Business context and reporting period
Registrant: Orion Office REIT Inc. (NYSE: ONL), an internally managed office REIT. This Form 10-K covers the fiscal year ended December 31, 2021 and was filed March 24, 2022. The filing describes a newly independent company formed through the November 2021 separation and distribution of office assets following Realty Income’s merger with VEREIT.
At year-end, Orion owned 92 office properties totaling 10.5 million square feet. Including its pro rata share of an unconsolidated joint venture, the portfolio totaled 10.6 million square feet, was 91.9% occupied, and had a 4.1-year weighted-average remaining lease term. The year’s financial statements combine predecessor operations and post-separation results; changes versus 2020 largely reflect the portfolio and corporate structure changes and are not a like-for-like comparison.
Financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $79.7 million | $53.5 million |
| Net income (loss) attributable to common stockholders | $(47.5) million | $(1.9) million |
| Basic and diluted EPS | $(0.84) | $(0.03) |
| FFO attributable to common stockholders | $46.7 million; $0.82 per diluted share | $42.7 million |
| Core FFO attributable to common stockholders | $58.4 million; $1.03 per diluted share | $42.7 million |
| Net cash provided by operating activities | $56.1 million | $42.3 million |
| Net cash used in investing activities | $(12.3) million | $(0.5) million |
| Net cash used in financing activities | $(18.4) million | $(41.7) million |
Rental revenue was $79.5 million. Operating expenses were $118.9 million, including $49.9 million of impairment charges, $43.9 million of depreciation and amortization, and $7.9 million of transaction costs. The GAAP net loss was primarily affected by impairments and non-cash real estate depreciation; FFO and Core FFO are non-GAAP supplemental measures, not substitutes for net income or cash flow.
At December 31, 2021, total assets were $1.76 billion, cash and cash equivalents were $29.3 million, and total debt principal was approximately $620 million ($616.8 million net of deferred financing costs). The company had $335 million of undrawn revolving capacity. Debt included a $355 million bridge loan, a $175 million term loan, and $90 million drawn on a $425 million revolver; the joint venture’s debt attributable to Orion was $27.3 million. The reported weighted-average debt maturity was 1.2 years and weighted-average interest rate was 2.77% at year-end. Orion was in compliance with its credit-facility financial covenants.
Operating cash flow increased $13.8 million year over year, principally reflecting the larger portfolio. Investing outflows increased with capital expenditures and leasing costs, including $9.0 million of leasing commissions for the Merrill Lynch lease extension. Financing cash flows included $620 million of facility proceeds and approximately $595 million distributed to Realty Income in connection with the separation.
Material changes versus the prior comparable period
- Revenue rose $26.3 million from 2020, mainly because the merger and separation expanded the portfolio. Year-end properties increased from 40 to 92.
- Net loss attributable to common stockholders increased from $1.9 million to $47.5 million. Impairments rose from $18.7 million to $49.9 million; 10 properties were impaired in 2021, with certain non-core assets identified for potential sale.
- Debt increased substantially as the company was capitalized at separation; year-end 2020 debt was $37.1 million.
- The filing separately presents VEREIT Office Assets predecessor results for the ten months ended October 31, 2021: revenue of $135.4 million and net income of $5.7 million. These are a separate historical presentation and should not be added to Orion’s reported consolidated results without reconciling scope and periods.
Outlook, risks, contingencies, and unusual items
No numeric company-wide financial guidance is provided in the filing. Management said cash, operating cash flow, and revolving capacity were expected to meet liquidity needs for the following 12 months, while noting that refinancing and capital access are subject to market conditions. The company intended to elect REIT status beginning with its 2021 taxable year and make regular distributions. It had not paid dividends by year-end; on March 22, 2022, the board declared a first-quarter 2022 dividend of $0.10 per share.
After year-end, Orion refinanced the $355 million bridge facility with a fixed-rate $355 million mortgage loan bearing 4.971% interest and maturing February 11, 2027. The loan is interest-only, secured by 19 properties, and has prepayment restrictions. At closing, $35.5 million of reserves were funded primarily for future rent concessions and tenant improvements. In November 2021, Orion also agreed to $11.1 million of future rent concessions and up to $22.9 million of tenant improvements in connection with an 11-year extension by an investment-grade tenant at its largest property.
Key risks include office demand and leasing uncertainty associated with COVID-era work patterns; tenant concentration and single-tenant exposure; lease expirations, vacancy and re-leasing costs; government leasing trends; interest-rate, refinancing and covenant risks; inflation and rising property costs; and execution risks from integrating and operating as a newly independent company. Leases representing 52.6% of portfolio annualized base rent expire in 2022–2024. The General Services Administration represented 11.6% of annualized base rent; health-care equipment and services and government/public services represented 15.9% and 11.9%, respectively. Management reported average monthly rent collections of approximately 99% during 2021, but cautioned that historical collections do not predict future results.
The company reported no material pending legal proceedings and no material environmental claim known to management. Disclosure controls were assessed as effective at a reasonable assurance level; the filing did not include management’s ICFR assessment or auditor attestation under the transition relief available to newly public companies.
Important facts for investors to verify
- Confirm the reporting scope and accounting treatment for the Realty Income and VEREIT assets; the filing’s historical results are not a standalone, like-for-like operating series.
- Review leasing status, tenant credit, and renewal prospects for upcoming expirations, particularly the 2022–2024 rent roll and the disclosed vacancies.
- Assess post-refinancing debt service, the $35.5 million loan reserves, refinancing requirements, covenant headroom, and restrictions on property sales or prepayment.
- Evaluate the impairment assumptions and potential sale plans for the 10 impaired properties, and expected capital needs for leasing and tenant improvements.
- Monitor REIT qualification and distributions, including the board’s discretion over future dividends and the credit-facility limits on dividends.
- Confirm the registrant identity: the supplied request metadata says “Orion Properties Inc.,” while the filing identifies the registrant as Orion Office REIT Inc.