Orion Properties Inc. Q1 FY2026 earnings call

• Strategic options review process ongoing with Board and management working with financial advisors at Wells Fargo and J.P. Morgan, open to maximizing shareholder value, execution of business plan positive. - Leasing activity: Completed 355,000 square feet of leasing in Q1, including 172,000 square foot full building lease in Irving, Texas; weighted average lease term on new leases signed in quarter averaged nearly 12 years; consolidated portfolio occupancy rate rose to 83.1% at end of Q1 from 73.7% in Q1 last year; pipeline in excess of 1 million square feet in discussion or documentation stages. - Non-core asset dispositions: Sold 38 properties totaling 4.1 million square feet since spin, including first quarter sales of two vacant Northeast properties for aggregate gross proceeds of 13.1 million, second quarter sales of properties in Deerfield, Illinois and Glen Burnie, Maryland; currently under contract to sell additional three properties for $46 million, mostly to reduce debt; 2025 and 2026 vacant or near-term vacant property sales estimated to save more than $12 million in annual carrying costs. - Dedicated use assets: Acquired Barilla America headquarters and R&D facility in Northbrook, Illinois for $15 million; expect percentage of dedicated use assets in portfolio to continue increasing through disposition of traditional office and targeted acquisitions of DUA properties.

For the first quarter of 2026, compared to the first quarter of 2025, Orion had total revenues of $36.3 million compared to $38 million. Core FFO was 21 cents per share compared to 19 cents per share. The 21 cents per share of this quarter's core FFO includes a one-time expected lease termination payment of 1.9 million. Adjusted EBITDA was 17.2 million compared to 17.4 million. G&A came in as $5.1 million compared to $4.9 million. CapEx and leasing costs were $18.7 million compared to $8.3 million. Net debt to annualized most recent quarter adjusted EBITDA was 6.36 times at quarter end. As of March 31st, total liquidity was $148.5 million. Since spin, net $166 million of debt repaid. Entered new senior secured credit facility revolver, repaid $25 million post-quarter. Amended CMBS loan, extended maturity to August 2030 with fixed rate 4.971%. Unconsolidated joint venture investment written down to zero with loan loss reserve. 37.1% of consolidated portfolio by annualized base rent consisted of dedicated use assets vs 32.2% in Q1 2025.

• Affirming previously announced guidance: Core FFO for 2026 is expected to range from 69 cents to 76 cents per diluted share. - G&A is expected to range from 19.8 to 20.8 million, excluding non-cash compensation, expected to be in line or slightly better than 2025 and not to rise significantly in future periods including non-cash compensation. - Net debt to adjusted EBITDA is expected to range from 6.5 times to 7.3 times.

Q: Hey, good morning, guys. Thanks for taking the question. You touched on the pipeline, kind of about a million square feet, you know, that you guys are talking to right now. You know, how much of that is the leases that are going to expire this year versus next year? You know, just what should we expect in terms of momentum as we, you know, progress throughout the year?

A: This is Paul. A lot of the renewals that we're working on are summer 2026, but most are for 2027 and even actually beyond that in 2028 as well. As you know, we don't have too much lease rollover for the remainder of this year, and we've got good momentum on the renewal on the rollover for next. We also have got pretty good – momentum on filling some of our vacant space. We've got a bunch of leases that were in discussion with potential tenants for in our vacancies. So, you know, we feel in general pretty good about our pipeline and it's been, you know, our pipeline has been roughly the same size for the past few quarters and you know, which is reflected in our overall leasing momentum, you know, that we had in both in 2024 and 25 and now the beginning of 26.

Q: And then shifting to the guidance, you guys reaffirmed there, came in at 21 cents this quarter. So just looking at that, you know, from an annualized basis that would put you above the guidance, you know, were there any kind of one-time things or you know, stuff that we should be thinking about that's going to drive that a little bit lower based off of that 21 cents?

A: Hey, Matt Gavin here. So this quarter we had a $1.9 million lease termination payment that came in on the first quarter. And then we also had a reimbursement from some of our GSA work we did in Lincoln, Nebraska. The One-time reimbursement for the Lincoln, Nebraska work will be straight-lined versus recognized in the full period quarter. So the $1.9 million for the lease termination income really drove up the first quarter in our model. But as far as the remaining of the year goes, we haven't accrued for or expecting a significant amount of lease termination income coming in.

Q: Thank you very much. Paul, what's the profile of the buyers of these vacant properties, and are most of them being repurposed to other uses?

A: Yeah, good question, Mitch. You know, the profile is sort of mixed. The Walgreens properties, or the property in Deerfield, Illinois, we call it the Walgreens properties, their former headquarters. We actually tore the buildings down there and sold raw land to a developer. The Glenn Burney property that we sold at such a terrific premium, that was sold to a user who happened to be a next-door neighbor, so that property was you know, very valuable to them. So, you know, over our sale process over the past few years, you know, we've had the best outcomes are from, you know, people who are going to either repurpose the property into something else or users. And then when you have somebody who's just buying the property as an investor hoping to release it, you know, those are the most challenging buyers, but sometimes they're the only ones in the market.

Q: You only have three vacant assets remaining, which is quite an accomplishment, considering I think that metric's been, you know, kind of double-digit for you the last couple years. Is the goal for those three remaining, are those sale candidates, or is some of that part of your leasing pipeline as well?

A: It's, we hope to lease all three of those properties up, Mitch. You know, so we've made a lot of progress, obviously, in the property in Buffalo with moving Ingram Micro into that property. The property in Tulsa, Oklahoma, is a very high-quality Class A building. And that is currently vacant, but we've started to get some good leasing momentum there. We're in discussion and in negotiation with a few leases in that property. So our goal is to lease up that vacancy. But as you may have noticed over the past year or so, given our accelerated disposition volume, we're taking a very, very hard look quickly at whether or not that leasing interest is going to turn into true leases signed in buildings. And if we come to the conclusion that it is, we're going to lease these properties up. If we come to the conclusion that leasing is stalling, we're going to take a hard look and perhaps sell those assets. But, you know, just to be clear, the vacant assets we have remaining, for the most part, we expect to be able to lease up.

Q: It seems like the next phase of dispositions is going to be, you know, some of your stable properties that have some vaults fairly decent tenant, but just may not fit some of that criteria that you mentioned, you know, the critical use criteria. Is that a way to think about the next phase if, if there is a go forward plan for you guys?

A: I think that's pretty good. I mean, I think, you know, we're, we look at things, Mitch is, you know, sort of everything's for sale. So we'll comment on it probably next quarter, but you know, one of the properties we're announcing is, that we have under contract for sale is where we have a tenant is interested in buying the property and they offered us a price we frankly couldn't refuse. So you say, okay, if you're willing to pay a price and it makes sense for them because they're already in the building and it makes sense for us because they're paying us a significant value for the real estate. So I think we'll look at sales opportunistically and then Then once we get those proceeds, we'll look at what do we do with those proceeds. In the case of the property I just mentioned, we're going to utilize it to pay down debt. But in the future, we will utilize some of those sales to recycle capital into dedicated use assets, just as you described.