outstanding principal on joint venture mortgage notes.
• The company achieved a third consecutive year of leasing over 1 million square feet despite managing a materially smaller portfolio due to recent sales.

INDUSTRY GLOSSARY

• Dedicated Use Asset (DUA): A property with specialized components like medical labs, government offices, or research facilities where work cannot be replicated in a remote setting.
• Funds from Operations (FFO): A non-GAAP measure used by REITs to define cash flow from operations, excluding gains or losses from property sales and adding back depreciation.
• Core FFO: A version of FFO that further excludes non-routine or non-cash items like transaction costs and equity-based compensation to reflect ongoing performance.
• Annualized Base Rent (ABR): The monthly cash rent at the end of a period multiplied by 12 to provide an annual run rate.
• Secured Overnight Financing Rate (SOFR): A benchmark interest rate used for dollar-denominated commercial loans that replaced LIBOR.
• CMBS Loan: Commercial Mortgage-Backed Securities; a type of fixed-income investment product backed by mortgages on commercial properties.

Full Conference Call Transcript

Operator: Greetings. Welcome to Orion Properties, Inc. Third Quarter 26 Financial Results. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul C. Hughes, general counsel.

Paul C. Hughes: Thank you.

Operator: You may begin.

Paul C. Hughes: Thank you, and good morning, everyone. Yesterday, Orion released its results for the quarter ended September 30, 2026, filed its Form 10 Q 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 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. These risks are discussed in our earnings release as well as in our Form 10 Q 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 H. McDowell and Chief Financial Officer, Gavin Brandon. Joining us for the Q and A session will be Christopher Haviland Day, our Chief Operating Officer. With that, I will turn the call over to Paul H. McDowell.

Paul H. McDowell: Good morning, everyone. And thank you for joining us on Orion's third quarter earnings call. I will start with an update on our strategic options process. Process is ongoing. And despite the length of time of the review to date, we continue to believe it is in shareholders' interest to see that work through to its reasonable conclusion. In addition to the ongoing challenges surrounding our asset class, macro events, including a significant rise in treasury rates, have made that work more challenging and have further slowed the process.

We are moving as expeditiously as possible to ensure we have explored all potentially viable options available to the company However, we can offer no assurance that this process will result in Orion concluding any particular transaction. Beyond the strategic review, our team is focused on driving improvement in our key financial and operating metrics. Nearly all of which are improved year-over-year. Our strategy remains centered on the same priorities we have discussed all year. Stabilizing the portfolio through increased leasing activity, the timely disposition of noncore assets, and prudent leverage management. We continue to expect these efforts to drive core FFO per share growth in 2026 and beyond.

From a leasing perspective, we are on track to lease over 1 million square feet for the third consecutive year despite materially smaller portfolio and have increased the weighted average lease term of the portfolio in the process. Contributing to these results we completed approximately 143 thousand square feet of leasing in the third quarter. And an additional 222 thousand square feet subsequent to quarter end bringing our year to date total to approximately 922 thousand square feet. Our leasing pipeline stood at about 1 million square feet at quarter end.

To give some additional color to our continued leasing subsequent to quarter end, we entered into a 57 thousand square foot 10 year lease and a 17 thousand square foot 10.8-year lease at our 209 thousand square foot Plano, Texas property. Bringing the lease rate to 85%. Significantly driving value. We also completed a 10.3-year lease extension for 65 thousand square feet at our 156 thousand square foot property in Milwaukee, Wisconsin. And a 2-year full building renewal at our 83 thousand square foot Indianapolis, Indiana property. We are also close to finalizing another large lease in our approximately 405 thousand square foot renovated class a property in Downtown Buffalo, New York.

With 1 large tenant already, as a 161 thousand square foot anchor, we expect to finalize a 93 thousand square foot lease for 15 years in the fourth quarter which will bring this property to 64% leased from 0 just over a year ago. We are confident that this lease will be completed So as always, we will not count it until it is signed. Our weighted average lease term for the consolidated portfolio was 6.1 years, continuing to build on the progress we have made this year, and up from 5.8 years at the end of the third quarter in 2025.

Cash rent spreads on third quarter renewals were up 25% when comparing ending rents in the current term to starting rents in the new term. Year-to-date, rent spreads are up 1.8% when comparing ending rents in the current term to starting rents in the new term, and up 8.6% when comparing ending rents in the previous term to ending rents in the new term. As always, we caution that rent spreads can be volatile from quarter to quarter though we remain encouraged by the overall trend. It is also worth noting that we have seen tenant retention rates continuing to improve reflecting both a healthier leasing environment and our strengthening portfolio quality.

Our consolidated portfolio occupancy rate was 78.3% at the end of the third quarter, compared to 72.1% at the end of the third quarter of last year. As we have said many times, occupancy will continue to show some volatility quarter to quarter, given our largely single tenant portfolio. Though we expect the overall trend to keep improving as our leasing efforts including the aforementioned opportunity in Buffalo, continue to play out. Turning to dispositions. Year-to-date, we have generated gross proceeds of almost 84 million on the sale of 4 properties, plus the 37 acre Deerfield, Illinois campus. Additionally, we have 2 properties under contract to be sold for total gross sales price of $9.5 million.

Since our spin, we have sold 39 properties totaling more than 4.2 million square feet. At quarter end, dedicated use assets or DUA represented 40.6% of annualized base rent of our consolidated portfolio, compared to 33.9% at the end of the third quarter of 2025. We expect this percentage to continue increasing over time through disposition of traditional office and potential targeted acquisitions of DUA properties. As we discussed last quarter, our longer term target remains to have more than a majority of the portfolio in dedicated use assets. Within our existing portfolio, and absent broader access to outside capital, we expect that progress to continue albeit in an opportunistic manner.

To the extent our access to outside cost effective capital improves, we would expect that transition to occur significantly more rapidly. As we communicated to start the year, we have a stabilized portfolio that will continue to benefit from ongoing return to office and our strong leasing efforts. Through the first 3 quarters of the year, nearly all of our key financial and operational metrics show meaningful and sustained improvement. Including our critical per share metrics supported by a balance sheet marked by prudent leverage. for the rest of 2026 and into 2027, our focus remains consistent.

Continue to grow core FFO, improve portfolio quality, lengthened WALT, renew tenants, fill or sell vacant space, and continue to manage expenses and leverage as we work to maximize Orion's value for investors and potential strategic partners. We believe that consistent ongoing execution will allow the market to start to recognize and appreciate the intrinsic value of this company. With that, I will turn the call over to Gavin.

Gavin Brandon: Thanks, Paul. For the third quarter of 2026 compared to the third quarter of 2025, Orion had total revenues of $35.4 million compared to $37.1 million. Net loss attributable to common stockholders was $3.3 million or $0.06 per share compared to $6.9 million or $1.23 per share in the same quarter of 2025. Core FFO was $11.4 million or $0.20 per share, compared to $11 million or $0.19 per share in the same quarter of 2025. Adjusted EBITDA was $16.5 million versus $17.4 million in the same quarter of 2025 primarily related to having fewer assets. G&A in the third quarter came in at a relatively flat $4.7 million compared to $4.6 million in the same quarter of 2025.

G&A expense in 2026 includes the ongoing costs associated with the strategic review. Which equate to approximately $266 thousand in the third quarter and $454 thousand year-to-date The G&A expense in the 2026 period also reflects Orion's loss of emerging growth company status during 2026 which drove increased expenses related to SOX 404 compliance. We have reduced headcount so far this year by 5. CapEx and leasing costs in the third quarter were $6.9 million compared to $18.3 million in the same quarter of 2025. CapEx and leasing costs for the 9 months ended September 30 were $34.4 million compared to $42.2 million in the same 2025 period.

As we have previously discussed, CapEx timing is dependent on when leases are executed and work is completed on properties. Property operating expenses in the third quarter materially improved to $14.3 million as compared to $17.3 million in the same quarter of 2025. Turning to the balance sheet. Our net debt to annualized adjusted EBITDA showed meaningful improvement at 5.6x at quarter end, compared to 6.4x at the end of the third quarter of 2025. We ended the quarter with $437 million of outstanding debt excluding our proportionate share of the unconsolidated joint venture debt. Which is a meaningful improvement when compared to 483 million of debt we had a year ago.

Our debt reduction efforts have significantly reduced interest expense, which has totaled 21.7 million this year, down 2.4 million from 24.1 million in the same period a year ago. We remain well insulated from rising rates with 76.6% of our debt being fixed rate and 49% of the debt outstanding under our floating rate revolver is currently hedged. Our net debt to gross real estate assets was 27.8% at the end of the quarter compared to 31.2% a year ago. We have also been very successful this year managing and extending our maturities. Our next debt maturity is not until February 2028, which we have an option to extend until February 2029.

As of September 30, we had total liquidity of $177 million comprised of 64.2 million of cash and cash equivalents, and restricted cash and $113 million of available capacity under our credit facility revolver. On November 4, 2000, Orion's board of directors, declared a quarterly cash dividend of $0.02 per share for the fourth quarter of 2026, unchanged from the fourth quarter of 2025. We are also announcing an improved outlook for 2026 primarily driven by the strong 2026 leasing activity we have discussed core FFO for the year is now expected to range from $0.75 to $0.78 per diluted share up from our previous range of $0.72 to $0.77 per diluted share.

Our net debt to adjusted EBITDA is now expected to range from 5.8x to 6.4x an improvement from our previous range of 6.0x to 6.8x. Our G&A range of 19.8 million to 20.8 million is unchanged. With that, we will open the line for questions. Operator?

Operator: Thank you. Will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. 1 moment, please, while we poll for questions. Our first question comes from Mitch Germain with Citizens Bank. Please go ahead.

Mitch Germain: Congrats on the quarter. Pretty significant deceleration being contemplated in your guidance even at the high end of the range. Why not put forth the number, given leasing and momentum in the business?

Paul H. McDowell: Why not put forth a number that is a little bit more maybe realistic And what am I missing with regards to, you know, how the fourth quarter could play out I think there is a couple things there, Mitch. First, the guidance we put out today is where we expect, you know, where we expect we will come out for the course of the year. Looking forward into the fourth quarter, we see-- well, I-- Let me say it this way. Looking back for the first 3 quarters, we have gotten some income that we get from onetime tax savings and sometimes from 1-time lease termination income and so on and so forth.

We have had that year over year, as you might recall. So that has an impact on the first 3 quarters of the year. We do not expect to have a significant impact to that in the fourth quarter. Looking into 2027, I think the dynamics still exist. We continue to think that we will be able to grow core FFO over time. But, the rate of that acceleration is. You know, will be dependent upon where we come out on leasing.

Mitch Germain: Okay. You guys seem to have great momentum on the leasing front, and I appreciate all that commentary in the Buffalo asset. Is that the kind of situation where you lease it and sell it I am trying to gain some insight. I think you have got, like, 50 something properties now. Like, 40% of your portfolio is dedicated use. The thought is to grow that to a higher percentage, obviously. or a portion of your cash flows. So is that asset, like, an example of something where you lease and then look to sell? Or is that considered a core asset for you?

Paul H. McDowell: You know, I would start by saying we like the asset a lot. We have renovated the building. it is a Class A asset. So we like the building a lot, but I think your point is well taken. I think we are opportunistic sellers. I think if you take a look, we sold the NetJets property at a 5 something cap rate out of the CMBS portfolio recently. So that gave us. You know, that was very opportunistic. And I think we would look at the buffer property much the same way. If we got a very good price for that asset from a potentially a local buyer or something like that once we have leased it up.

You know, we would be delighted to sell it and recycle that capital into dedicated use assets.

Mitch Germain: Great. Last 1 for me. it is-- When does there come a point in time in which the strategic alternatives are no longer relevant? And I ask it only because I know that firm strategic alternatives is kind of broad. Right? I mean, there could be things in there including, investments from, you know, institutional partners to an outright sale to maybe a portfolio acquisition from that regard. So it is pretty broad. But when? I mean, I guess that could always be something that is part of the everyday of running public companies.

So when does this process become kind of elongated? and maybe we should at least kind of get rid of that terminology to expect that this should always be part of your thinking as a public CEO.

Paul H. McDowell: that is a very good question, Mitch. And, you know, I will answer the last part first. That is you are right. It always is a component of our running a public company. We have said so many times before we announced strategic options. So that. You are right. You know, looking strategically is something we will do whether or not we have a process up and running. The reason the process is still continuing is we continue to engage with outside parties in sort of a quiet a meaningful way. And so we will see how that comes out. We are not sure what the result of that will be.

If the result of that is a strategic transaction, we will announce that in due time. If the result of that is not a strategic announcement, we would announce that and close down the process. But, like you. Like I said at the beginning, we will whether or not we have a process open, we will always consider-- we will always consider strategic opportunities, but we are trying to wait to get through the process with respect to sort of the specific items we are working on Once we decide, once we figure out whether those work or not, we will make an announcement.

Mitch Germain: Thank you.

Operator: Our next question comes from Matthew Gardner with Jones Trading. Please go ahead.

Analyst: Hey, good morning, guys. Thanks for taking the question and appreciate the comments on the prior questions. that is really helpful. As we look into kind of some of these leases rolling off and in particular, Richardson, Texas, how are you guys thinking about, 1, the vacant building there and then that AT&T and T lease that. that is got about 0.5 WALT left.

Paul H. McDowell: I will let Christopher Haviland Day answer that for us.

Christopher Haviland Day: Good to talk to you this morning, Matthew. For that property, you know, we know AT&T will be vacating that asset That 1, Lakeside 1 and the adjacent Lakeside 2 it is actually out in the market right now for disposition. So we are-- it is going through the process. Some offers are coming in. We are evaluating everything. So I would expect for that to be a disposition in the first half of next year. Got it, that is helpful. And then could you just give a little more color on the market? Like who are some of the buyers that are out there? What are they looking for?

You know, obviously, it is dependent asset to asset, but you know, I guess, just kind of how are transactions moving right now just given the rise in rates? Well, for the. For that specific asset, there is actually multiple different types of buyers looking at it. You have got people looking at it for value add office. You have people looking at it from a redeveloped standpoint and to potentially multifamily. Or another use. So that property itself has various different outcomes. But just overall on the entire portfolio, yeah, we are-- we are-- We still have a lot of people, good interest in some of these properties that we have out on the market for sale.

You know, there is a little bit of uncertainty over the last month or so, but, we are-- we are-- still positive we are going to be able to transact on these dispositions at numbers that we think are good numbers for those assets.

Analyst: Got it. that is helpful there. And then looking into CapEx, you guys kind of guided to $30 million to $40 million on last quarter's call, and there was about 7 million call it this quarter, which leaves 23 million to 33 million Is that still the expectation for the fourth quarter?

Gavin Brandon: Yes. I think that is right. I think we have got-- we expect for the year to come out probably on just CapEx probably about 40-something in the mid-40s, million, and then leasing commissions on top of that.

Analyst: Okay. Got it. that is helpful. Thank you, guys.

Operator: We have reached the end of the question and answer session. I would like to turn the floor back over to Paul H. McDowell for closing comments.

Paul H. McDowell: Thank you, everyone, for participating in our call, and we look forward to updating you on the fourth quarter in the New Year.

Operator: And this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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