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What changed in Orion Properties Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Orion Properties Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+325 added−318 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-08)

Top changes in Orion Properties Inc.'s 2023 10-K

325 paragraphs added · 318 removed · 239 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Arch Street Joint Venture, including the limitations it places on our ability to acquire new properties, may adversely affect our ability to acquire wholly-owned properties and any joint venture investments could be adversely affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners. • We may suffer adverse effects from acquisitions of commercial real estate properties. • We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to our existing leases, or we may expend significant capital in our efforts to re-lease space, which may adversely affect our business, financial condition and results of operations. • Tenant defaults may have a material adverse effect on our business, financial condition and results of operations. • Some of our leases provide tenants with the right to terminate their leases early, which may have a material adverse effect on our business, financial condition and results of operations. • We have a significant amount of indebtedness and may need to incur more in the future. • We have existing debt and refinancing risks that could have a material adverse effect on our business, financial condition and results of operations, including the risk that interest rates may rise. • Financial covenants could materially adversely affect our ability to conduct our business. • We depend on external sources of capital that are outside of our control, which may affect our ability to pursue strategic opportunities, refinance or repay our indebtedness and make distributions to our stockholders. • Our expenses may remain constant or increase, even if our revenues decrease, which may have a material adverse effect on our business, financial condition and results of operations. • Real estate property investments are illiquid.
Biggest changeThe Arch Street Joint Venture, including the limitations it places on our ability to acquire new properties, may adversely affect our ability to acquire wholly-owned properties and any joint venture investments could be adversely affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners. • We may suffer adverse effects from acquisitions of commercial real estate properties. • We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to our existing leases, or we may expend significant capital in our efforts to re-lease space, which may adversely affect our business, financial condition and results of operations. • Tenant defaults may have a material adverse effect on our business, financial condition and results of operations. • Some of our leases provide tenants with the right to terminate their leases early, which may have a material adverse effect on our business, financial condition and results of operations. • We have a significant amount of indebtedness and may need to incur more in the future. • We have existing debt and refinancing risks that could have a material adverse effect on our business, financial condition and results of operations, including the risk that we will be unable to extend or refinance some or all of our debt, including uncertainty with regard to our ability to extend and continue to comply with or otherwise refinance our Revolving Facility which is scheduled to mature on November 12, 2024. • Financial covenants could materially adversely affect our ability to conduct our business. • We depend on external sources of capital that are outside of our control, which may affect our ability to achieve our business strategies. • Our expenses may remain constant or increase, even if our revenues decrease, which may have a material adverse effect on our business, financial condition and results of operations. • Real estate property investments are illiquid.
We may not be able to dispose of properties when desired or on favorable terms. • Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions. • Our assets may be subject to impairment charges. • Uninsured and underinsured losses may adversely affect our operations. • We have a limited operating history as a REIT and an independent public company, and the obligations and requirements to which we are subject as a public company are extensive and have resulted in increased cost and time commitments which we anticipate will continue. 7 Table of Contents • Our failure to maintain our qualification as a REIT for U.S. federal income tax purposes could have a material adverse effect on us.
We may not be able to dispose of properties when desired or on favorable terms. • Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions. • Our assets may be subject to impairment charges. • Uninsured and underinsured losses may adversely affect our operations. • We have a limited operating history as a REIT and an independent public company, and the obligations and requirements to which we are subject as a public company are extensive and have resulted in increased cost and time commitments which we anticipate will continue. • Our failure to maintain our qualification as a REIT for U.S. federal income tax purposes could have a material adverse effect on us. 7 Table of Contents
Available Information We electronically file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. You may access any materials we file with the SEC through the EDGAR database at the SEC’s website at http://www.sec.gov.
Available Information We electronically file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. You may access any materials we file with the SEC through the EDGAR database at the SEC’s website at www.sec.gov.
As described in more detail in the section in this report entitled “Risk Factors”, our acquisition strategy is subject to risks, including that we may not be in a position or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions will fail to perform as expected. Asset Management.
As described in more detail in the section in this report entitled “Risk Factors”, our acquisition strategy is subject to risks, including that we may not be in a position or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions will fail to perform as expected.
Such offers or sales of shares of our common stock may be made in privately negotiated 5 Table of Contents transactions, including block trades, brokers’ transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the New York Stock Exchange, or through forward transactions under separate master forward sale confirmations and related supplemental confirmations for the sale of shares of our common stock on a forward basis.
Such offers or sales of shares of our common stock may be made in privately negotiated transactions, including block trades, brokers’ transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the New York Stock Exchange, or through forward transactions under separate master forward sale confirmations and related supplemental confirmations for the sale of shares of our common stock on a forward basis.
We expect to pursue both individual assets as well as portfolio opportunities sourced from a wide range of marketed and off-market transactions.
We intend to pursue both individual assets as well as portfolio opportunities sourced from a wide range of marketed and off-market transactions.
In addition, copies of our filings with the SEC may be obtained free of charge from our website at www.onlreit.com. We are providing our website address solely for the 6 Table of Contents information of investors.
In addition, copies of our filings with the SEC may be obtained free of charge from our website at www.onlreit.com. We are providing our website address solely for the information of investors.
As of December 31, 2022, we had not sold any shares of common stock pursuant to the ATM Program.
As of December 31, 2023, we had not sold any shares of common stock pursuant to the ATM Program.
Additionally, we may seek to address any lease roll or vacancy in our portfolio by converting the space to multi-tenant office use in the event that our management team considers conversion to be the value-maximizing alternative for the subject property. Capital Recycling.
Additionally, we may seek to address any lease roll or vacancy in our portfolio by converting the space to multi-tenant office or other use in the event that our management team considers conversion to be the value-maximizing alternative for the subject property. 4 Table of Contents Capital Recycling .
Additionally, we believe there are a variety of markets outside the Sun Belt which possess similar attractive characteristics and are benefiting from similar trends. We will look to opportunistically emphasize both Sun Belt and other similar high-quality markets as we grow our portfolio. Net Lease Investment Characteristics.
Additionally, we believe there are a variety of markets outside the Sun Belt which possess similar attractive characteristics and will benefit from similar trends. We will look to opportunistically emphasize both Sun Belt and other similar high-quality markets to the extent we are able to grow our portfolio. Net Lease Investment Characteristics.
Human Capital As of December 31, 2022, we had 35 employees. We value our employees and their individual and collective contributions to the Company in the furtherance of our corporate, operational, social, environmental and governance initiatives.
Human Capital As of December 31, 2023, we had 38 employees. We value our employees and their individual and collective contributions to the Company in the furtherance of our corporate, operational, social, environmental and governance initiatives.
Risk Factors ” contained in this Annual Report on Form 10-K. • If global market and economic conditions deteriorate, our business, financial condition and results of operations could be materially adversely affected. • The COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices, or other office space utilization trends, which could materially adversely impact our business, operating results, financial condition and prospects. • We could experience difficulties or delays renewing leases or re-leasing space, which will increase our costs to operate and maintain such properties without receiving income. • Most of our properties depend upon a single tenant for all or a majority of their rental income; therefore, our financial condition, including our ability to make distributions to stockholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single tenant. • Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business. • We are invested in the Arch Street Joint Venture and have co-invested and may in the future co-invest in joint ventures with third parties.
Risk Factors ” contained in this Annual Report on Form 10-K. • If global market and economic conditions deteriorate, our business, financial condition and results of operations could be materially adversely affected. • Changes in workplace practices and office space utilization, including remote and hybrid work arrangements, have reduced the demand for office space at our properties and may continue to do so. • We could experience difficulties or delays renewing leases or re-leasing space, which will increase our costs to operate and maintain such properties without receiving income. • Most of our properties depend upon a single tenant for all or a majority of their rental income; therefore, our financial condition, including our ability to make distributions to stockholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single tenant. • Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business. • We are invested in the Arch Street Joint Venture and have co-invested and may in the future co-invest in joint ventures with third parties.
We intend to grow our portfolio by acquiring properties, both directly and through our Arch Street Joint Venture, that fit the characteristics defined in our investment evaluation framework through multiple sourcing channels, leveraging our management team’s extensive relationship network with an average of over 25 years of experience transacting in the single-tenant net lease suburban office market.
When possible, we intend to grow our portfolio by acquiring properties that fit the characteristics defined in our investment evaluation framework through multiple sourcing channels, leveraging our management team’s extensive relationship network with an average of over 25 years of experience transacting in the single-tenant net lease suburban office market.
Item 1. Business. Overview Orion Office REIT Inc. is an internally managed REIT engaged in the ownership, acquisition, and management of a diversified portfolio of mission-critical regional and corporate headquarters office buildings located in high-quality suburban markets across the U.S. and leased primarily on a single-tenant net lease basis to creditworthy tenants.
Item 1. Business. Overview Orion Office REIT Inc. is an internally managed real estate investment trust (“REIT”) engaged in the ownership, acquisition, and management of a diversified portfolio of office buildings located in high-quality suburban markets across the U.S. and leased primarily on a single-tenant net lease basis to creditworthy tenants.
Our board of directors may authorize us to issue a number of shares up to the amount of our authorized capital in any manner and on such terms and for such consideration as it deems appropriate. Such securities may be senior to the outstanding class of common stock.
Our board of directors may authorize us to issue a number of shares up to the amount of our authorized capital in any manner and on such terms and for such consideration as it deems appropriate.
We seek stable cash flow from primarily long-term leases with high credit quality tenants and inflation protection from embedded rent growth. Net leases can enhance stability of cash flows by shifting some or all operating expense burden to the tenant. Tenant Credit Underwriting. We will pursue both investment grade rated tenants and creditworthy non-investment grade rated tenants.
We seek to invest in stable cash flow from primarily long-term leases with high credit quality tenants and inflation protection from embedded rent growth. Net leases can enhance stability of cash flows by shifting some or all operating expense burden to the tenant. Tenant Credit Underwriting.
Our platform is vertically integrated across functions, including investment, finance, property management and leasing. Our integrated structure enables us to identify value creation opportunities and realize significant operating efficiencies. Our organization includes property managers and leasing professionals who maintain direct relationships and dialogue with our tenants and broker communities.
Our integrated structure enables us to identify value creation opportunities and realize significant operating efficiencies. Our organization includes property managers and leasing professionals who maintain direct relationships and dialogue with our tenants and broker communities.
As of December 31, 2022, properties located in the following states accounted for over 10% of our annualized base rent: Geographic Concentration Annualized Base Rent as a % of Total Portfolio Texas 15.0% New Jersey 12.0% As of December 31, 2022, tenants in the following industries accounted for over 10% of our annualized base rent: Tenant Industry Concentration Annualized Base Rent as a % of Total Portfolio Health Care Equipment & Services 13.4% Government & Public Services 12.2% Investment Strategy We employ a proven, cycle-tested investment evaluation framework which serves as the lens through which we make capital allocation decisions for both our current portfolio and future acquisitions.
As of December 31, 2023, properties located in the following states accounted for over 10% of our annualized base rent: Geographic Concentration Annualized Base Rent as a % of Total Portfolio Texas 17.2% New Jersey 10.2% New York 10.2% As of December 31, 2023, tenants in the following industries accounted for over 10% of our annualized base rent: Tenant Industry Concentration Annualized Base Rent as a % of Total Portfolio Health Care Equipment & Services 15.3% Government & Public Services 13.9% Financial Institutions 11.1% Investment Strategy We employ a proven, cycle-tested investment evaluation framework which serves as the lens through which we make capital allocation decisions.
In November 2022, we established an “at the market” offering program for our common stock (the “ATM Program”). Pursuant to the ATM Program, we may from time to time offer and sell shares of our common stock, having an aggregate offering price of up to $100.0 million.
Pursuant to the ATM Program, we may from time to time offer and sell shares of our common stock, having an aggregate offering price of up to $100.0 million.
As of December 31, 2022, we had $530.0 million of total consolidated debt outstanding, consisting of a $355.0 million fixed rate mortgage loan collateralized by 19 properties (the “CMBS Loan”), and $175.0 million borrowed under our senior term loan facility (the “Term Loan Facility”).
As of December 31, 2023, we had $471.0 million of total consolidated debt outstanding, consisting of a $355.0 million fixed rate mortgage loan collateralized by 19 properties (the “CMBS Loan”), and $116.0 million borrowed under our $425.0 million senior revolving credit facility (the “Revolving Facility”).
We employ active asset management strategies and work to leverage our tenant relationships to attract and retain high-quality creditworthy tenants, drive re-leasing and renewal activity and maximize our tenant retention rates.
This framework prescribes that investments are evaluated along the following parameters: Asset Management. We employ active asset management strategies and work to leverage our tenant relationships to attract and retain high-quality creditworthy tenants, drive re-leasing and renewal activity and maximize our tenant retention rates.
Our active asset management strategy utilizes a disciplined and adaptive investment evaluation framework to assess each property in our portfolio, including with respect to its existing leases, future leasing opportunities, geographic market, and marketability for sale, as well as how each property contributes to the portfolio as a whole, to determine the appropriate strategy for managing that property within the context of our portfolio, including potential disposition opportunities.
As part of our asset management efforts, we assess each property in our portfolio, including with respect to its existing leases, property type and tenant utilization, future leasing opportunities, geographic market, and marketability for sale, as well as how each property contributes to the portfolio as a whole, to determine the appropriate strategy, including potential disposition opportunities.
We expect to use leverage conservatively, assessing the appropriateness of new equity or debt capital based on market conditions, including prudent assumptions regarding future cash flow, the creditworthiness of tenants and future rental rates.
Financing We employ prudent amounts of leverage and use debt as a means of providing additional funds for asset management and other general corporate purposes. We expect to use leverage conservatively, assessing the appropriateness of new equity or debt capital based on market conditions, including prudent assumptions regarding future cash flow, the creditworthiness of tenants and future rental rates.
The suburbs within Sun Belt states in particular are markets which are now benefiting from an increasing number of corporate relocations from urban coastal markets to inland secondary markets, as companies and employees alike seek a lower cost of living, business-friendly tax and regulatory environments, less density, and better weather.
We believe these markets will continue to benefit from an increasing number of corporate relocations from urban coastal markets to inland secondary markets, as companies and employees alike seek a lower cost of living, business-friendly tax and regulatory environments, less density, and better weather.
As of December 31, 2022, the Company owned and operated 81 office properties with an aggregate of 9.5 million square feet, with an occupancy rate of 88.8% and a weighted-average remaining lease term of 4.0 years.
As of December 31, 2023, we owned and operated 75 office properties with an aggregate of 8.7 million leasable square feet located in 29 states with an occupancy rate of 80.0% and a weighted-average remaining lease term of 3.9 years.
Summary of Risk Factors The following section sets forth a summary of principal risk factors that we believe are material to our investors, and could adversely affect our business, financial condition, results of operations, our ability to pay distributions and the value of an investment in our common stock.
We do not intend for the information contained on our website to be incorporated into this Annual Report on Form 10-K or other filings with the SEC. 6 Table of Contents Summary of Risk Factors The following section sets forth a summary of principal risk factors that we believe are material to our investors, and could adversely affect our business, financial condition, results of operations, our ability to pay distributions and the value of an investment in our common stock.
We will utilize our credit underwriting and real estate expertise to underwrite creditworthy non-investment grade tenants that we believe will offer enhanced yield and attractive risk-adjusted returns. 4 Table of Contents Real Estate Attributes.
We primarily own commercial real properties leased to investment-grade rated tenants and creditworthy non-investment-grade rated or unrated tenants. To the extent we are able to grow our portfolio, we intend to utilize our credit underwriting and real estate expertise to underwrite creditworthy investment-grade and non-investment-grade tenants that we believe will offer enhanced yield and attractive risk-adjusted returns. Real Estate Attributes.
Including the Company’s pro rata share of square feet and annualized base rent from the Arch Street Joint Venture, the Company’s unconsolidated joint venture with an affiliate of Arch Street Capital Partners, LLC (“Arch Street Capital Partners”), we owned an aggregate of 9.7 million square feet, with an occupancy rate of 89.0% and a weighted-average remaining lease term of 4.1 years as of December 31, 2022.
Including our pro rata share of leasable square feet and annualized base rent from the Arch Street Joint Venture, we owned an aggregate of 8.9 million leasable square feet with an occupancy rate of 80.4%, or 87.2% adjusted for properties that are currently under agreement to be sold, and a weighted-average remaining lease term of 4.0 years as of December 31, 2023.
Orion Office REIT Inc. was incorporated in the State of Maryland on July 1, 2021 and has been operating in a manner so as to qualify and has elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2021.
Following the Distribution, the Company has been operating as an independent publicly traded company, and the Company has elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with its initial taxable year ended December 31, 2021.
As of December 31, 2022, we did not have any amounts outstanding under our $425.0 million senior revolving credit facility (the “Revolving Facility” and together with the Term Loan Facility, the “Revolver/Term Loan Facilities”). In addition, the Company’s pro rata share of mortgage notes of the unconsolidated joint venture was $27.3 million as of December 31, 2022.
In June 2023, we repaid and retired our $175.0 million senior term loan facility with borrowings under the Revolving Facility. Additionally, the Company’s pro rata share of mortgage notes of the Arch Street Joint Venture was $27.3 million as of December 31, 2023.
As of December 31, 2022, the Company had a total of 17 leases with the General Services Administration and the weighted average remaining lease term of these leases was 2.8 years.
As of December 31, 2023, one tenant exceeded 10% of our annualized base rent: the General Services Administration at 13.5%. As of December 31, 2023, we had a total of 15 leases with the General Services Administration and the weighted average remaining lease term of these leases was 3.0 years.
We intend to invest primarily in mission-critical regional and corporate headquarters office locations that are well-located with easy access to commuting routes and on-site amenities that enhance the tenant’s propensity to renew. When possible, we will look to acquire properties with modern floor plans configured to optimize collaboration and enhance employee productivity.
Our portfolio includes regional and corporate headquarters office locations and other properties that are well-located with easy access to commuting routes and on-site amenities that enhance the tenant’s propensity to renew.
We expect to continue to selectively dispose of properties in our current portfolio if we determine that they do not fit our investment strategies. Proceeds from dispositions are expected to be redeployed to fund new acquisitions as well as capital investment into our existing portfolio to further enhance the quality of our portfolio and stability of our cash flows.
Proceeds from dispositions are expected to be redeployed to fund capital investment into our existing portfolio to further enhance the quality of our portfolio and stability of our cash flows, selective acquisitions and other general corporate purposes.
Competitive Strengths Our portfolio consists of high-quality, diversified properties with favorable exposure to investment grade credit. Our acquisition strategy is focused on suburban office assets and primarily net leases with long-term leases of approximately 10 years on average, with the ability to opportunistically acquire multi-tenant office properties.
Competitive Strengths Our portfolio consists of high-quality, diversified properties with favorable exposure to investment-grade credit and is located in attractive suburban markets across the U.S. and leased primarily on a single-tenant net lease basis.
We believe our conservative leverage and strong liquidity will enable us to opportunistically take advantage of high-quality acquisition opportunities. However, there can be no assurance that we will be able to obtain the financing necessary to fund our acquisition of new properties or expansion or redevelopment of existing properties on terms favorable to us or at all.
We believe our conservative leverage and liquidity will enable us to continue to make the capital investments needed to enhance the quality of our existing portfolio and stability of our cash flows, as well as opportunistically take advantage of high-quality acquisition opportunities as market conditions permit.
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Our properties are located in a total of 29 different states throughout the U.S. As of December 31, 2022, one tenant exceeded 10% of our annualized base rent: the General Services Administration at 11.9%.
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Our portfolio is comprised of traditional office buildings, as well as governmental office, medical office, office/laboratory, office/research and office/flex properties. The Company was initially formed as a wholly-owned subsidiary of Realty Income Corporation (“Realty Income”). Following completion of the merger transaction involving Realty Income and VEREIT, Inc.
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This framework prescribes that investments are evaluated along the following parameters: Suburban Market Features. We focus on suburban markets with strong fundamentals and demographic tailwinds accelerated in the post-COVID environment.
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(“VEREIT”) on November 1, 2021, Realty Income contributed the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income, and certain office real properties and related assets previously owned by subsidiaries of VEREIT (the “Separation”), to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”), and on November 12, 2021, effected a special distribution to its stockholders of all the outstanding shares of common stock of the Company (the “Distribution”).
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We look for markets with population growth, limited new supply, and highly educated workforces that are well positioned to capitalize on de-urbanization trends amplified by the migration of millennials to the suburbs.
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We expect to continue to selectively dispose of properties in our current portfolio if we determine that they do not fit our investment strategies.
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We will also seek to acquire properties that further the environmental, social and governance initiatives that are part of our strategy. We seek to utilize our investment evaluation framework to drive external growth through acquisitions, generate internal growth via asset management, and optimize our portfolio through capital recycling.
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As part of our capital recycling efforts, we are seeking opportunities to invest in properties featuring, among other uses, government, medical, laboratory, research and development, and flex operations. Our experience is that these properties have greater tenant utilization and higher renewal probability, given their generally specialized uses.
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To accomplish this objective, we intend to execute along three fundamental drivers of our business: External Growth, Asset Management, and Capital Recycling. External Growth.
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We expect to be more cautious with investment in generic office properties if we believe that remote and hybrid work arrangements will continue to be viable alternatives and in-office head counts remain below pre-pandemic levels. Suburban Market Features.
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We also apply this evaluation framework to the properties in our portfolio as part of the process by which we identify opportunities to sell, re-lease, or reposition existing assets.
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We primarily own commercial real properties located in suburban markets and seek to capitalize on de-urbanization trends amplified by the migration of millennials to the suburbs in the post-COVID environment. 36.0% of our annualized base rent as of December 31, 2023 was from Sun Belt markets.
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Financing We intend, when appropriate, to employ prudent amounts of leverage and to use debt as a means of providing additional funds for the acquisition of assets, and to refinance existing debt or for asset management and general corporate purposes.
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As part of our asset management efforts, we expect to increase the quality and desirability of our portfolio by continuing to make capital investments in our properties to add amenities and to create more modern floor plans configured to optimize collaboration and enhance employee productivity. External Growth.
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Our ability to efficiently deploy capital is a direct result of our management team’s wide-ranging network of industry relationships, which we believe allows us to source a robust pipeline of attractive marketed, off-market, sale-leased back and build-to-suit investment opportunities. We believe our relationship-based sourcing strategy will generate a sustainable pipeline of opportunities to drive growth and enhance scale over time.
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Such securities may be senior to the outstanding class of common stock. 5 Table of Contents In November 2022, we established an “at the market” offering program for our common stock (the “ATM Program”).
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We also believe that our senior management team’s experience, as well as deep and long-standing relationships within the single-tenant suburban office sector, competitively position us, provide us with unique market insights, allow us to discern market trends, help us to access off-market acquisition opportunities and facilitate our ability to execute our growth plan.
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We have a strong management team with a wide-ranging network of industry relationships and an average of over 25 years of experience transacting in the single-tenant net lease suburban office market. Our platform is vertically integrated across functions, including investment, finance, property management, leasing and legal.
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We do not intend for the information contained on our website to be incorporated into this Annual Report on Form 10-K or other filings with the SEC.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

68 edited+24 added−13 removed181 unchanged
Biggest changeAs a result, we are, and expect to be, subject to the risks normally associated with debt financing including: • that interest rates may rise; • that our cash flow will be insufficient to make required payments of principal and interest; • that we will be unable to refinance some or all of our debt or increase the availability of overall debt on terms as favorable as those of our existing debt, or at all; • that any refinancing will not be on terms as favorable as those of our existing debt; • that required payments on mortgages and on our other debt are not reduced if the economic performance of any property declines; • that debt service obligations will reduce funds available for distribution to our stockholders; • that any default on our debt, due to noncompliance with financial covenants or otherwise, could result in acceleration of those obligations; • that we may be unable to refinance or repay the debt as it becomes due; and • that if our degree of leverage is viewed unfavorably by lenders or potential joint venture partners, it could affect our ability to obtain additional financing.
Biggest changeIf the Arch Street Joint Venture is unable to extend or refinance the mortgage notes, our investment in the Arch Street Joint Venture could be materially adversely affected. 12 Table of Contents As a result of the indebtedness we incur, we are, and expect to be, subject to the risks normally associated with debt financing including: • that we will be unable to extend or refinance some or all of our debt or increase the availability of overall debt on terms as favorable as those of our existing debt, or at all; • that interest rates may rise; • that our cash flow could be insufficient to make required payments of principal and interest; • that required payments on mortgages and on our other debt are not reduced if the economic performance of any property declines; • that debt service obligations will reduce funds available for distribution to our stockholders; • that any default on our debt, due to noncompliance with financial covenants or otherwise, could result in acceleration of those obligations; • that we may be unable to extend, refinance or repay the debt as it becomes due; and • that if our degree of leverage is viewed unfavorably by lenders or potential joint venture partners, it could affect our ability to obtain additional financing.
These risks include: • changes in supply of or demand for office properties in our market or sub-markets; • competition for tenants in our market or sub-markets; 10 Table of Contents • the ongoing need for capital improvements; • increased operating costs, which may not necessarily be offset by increased rents, including insurance premiums, utilities, real estate taxes, capital expenditures and repair and maintenance costs, due to inflation and other factors; • changes in tax, real estate and zoning laws; • changes in governmental rules and fiscal policies; • inability of tenants to pay rent; • competition from the development of new office space in our market or sub-markets and the quality of competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record; and • civil unrest, acts of war, terrorism, adverse political conditions, acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured losses) and other factors beyond our control.
These risks include: • changes in supply of or demand for office properties in our market or sub-markets; • competition for tenants in our market or sub-markets; • the ongoing need for capital improvements; • increased operating costs, which may not necessarily be offset by increased rents, including insurance premiums, utilities, real estate taxes, capital expenditures and repair and maintenance costs, due to inflation and other factors; • changes in tax, real estate and zoning laws; • changes in governmental rules and fiscal policies; • inability of tenants to pay rent; 10 Table of Contents • competition from the development of new office space in our market or sub-markets and the quality of competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record; and • civil unrest, acts of war, terrorism, adverse political conditions, acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured losses) and other factors beyond our control.
In addition to these ownership limits, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, shares of our capital stock that would result in us being “closely held” under Section 856(h) of the Code, (b) transferring our capital stock if such transfer would result in our stock being owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), (c) beneficially or constructively owning shares of our capital stock to the extent such ownership would result in us owning (directly or indirectly) an interest in a tenant if the income derived by us from that tenant for our taxable year during which such determination is being made would reasonably be expected to equal or exceed the lesser of one percent of our gross income or an amount that would cause us to fail to satisfy any of the REIT gross income requirements and (d) beneficially or constructively owning shares of our capital stock that would cause us otherwise to fail to qualify as a REIT.
In addition to these ownership limits, our charter also prohibits any person from: • beneficially or constructively owning, as determined by applying certain attribution rules of the Code, shares of our capital stock that would result in us being “closely held” under Section 856(h) of the Code; • transferring our capital stock if such transfer would result in our stock being owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code); • beneficially or constructively owning shares of our capital stock to the extent such ownership would result in us owning (directly or indirectly) an interest in a tenant if the income derived by us from that tenant for our taxable year during which such determination is being made would reasonably be expected to equal or exceed the lesser of one percent of our gross income or an amount that would cause us to fail to satisfy any of the REIT gross income requirements; and • beneficially or constructively owning shares of our capital stock that would cause us otherwise to fail to qualify as a REIT.
Among the factors that could affect the market price of our common stock are: • actual or anticipated quarterly fluctuations in our business, financial condition and operating results; • changes in revenues or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; • the ability of our tenants to pay rent to us and meet their other obligations to us under current lease terms; • our ability to re-lease spaces as leases expire; • our ability to refinance our indebtedness as it matures; 17 Table of Contents • any changes in our dividend policy; • any future issuances of equity securities; • strategic actions by us or our competitors, such as acquisitions or restructurings; • general economic, political and financial market conditions and, in particular, developments related to market conditions for the real estate industry; and • domestic and international economic factors unrelated to our performance.
Among the factors that could affect the market price of our common stock are: • actual or anticipated quarterly fluctuations in our business, financial condition and operating results; • changes in revenues or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; • the ability of our tenants to pay rent to us and meet their other obligations to us under current lease terms; • our ability to re-lease spaces as leases expire; • our ability to extend or refinance our indebtedness as it matures; • any changes in our dividend policy; • any future issuances of equity securities; • strategic actions by us or our competitors, such as acquisitions or restructurings; • general economic, political and financial market conditions and, in particular, developments related to market conditions for the real estate industry; and • domestic and international economic factors unrelated to our performance.
During the year ended December 31, 2022, most of our rental revenue was from our properties leased to single tenants. The value of our single tenant properties is materially dependent on the performance of those tenants under their respective leases. These tenants face competition within their industries and other factors that could reduce their ability to pay us rent.
During the year ended December 31, 2023, most of our rental revenue was from our properties leased to single tenants. The value of our single tenant properties is materially dependent on the performance of those tenants under their respective leases. These tenants face competition within their industries and other factors that could reduce their ability to pay us rent.
For example, the increased adoption of and familiarity with remote work practices has resulted in decreased demand for and utilization of office space.
For example, the increased adoption of and familiarity with remote and hybrid work practices has resulted in decreased demand for and utilization of office space.
The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholder rights plan, (c) make a determination under the Maryland Business Combination Act, or (d) act or fail to act solely because of the effect the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.
The duties of directors of Maryland corporations do not require them to: • accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation; • authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholder rights plan; • make a determination under the Maryland Business Combination Act; or • act or fail to act solely because of the effect the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.
We believe these trends have impacted our leasing efforts as certain of our tenants have elected to not renew their leases, or to renew them for less space than they were occupying, resulting in increases in vacancy rates at our properties and decreases in rental income.
These trends have impacted our leasing efforts as certain of our tenants have elected to not renew their leases, or to renew them for less space than they were occupying, resulting in increases in vacancy rates at our properties and decreases in rental income.
Tenants’ evolving preferences regarding office space configuration either in response to the pandemic or for other reasons, may impact their space requirements and also has required and may continue to require us to spend increased amounts for tenant improvements.
Tenants’ evolving preferences regarding office space configuration either in response to the COVID-19 pandemic or for other reasons, may impact their space requirements and also has required and may continue to require us to spend increased amounts for tenant improvements.
Although we do not intend to hold any properties that would be characterized as inventory held for sale to customers in the ordinary course of our business, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Although we do not intend to hold any properties that would be characterized as inventory held for sale to customers in the ordinary course of our business, such characterization is a factual determination and no guarantee can 20 Table of Contents be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
The issuance of a substantial number of shares of our common stock in the open market or the issuance of a substantial number of shares of our common stock upon the exercise of the warrants granted to affiliates of Arch Street Capital Partners in connection with the Distribution or the exchange of OP units or other securities exchangeable or convertible into shares of our common stock, or the perception that such issuances might occur, could adversely affect the per share trading price of our common stock.
The issuance of a substantial number of shares of 22 Table of Contents our common stock in the open market or the issuance of a substantial number of shares of our common stock upon the exercise of the warrants granted to affiliates of Arch Street Capital Partners in connection with the Distribution or the exchange of OP units or other securities exchangeable or convertible into shares of our common stock, or the perception that such issuances might occur, could adversely affect the per share trading price of our common stock.
Further, if any of our properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property; however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations.
Further, if any of our properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property; however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to 8 Table of Contents effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations.
Even if we continue to conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting 16 Table of Contents principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
Even if we continue to conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
Distributions of cash and common stock will be treated as dividends to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash 19 Table of Contents received in the distribution.
Distributions of cash and common stock will be treated as dividends to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash received in the distribution.
McDowell or any of our other key personnel will remain employed by us. Our ability to retain such individuals, or to attract a suitable replacement should he leave, is dependent on the competitive nature of the employment market. The loss of services of Mr.
McDowell or any of our other key personnel will remain employed by us. Our ability to retain such individuals, or to attract a suitable replacement should he leave, is dependent on the competitive nature of the employment market. The loss of 17 Table of Contents services of Mr.
If we are unable to repay or refinance our indebtedness as it becomes due, we may need to sell assets or to seek protection from our creditors under applicable law, which may have a material adverse effect on our business, financial condition and results of operations. 12 Table of Contents Financial covenants could materially adversely affect our ability to conduct our business.
If we are unable to repay, extend or refinance our indebtedness as it becomes due, we may need to sell assets or to seek protection from our creditors under applicable law, which may have a material adverse effect on our business, financial condition and results of operations. Financial covenants could materially adversely affect our ability to conduct our business.
As a result, if revenues drop, we may not be able to reduce our expenses accordingly, which may have a material adverse effect on our business, financial condition and results of operations. Property taxes may increase without notice.
As a result, if revenues drop, 13 Table of Contents we may not be able to reduce our expenses accordingly, which may have a material adverse effect on our business, financial condition and results of operations. Property taxes may increase without notice.
If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants. We also seek to lease our vacant properties to new tenants. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.
If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.
The prohibited owner 20 Table of Contents will not benefit economically from ownership of any shares of our capital stock held in the charitable trust, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to the shares of our capital stock held in the charitable trust.
The prohibited owner will not benefit economically from ownership of any shares of our capital stock held in the charitable trust, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to the shares of our capital stock held in the charitable trust.
Any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management and workforce inclusion and diversity.
Any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate governance, environmental compliance, employee health and safety 15 Table of Contents practices, human capital management and workforce inclusion and diversity.
We have elected to be taxed as a REIT and believe we have been organized and have operated in a manner that has allowed us to qualify and to remain qualified as a REIT for U.S. federal income tax purposes commencing with our initial taxable year ended December 31, 2021.
We have elected to be taxed as a REIT and believe we have been organized and have operated in a manner that has allowed us to qualify and to remain qualified as a REIT for U.S. federal income tax purposes commencing with our initial taxable year 18 Table of Contents ended December 31, 2021.
These ownership limitations in our charter are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to minimize administrative burdens.
These ownership limitations in our charter are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to 21 Table of Contents minimize administrative burdens.
In addition, our board of directors has the power under our charter to amend our charter to increase (or 21 Table of Contents decrease) the number of authorized shares of our stock of any class from time to time, without approval of our stockholders.
In addition, our board of directors has the power under our charter to amend our charter to increase (or decrease) the number of authorized shares of our stock of any class from time to time, without approval of our stockholders.
As of December 31, 2022, our portfolio, including our pro rata share of properties owned by the Arch Street Joint Venture, had a weighted average lease term of 4.1 years, and had five vacant operating properties, with an aggregate 0.7 million square feet, including three properties, with an aggregate of 0.3 million square feet, that have remained vacant for over one year.
As of December 31, 2023, our portfolio, including our pro rata share of properties owned by the Arch Street Joint Venture, had a weighted average lease term of 4.0 years, and had 12 vacant operating properties, with an aggregate 1.4 million square feet, including three properties, with an aggregate of 0.4 million square feet, that have remained vacant for over one year.
Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the 8 Table of Contents terms of renewals or new leases, including the cost of required renovations or concessions to tenants, particularly commercial tenants, may be less favorable to us than current lease terms.
Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, may be less favorable to us than current lease terms.
In addition, in connection with executing our business strategies going forward, we expect to invest in our current portfolio and to acquire additional properties and make strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness.
In addition, in connection with executing our business strategies going forward, we expect to invest in our current portfolio and, as market conditions permit, intend to acquire additional properties and make strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness.
If our tenants elect to terminate their leases early, it may have a material adverse effect on our business, financial condition and results of operations. 11 Table of Contents We have a significant amount of indebtedness and may need to incur more in the future. As of December 31, 2022, we have approximately $530.0 million of total outstanding indebtedness.
If our tenants elect to terminate their leases early, it may have a material adverse effect on our business, financial condition and results of operations. We have a significant amount of indebtedness and may need to incur more in the future. As of December 31, 2023, we have approximately $471.0 million of total outstanding indebtedness.
These risks include potential operational interruptions, unauthorized access to and exposure of valuable and confidential data, increased cybersecurity protection and insurance costs, litigation and remediation costs and damage to our relationships with our tenants, among other things.
These risks include potential operational interruptions, fraudulent transfer of assets or unauthorized access to and exposure of valuable and confidential data, ransom costs, increased cybersecurity protection and insurance costs, litigation and remediation costs and damage to our relationships with our tenants, among other things.
If the Arch Street Joint Venture decides to acquire a property, our participation in the profitability and growth 9 Table of Contents related to that property may be adversely impacted by our limited participation rights, and our ability to determine the strategy with respect to those properties will be materially limited compared to acquisitions we make directly, including with respect to leasing, disposition and joint venture opportunities (including if such actions are necessary to maintain compliance with our debt commitments).
If the Arch Street Joint Venture decides to acquire a property, our participation in the profitability and growth related to that property may be adversely impacted by our limited participation rights, and our ability to determine the strategy with respect to properties we own through the Arch Street Joint Venture is materially limited compared to acquisitions we make directly, including with respect to leasing, disposition and joint venture opportunities (including if such actions are necessary to maintain compliance with our debt commitments).
Climate change may also make property 14 Table of Contents insurance unavailable or available only with less favorable terms and increase energy and other operating costs.
Climate change may also make property insurance unavailable or available only with less favorable terms and increase energy and other operating costs.
The credit agreement governing the Revolver/Term Loan Facilities and the CMBS Loan each contain various financial and other covenants, including, with respect to the Revolver/Term Loan Facilities, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales, and the payment of certain dividends, and with respect to the CMBS Loan, certain cash management requirements.
The credit agreement governing the Revolving Facility and the CMBS Loan each contain various financial and other covenants, including, with respect to the Revolving Facility, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales, and the payment of certain dividends and share repurchases, and with respect to the CMBS Loan, certain cash management requirements.
If recent increases in market interest rates are sustained or market interest rates continue to rise, prospective purchasers of our common stock may expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.
If market interest rates remain elevated or continue to rise, prospective purchasers of our common stock may expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.
We may suffer adverse effects from acquisitions of commercial real estate properties. We may pursue acquisitions of existing commercial real estate properties as part of our acquisition strategy.
We may suffer adverse effects from acquisitions of commercial real estate properties. We may pursue acquisitions of additional commercial real estate properties as part of our business strategy.
The amount of such indebtedness could have material adverse consequences for us, including: • hindering our ability to adjust to changing market, industry or economic conditions; • limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions or emerging businesses; • limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses; • making us more vulnerable to economic or industry downturns, including interest rate increases; and • placing us at a competitive disadvantage compared to less leveraged competitors.
The amount of such indebtedness could have material adverse consequences for us, including: 11 Table of Contents • hindering our ability to adjust to changing market, industry or economic conditions; • limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms to fund acquisitions, respond to competitive challenges or otherwise execute our business strategy; • limiting the amount of free cash flow available for future operations, reinvestment in our portfolio, acquisitions, dividends or other uses; • making us more vulnerable to economic or industry downturns, including interest rate increases; and • placing us at a competitive disadvantage compared to less leveraged competitors.
As our investment in the Arch Street Joint Venture is a minority, non-controlling interest, the investment decision by the Arch Street Joint Venture with respect to any property offered pursuant to the ROFO Agreement is controlled by Arch Street Capital Partners.
The ROFO Agreement will expire not later than November 12, 2024. As our investment in the Arch Street Joint Venture is a minority, non-controlling interest, the investment decision by the Arch Street Joint Venture with respect to any property offered pursuant to the ROFO Agreement is controlled by Arch Street Capital Partners.
The Revolver/Term Loan Facilities contain cross-default provisions that give the lenders the right to declare a default if we are in default resulting in (or permitting the) acceleration of other debt under other loans in excess of certain amounts.
The Revolving Facility contains cross-default provisions that give the lenders the right to declare a default if we are in default resulting in (or permitting the) acceleration of other debt under other loans in excess of certain amounts.
Weak economic conditions generally, sustained uncertainty about global economic conditions, a tightening of credit markets, business layoffs, downsizing, industry slowdowns and other similar factors that affect our tenants could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio.
Weak economic conditions generally, sustained uncertainty about global economic conditions, a tightening of credit markets, business layoffs, downsizing, industry slowdowns and other similar factors that affect our tenants have negatively impacted commercial real estate fundamentals and may continue to do so, which has resulted and may continue to result in lower occupancy, lower rental rates and declining values in our real estate portfolio.
The real property taxes on our properties and any other properties that we acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities.
The real property taxes on our properties may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities.
In addition, our charter and bylaws do not limit the amount of indebtedness we may incur. Accordingly, our board of directors may permit us to incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT.
Accordingly, our board of directors may permit us to incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT.
While the majority of our leases are under a net lease structure, some or all of such property taxes may not be collectible from our tenants.
While the majority of our leases are under a net lease structure, some or all of such property taxes may not be collectible from our tenants, and for our vacant properties, we are unable to recover property taxes from any tenants.
Also, the failure of any subsidiary partnerships or limited liability company to qualify as a disregarded entity or partnership for applicable income tax purposes could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners or members, including us.
Also, the failure of any subsidiary partnerships or limited liability company to qualify as a disregarded entity or partnership for applicable income tax purposes could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners or members, including us. 19 Table of Contents Any taxable REIT subsidiaries owned by us are subject to corporate-level taxes and our dealings with our taxable REIT subsidiaries may be subject to 100% excise tax.
If we are able to obtain additional financing, such financing could further raise our borrowing costs and further limit our future access to capital and our ability to satisfy our obligations under our indebtedness, which may have a material adverse effect on our business, financial condition and results of operations.
If we are able to obtain additional financing, such financing could further raise our borrowing costs and adversely impact our ability to satisfy our obligations under our indebtedness, which may have a material adverse effect on our business, financial condition and results of operations. In addition, our charter and bylaws do not limit the amount of indebtedness we may incur.
The Revolver/Term Loan Facilities may limit our ability to pay dividends on our common stock, including repurchasing shares of our common stock.
The Revolving Facility may limit our ability to pay dividends on our common stock, including repurchasing shares of our common stock.
In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all. 13 Table of Contents Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations.
In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all.
Any reduction in our dividends may cause investors to seek alternative investments, which would result in selling pressure on, and a decrease in the market price of, our common stock.
Any reduction in our dividends may cause investors to seek alternative investments, which would result in selling pressure on, and a decrease in the market price of, our common stock. As a result, the price of our common stock may decrease, which may have a material adverse effect on our business, financial condition and results of operations. Item 1B.
Under the credit agreement governing the Revolver/Term Loan Facilities, our dividends may not exceed the greater of (1) 95% of our funds from operations (as defined in the credit agreement), and (2) the amount required for us to maintain our qualification as a REIT.
Under the credit agreement governing the Revolving Facility, our dividends may not exceed the greater of (1) 100% of our adjusted funds available for distribution (as defined in the credit agreement), and (2) the amount required for us to maintain our qualification as a REIT.
Under applicable Treasury Regulations, if Realty Income or VEREIT failed to qualify as a REIT during certain periods prior to the Distribution, unless Realty Income’s or VEREIT’s failure were subject to relief under U.S. federal income tax laws, we would be prevented from electing to qualify as a REIT prior to the fifth calendar year following the year in which Realty Income or VEREIT failed to qualify. 18 Table of Contents If certain of our subsidiaries, including our operating partnership, fail to qualify as partnerships or disregarded entities for federal income tax purposes, we would cease to qualify as a REIT and would suffer other adverse consequences.
Under applicable Treasury Regulations, if Realty Income or VEREIT failed to qualify as a REIT during certain periods prior to the Distribution, unless Realty Income’s or VEREIT’s failure were subject to relief under U.S. federal income tax laws, we would be prevented from electing to qualify as a REIT prior to the fifth calendar year following the year in which Realty Income or VEREIT failed to qualify.
There can be no assurance that we will be able to obtain the financing necessary to fund our acquisition of new properties or expansion or redevelopment of existing properties on terms favorable to us or at all.
There can be no assurance that we will be able to obtain the capital necessary to fund the investments we will be required to make in our existing portfolio or to acquire new properties on terms favorable to us or at all.
We have incurred debt pursuant to the Revolver/Term Loan Facilities and the CMBS Loan.
We have incurred debt pursuant to the Revolving Facility and the CMBS Loan.
If we are unable to obtain a sufficient level of third-party financing to fund our capital needs, our ability to make distributions to our stockholders may be adversely affected which may have a material adverse effect on our business, financial condition and results of operations.
If we are unable to obtain a sufficient level of third-party financing to fund our capital needs, our ability to achieve our business strategies will be materially adversely effected. Our expenses may remain constant or increase, even if our revenues decrease, which may have a material adverse effect on our business, financial condition and results of operations.
There can be no assurance that our efforts to maintain the security and integrity of our information technology networks and related systems will be effective. A security breach involving our information technology networks and related systems could disrupt our operations in numerous ways that may have a material adverse effect on our business, financial condition and results of operations.
A security breach involving our information technology networks 16 Table of Contents and related systems could disrupt our operations in numerous ways that may have a material adverse effect on our business, financial condition and results of operations.
Failure to hedge effectively against interest rate changes may have a material adverse effect on our business, financial condition and results of operations. The interest rate hedge instruments we may use to manage some of our exposure to interest rate volatility involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements.
The interest rate hedge instruments we have used and may continue to use to manage some of our exposure to interest rate volatility involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements.
If the Arch Street Joint Venture elects not to purchase a property offered pursuant to the ROFO Agreement, their rights to first review the opportunity may delay or otherwise interfere in our ability to competitively bid or acquire such property, which, in turn, adversely affect our ability to act on our investment strategies in accordance with our business plan.
If the Arch Street Joint Venture elects not to purchase a property offered pursuant to the ROFO Agreement, their rights to first review the opportunity may delay or otherwise interfere in our ability to competitively bid or acquire such property, which, in turn, adversely affect our ability to act on our investment strategies in accordance with our business plan. 9 Table of Contents We also may enter into future joint ventures pursuant to which we will not be able to exercise sole decision-making authority regarding the properties owned through such joint ventures or similar ownership structure.
Additionally, these factors and conditions could have an impact on our lenders or tenants, causing them to fail to meet their obligations to us. We are subject to the risk of rising interest rates, including that our borrowing costs may increase and we may be unable to refinance our debt obligations on favorable terms or at all.
We are subject to the risk of rising interest rates, including that our borrowing costs may increase and we may be unable to extend or refinance our debt obligations on favorable terms or at all.
Moreover, to respond to competitive challenges, we may be required to raise substantial additional capital to execute our business strategy. Our ability to arrange additional financing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control.
Our ability to arrange additional financing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control.
However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, and it is unclear what the effect of these impacts will be on government demand for leasing office space.
Additionally, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, and it is unclear what the effect of these impacts will be on government demand for leasing office space. We are invested in the Arch Street Joint Venture and have co-invested in and may in the future co-invest in joint ventures with third parties.
However, we may be subject to certain types of losses that are generally uninsured losses, including, but not limited to losses caused by riots, war or acts of God.
However, we may be subject to certain types of losses that are generally uninsured losses, including, but not limited to losses caused by riots, war or acts of God. In the event of substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the property.
Overall, no more than 20% of the gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries.
A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 20% of the gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries.
In the event of substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the 15 Table of Contents property. In the event of an uninsured loss, we could lose some or all of our capital investment, cash flow and anticipated profits related to one or more properties.
In the event of an uninsured loss, we could lose some or all of our capital investment, cash flow and anticipated profits related to one or more properties.
Furthermore, over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. This activity has reduced the demand for government leased space.
Furthermore, over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. Persistent remote and hybrid work practices have also reduced space utilization at many of our government properties. These factors have reduced the demand for government leased space, and may continue to do so.
The increase in remote work practices may continue in a post-pandemic environment, even in the suburban markets and markets with lower demand in which we primarily operate, which may cause the trends impacting our leasing efforts to continue or even accelerate.
Remote and hybrid work practices may continue to persist, which may cause the trends impacting our leasing efforts to continue or even accelerate.
Accordingly, competition for acquisitions may limit our opportunities to grow our business, which may have a material adverse effect on our business, financial condition and results of operations.
Failure to hedge effectively against interest rate changes may have a material adverse effect on our business, financial condition and results of operations.
We, our tenants and our properties are subject to various federal, state and local regulatory requirements, such as environmental laws, state and local fire and safety requirements, building codes and land use regulations.
Accordingly, competition for acquisitions may limit our opportunities to grow our business, which may have a material adverse effect on our business, financial condition and results of operations. 14 Table of Contents We, our tenants and our properties are subject to various federal, state and local regulatory requirements, such as environmental laws, state and local fire and safety requirements, building codes and land use regulations.
Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions. We may acquire properties if we are presented with an attractive opportunity to do so.
We may acquire properties if market conditions permit and we are presented with an attractive opportunity to do so.
Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary.
A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary.
We have existing debt and refinancing risks that could have a material adverse effect on our business, financial condition and results of operations, including the risk that interest rates may rise.
We have existing debt and refinancing risks that could have a material adverse effect on our business, financial condition and results of operations, including the risk that we will be unable to extend or refinance some or all of our debt, including uncertainty with regard to our ability to extend and continue to comply with or otherwise refinance our Revolving Facility which is scheduled to mature on November 12, 2024.
We have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under our Revolver/Term Loan Facilities, to finance possible acquisitions and for general corporate purposes.
We have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under our $425.0 million Revolving Facility. Our Revolving Facility is scheduled to mature in November 2024, and we have the option to extend the maturity an additional 18 months until May 12, 2026.
We depend on external sources of capital that are outside of our control, which may affect our ability to pursue strategic opportunities, refinance or repay our indebtedness and make distributions to our stockholders.
We depend on external sources of capital that are outside of our control, which may affect our ability to achieve our business strategies. We will be required to make significant capital investments in our existing portfolio, including tenant improvement allowances to attract and retain tenants, as well as normal building improvements to replace obsolete building components.
Removed
The COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices, or other office space utilization trends, which could materially adversely impact our business, operating results, financial condition and prospects.
Added
Additionally, these factors and conditions have had and may continue to have an impact on our lenders or tenants, which could cause them to reduce their business with us or fail to meet their obligations to us.
Removed
Temporary closures of businesses and the resulting remote working arrangements for personnel in response to the COVID-19 pandemic or any future pandemic or outbreak of a highly infectious or contagious disease or fear of such pandemics or outbreaks may result in long-term changed work practices that could negatively impact us and our business.
Added
Changes in workplace practices and office space utilization, including remote and hybrid work arrangements, have reduced the demand for office space at our properties and may continue to do so. Changes in workplace practices and office space utilization, including remote and hybrid work arrangements, have negatively impacted our company and these factors may continue and worsen.
Removed
It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to manage space utilization rates in order to provide greater physical distancing for employees, which may require us to spend significant amounts for tenant improvements, mostly with lease renewals.
Added
If our properties are not as attractive to existing or new tenants as properties owned by our competitors due to age of the buildings, physical condition, lack of amenities or other similar factors, we could lose tenants, it could take longer to re-lease our properties and we could suffer lower rental rates.
Removed
Given the significant uncertainties, including as to the COVID-19 pandemic and its economic impact and its aftermath, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods.
Added
The extension option is subject to customary conditions, including there being no default or event of default, such as the failure to satisfy a financial or other covenant.
Removed
We are invested in the Arch Street Joint Venture and have co-invested in and may in the future co-invest in joint ventures with third parties.
Added
Our ability to satisfy these conditions and continue to comply with the terms of the Revolving Facility is partially dependent upon us having a sufficient level of unencumbered asset value as defined in the credit agreement with respect to the Revolving Facility.
Removed
We also may enter into future joint ventures pursuant to which we will not be able to exercise sole decision-making authority regarding the properties owned through such joint ventures or similar ownership structure.
Added
The level of unencumbered asset value is partially dependent upon future leasing activity at the underlying properties and/or us acquiring additional properties to add to the unencumbered asset pool, and there is uncertainty about our ability to renew or re-lease properties and/or acquire additional properties at a sufficient level to meet the requirements to extend and continue to comply with the Revolving Facility.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−0 removed2 unchanged
Biggest changeTenant Industry Diversification The following table sets forth certain information regarding the tenant industry concentrations in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2022 (dollars and square feet in thousands): Industry Number of Leases (1) Leased Square Feet Leased Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio Health Care Equipment & Services 12 1,109 11.4 % $ 21,379 13.4 % Government & Public Services 19 826 8.5 % 19,498 12.2 % Insurance 4 747 7.7 % 15,959 10.0 % Financial Institutions 3 616 6.3 % 15,373 9.6 % Software & Services 6 638 6.6 % 11,639 7.3 % Capital Goods 9 693 7.1 % 10,739 6.7 % Consumer Durables & Apparel 3 375 3.9 % 8,495 5.3 % Telecommunication Services 6 497 5.1 % 8,251 5.2 % Energy 2 461 4.7 % 7,321 4.6 % Commercial & Professional Services 10 505 5.2 % 7,205 4.5 % Top Ten Tenant Industries 74 6,467 66.5 % 125,859 78.8 % Remaining Tenant Industries: Transportation 5 541 5.6 % 7,183 4.5 % Food & Staples Retailing 6 574 5.9 % 6,310 4.0 % Materials 4 352 3.6 % 5,655 3.6 % Pharmaceuticals, Biotechnology & Life Sciences 1 176 1.8 % 4,995 3.1 % Media & Entertainment 2 264 2.7 % 3,689 2.3 % Retailing 3 157 1.6 % 3,181 2.0 % Food, Beverage & Tobacco 1 96 1.0 % 2,022 1.3 % Utilities 1 25 0.3 % 394 0.3 % Real Estate 1 4 — % 86 0.1 % Consumer Services 2 5 — % 54 — % Total 100 8,661 89.0 % $ 159,428 100.0 % ____________________________________ (1) The Company has certain properties that are subject to multiple leases. 23 Table of Contents Geographic Diversification The following table sets forth certain information regarding the geographic concentrations (by state) in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2022 (dollars and square feet in thousands): Location Number of Properties Rentable Square Feet Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio Texas 15 1,353 13.9 % $ 23,831 15.0 % New Jersey 3 724 7.4 % 19,199 12.0 % New York 5 781 8.0 % 13,564 8.5 % Illinois 9 916 9.4 % 11,702 7.3 % Kentucky 2 458 4.7 % 10,114 6.3 % Oklahoma 3 585 6.0 % 9,591 6.0 % Massachusetts 2 378 3.9 % 7,933 5.0 % Colorado 4 570 5.9 % 7,915 5.0 % Ohio 4 500 5.1 % 6,212 3.9 % California 3 244 2.5 % 5,299 3.3 % Top Ten States 50 6,509 66.8 % 115,360 72.3 % Remaining States: Missouri 4 529 5.4 % 4,868 3.1 % Georgia 3 284 2.9 % 4,601 2.9 % Maryland 2 236 2.4 % 4,537 2.9 % Tennessee 4 240 2.5 % 4,527 2.8 % Virginia 2 240 2.5 % 4,426 2.8 % Rhode Island 2 206 2.1 % 3,028 1.9 % South Carolina 1 64 0.7 % 2,364 1.5 % Wisconsin 1 155 1.6 % 2,243 1.4 % Arizona 2 215 2.2 % 2,216 1.4 % Kansas 2 196 2.0 % 1,971 1.2 % Iowa 2 92 0.9 % 1,911 1.2 % Nebraska 2 180 1.9 % 1,553 1.0 % Pennsylvania 2 233 2.4 % 1,287 0.8 % Oregon 1 69 0.7 % 1,120 0.7 % West Virginia 1 64 0.7 % 1,114 0.7 % Idaho 2 45 0.5 % 1,027 0.6 % Indiana 1 83 0.9 % 557 0.4 % Minnesota 1 39 0.4 % 493 0.3 % Florida 2 53 0.5 % 225 0.1 % Total 87 9,732 100.0 % $ 159,428 100.0 % 24 Table of Contents Tenant Diversification The following table sets forth certain information regarding tenants comprising over one percent of annualized base rent in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2022 (dollars and square feet in thousands): Tenant Number of Leases Leased Square Feet Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio General Services Administration 17 782 8.0 % $ 18,950 11.9 % Merrill Lynch 1 482 5.0 % 12,224 7.7 % Highmark Western & Northeastern NY 1 430 4.4 % 8,328 5.2 % RSA Security 2 328 3.4 % 7,221 4.5 % Cigna/Express Scripts 3 365 3.7 % 6,765 4.2 % Walgreens 6 574 5.9 % 6,310 4.0 % Coterra Energy 1 309 3.2 % 5,658 3.6 % T-Mobile 4 294 3.0 % 5,431 3.4 % Novartis 1 176 1.8 % 4,995 3.1 % FedEx 2 352 3.6 % 4,469 2.8 % Top Ten Tenants 38 4,092 42.0 % 80,351 50.4 % Remaining Tenants: MDC Holdings Inc. 1 144 1.5 % 4,299 2.7 % Charter Communications 2 264 2.7 % 3,689 2.3 % Banner Life Insurance 1 116 1.2 % 3,493 2.2 % Inform Diagnostics 1 172 1.8 % 3,481 2.2 % Encompass Health 1 65 0.7 % 3,436 2.2 % Collins Aerospace 1 207 2.1 % 3,300 2.1 % Home Depot/HD Supply 2 153 1.6 % 3,109 2.0 % Experian 1 178 1.8 % 2,988 1.9 % AAA 1 147 1.5 % 2,904 1.8 % AT&T 1 203 2.1 % 2,820 1.8 % Linde 1 161 1.7 % 2,540 1.6 % Citigroup 1 64 0.7 % 2,364 1.5 % CVS/Aetna 1 127 1.3 % 2,259 1.4 % Hasbro 1 136 1.4 % 2,243 1.4 % Ingram Micro 1 200 2.1 % 2,197 1.4 % Novus International 1 96 1.0 % 2,022 1.3 % Elementis 1 66 0.7 % 1,980 1.2 % Maximus 2 196 2.0 % 1,971 1.2 % NetJets 1 140 1.4 % 1,966 1.2 % Pulte Mortgage 1 95 1.0 % 1,953 1.2 % Baker Hughes 1 152 1.6 % 1,663 1.0 % Abbott Laboratories 1 131 1.3 % 1,609 1.0 % AGCO 1 126 1.3 % 1,607 1.0 % Total 64 7,431 76.5 % $ 140,244 88.0 % 25 Table of Contents Lease Expirations The following table sets forth certain information regarding scheduled lease expirations in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2022 (dollars and square feet in thousands): Year of Expiration Number of Leases Expiring (1) Leased Square Feet Leased Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio 2023 15 1,575 16.2 % $ 24,142 15.1 % 2024 16 1,971 20.3 % 39,972 25.1 % 2025 13 1,049 10.8 % 18,686 11.7 % 2026 13 757 7.8 % 17,134 10.7 % 2027 14 1,002 10.3 % 16,206 10.2 % 2028 9 513 5.3 % 9,093 5.7 % 2029 4 396 4.1 % 5,846 3.7 % 2030 2 98 1.0 % 4,564 2.9 % 2031 1 11 0.1 % 427 0.3 % 2032 3 300 3.1 % 4,004 2.5 % Thereafter 8 932 9.4 % 19,069 11.9 % Subtotal 98 8,604 88.4 % 159,143 99.8 % Month-to-Month 2 57 0.6 % 285 0.2 % Total 100 8,661 89.0 % $ 159,428 100.0 % ____________________________________ (1) The Company has certain properties that are subject to multiple leases.
Biggest changeTenant Industry Diversification The following table sets forth certain information regarding the tenant industry concentrations in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2023 (dollars and square feet in thousands): Industry Number of Leases (1) Leased Square Feet Leased Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio Health Care Equipment & Services 12 1,109 12.5 % $ 21,601 15.3 % Government & Public Services 17 769 8.7 % 19,657 13.9 % Financial Institutions 3 616 6.9 % 15,720 11.1 % Insurance 3 600 6.7 % 13,292 9.4 % Capital Goods 10 846 9.5 % 12,656 9.0 % Software & Services 6 609 6.9 % 12,390 8.8 % Consumer Durables & Apparel 3 375 4.2 % 8,632 6.1 % Telecommunication Services 5 419 4.7 % 6,892 4.9 % Materials 4 366 4.1 % 5,852 4.1 % Energy 1 309 3.5 % 5,762 4.1 % Top Ten Tenant Industries 64 6,018 67.7 % 122,454 86.7 % Remaining Tenant Industries: Commercial & Professional Services 10 293 3.3 % 4,746 3.4 % Transportation 4 279 3.1 % 4,496 3.2 % Media & Entertainment 2 264 3.0 % 3,745 2.6 % Retailing 3 157 1.8 % 3,247 2.3 % Food, Beverage & Tobacco 1 96 1.1 % 2,022 1.4 % Utilities 1 26 0.3 % 394 0.3 % Real Estate 1 4 — % 86 0.1 % Consumer Services 2 5 0.1 % 54 — % Retail/Restaurant 1 2 — % 49 — % Total 89 7,144 80.4 % $ 141,293 100.0 % ____________________________________ (1) The Company has certain properties that are subject to multiple leases. 25 Table of Contents Geographic Diversification The following table sets forth certain information regarding the geographic concentrations (by state) in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2023 (dollars and square feet in thousands): Location Number of Properties Rentable Square Feet Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio Texas 15 1,353 15.2 % $ 24,313 17.2 % New Jersey 3 724 8.2 % 14,445 10.2 % New York 5 781 8.8 % 14,407 10.2 % Kentucky 2 458 5.2 % 10,354 7.3 % Colorado 4 571 6.4 % 8,103 5.7 % Massachusetts 2 378 4.3 % 7,947 5.6 % Oklahoma 3 585 6.6 % 6,811 4.8 % California 3 244 2.8 % 5,532 3.9 % Missouri 3 303 3.4 % 4,917 3.5 % Maryland 2 236 2.7 % 4,646 3.3 % Top Ten States 42 5,633 63.6 % 101,475 71.7 % Remaining States: Tennessee 4 240 2.7 % 4,641 3.3 % Georgia 3 284 3.2 % 4,635 3.3 % Virginia 2 240 2.7 % 4,523 3.2 % Ohio 3 237 2.7 % 3,545 2.5 % Rhode Island 2 206 2.3 % 3,040 2.2 % South Carolina 1 64 0.7 % 2,459 1.8 % Wisconsin 1 155 1.7 % 2,299 1.6 % Arizona 1 91 1.0 % 2,282 1.6 % Illinois 8 738 8.3 % 2,191 1.6 % Iowa 2 92 1.0 % 1,955 1.4 % Nebraska 2 180 2.0 % 1,584 1.1 % Pennsylvania 2 233 2.6 % 1,316 0.9 % Oregon 1 69 0.8 % 1,142 0.8 % West Virginia 1 63 0.7 % 1,130 0.8 % Kansas 2 196 2.2 % 1,044 0.7 % Idaho 1 35 0.4 % 741 0.5 % Indiana 1 83 0.9 % 570 0.4 % Minnesota 1 39 0.4 % 493 0.4 % Florida 1 6 0.1 % 228 0.2 % Total 81 8,884 100.0 % $ 141,293 100.0 % 26 Table of Contents Tenant Diversification The following table sets forth certain information regarding tenants comprising over one percent of annualized base rent in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2023 (dollars and square feet in thousands): Tenant Number of Leases Leased Square Feet Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio General Services Administration 15 725 8.2 % $ 19,109 13.5 % Merrill Lynch 1 482 5.4 % 12,465 8.8 % Highmark Western & Northeastern NY 1 430 4.8 % 8,450 6.0 % RSA Security 2 328 3.7 % 7,221 5.1 % Cigna/Express Scripts 3 365 4.1 % 6,922 4.9 % Coterra Energy 1 309 3.5 % 5,762 4.1 % MDC Holdings Inc. 1 144 1.6 % 4,385 3.1 % T-Mobile 3 217 2.4 % 3,971 2.8 % Charter Communications 2 264 3.0 % 3,745 2.7 % Banner Life Insurance 1 116 1.4 % 3,581 2.5 % Top Ten Tenants 30 3,380 38.1 % 75,611 53.5 % Remaining Tenants: Inform Diagnostics 1 172 1.9 % 3,551 2.5 % Encompass Health 1 65 0.7 % 3,505 2.5 % Collins Aerospace 1 207 2.3 % 3,369 2.4 % Home Depot/HD Supply 2 153 1.8 % 3,173 2.2 % AT&T 1 203 2.3 % 2,921 2.1 % Ingram Micro 1 170 1.9 % 2,898 2.1 % Linde 1 175 2.0 % 2,714 1.9 % Maximus 2 168 1.9 % 2,549 1.8 % Citigroup 1 64 0.7 % 2,459 1.7 % CVS/Aetna 1 127 1.4 % 2,328 1.7 % Hasbro 1 136 1.5 % 2,243 1.6 % Novus International 1 96 1.1 % 2,022 1.4 % Pulte Mortgage 1 95 1.1 % 2,005 1.4 % NetJets 1 140 1.6 % 1,990 1.4 % Elementis 1 66 0.7 % 1,980 1.4 % FedEx 1 90 1.0 % 1,744 1.2 % General Electric 1 152 1.7 % 1,713 1.2 % AGCO 1 126 1.4 % 1,607 1.1 % Intermec 1 81 0.9 % 1,459 1.0 % Abbott Laboratories 1 131 1.5 % 1,379 1.0 % Becton Dickinson 1 72 0.8 % 1,370 1.0 % Total 53 6,069 68.3 % $ 124,590 88.1 % 27 Table of Contents Lease Expirations The following table sets forth certain information regarding scheduled lease expirations in our property portfolio, including our proportionate share of square feet and annualized base rent from properties owned by the Arch Street Joint Venture, as of December 31, 2023 (dollars and square feet in thousands): Year of Expiration Number of Leases Expiring (1) Leased Square Feet Leased Square Feet as a % of Total Portfolio Annualized Base Rent Annualized Base Rent as a % of Total Portfolio 2024 15 1,907 21.5 % $ 39,432 27.9 % 2025 12 919 10.3 % 16,858 11.9 % 2026 15 801 9.0 % 18,834 13.3 % 2027 14 1,004 11.3 % 16,621 11.8 % 2028 11 594 6.7 % 10,981 7.8 % 2029 4 396 4.5 % 5,966 4.2 % 2030 3 138 1.6 % 5,153 3.7 % 2031 1 11 0.1 % 429 0.3 % 2032 3 300 3.4 % 3,808 2.7 % 2033 3 358 4.0 % 6,187 4.4 % Thereafter 8 716 8.0 % 17,024 12.0 % Total 89 7,144 80.4 % $ 141,293 100.0 % ____________________________________ (1) The Company has certain properties that are subject to multiple leases.
As of December 31, 2022, the Company owned 81 office properties with an aggregate of 9.5 million square feet located in 29 states, with an occupancy rate of 88.8% and a weighted-average remaining lease term of 4.0 years as of December 31, 2022.
As of December 31, 2023, the Company owned 75 office properties with an aggregate of 8.7 million square feet located in 29 states, with an occupancy rate of 80.0% and a weighted-average remaining lease term of 3.9 years as of December 31, 2023.
Including the Company’s pro rata share of square feet and annualized base rent from the Arch Street Joint Venture, we owned an aggregate of 9.7 million square feet, with an occupancy rate of 89.0% and a weighted-average remaining lease term of 4.1 years as of December 31, 2022.
Including the Company’s pro rata share of square feet and annualized base rent from the Arch Street Joint Venture, it owned an aggregate of 8.9 million square feet, with an occupancy rate of 80.4%, or 87.2% adjusted for properties that are currently under agreement to be sold, and a weighted-average remaining lease term of 4.0 years as of December 31, 2023.
Added
Item 3. Legal Proceedings. As of December 31, 2023, we are not a party to, and none of our properties are subject to, any material pending legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−5 removed5 unchanged
Biggest changeShares of common stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to the status of authorized but unissued shares of common stock. 27 Table of Contents The Company did not purchase any shares under the Share Repurchase Program during the three months ended December 31, 2022, and it has not purchased any shares under the Share Repurchase Program through March 8, 2023.
Biggest changeThe Company did not purchase any shares under the Share Repurchase Program during the three months ended December 31, 2023. Since inception of the Share Repurchase Program, the Company has repurchased approximately 0.9 million shares of common stock, at a weighted average price of $5.46 for an aggregate purchase price of $5.0 million.
Stock Price Performance Graph Set forth below is a line graph comparing the cumulative total stockholder return on the Company’s common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the Russell 2000 Index and the FTSE National Association of Real Estate Investment Trusts All Equity Office REITs Index (“FTSE Nareit All Equity Office REITs Index”) for the period commencing November 15, 2021 and ending December 31, 2022.
Stock Price Performance Graph Set forth below is a line graph comparing the cumulative total stockholder return on the Company’s common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the Russell 2000 Index and the FTSE National Association of Real Estate Investment Trusts All Equity Office REITs Index (“FTSE Nareit All Equity Office REITs Index”) for the period commencing November 15, 2021 and ending December 31, 2023.
The graph above and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by us under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
The graph assumes an investment of $100 on November 15, 2021. 28 Table of Contents The graph above and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by us under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
The Company’s Board of Directors declared a quarterly dividend of $0.10 per share for each of the four quarters of 2022. As of March 3, 2023, the Company had approximately 10,164 stockholders of record of its common stock. Recent Sales of Unregistered Securities None.
The Company’s Board of Directors declared and paid a quarterly dividend of $0.10 per share for each of the four quarters of 2023. As of February 23, 2024, the Company had approximately 9,561 stockholders of record of its common stock. Recent Sales of Unregistered Securities None.
Repurchases are subject to prevailing market conditions, the trading price of the Company’s common stock, the Company’s liquidity needs, financial performance and other conditions.
Repurchases are subject to prevailing market conditions, the trading price of the Company’s common stock, the Company’s liquidity needs, financial performance and other conditions. Shares of common stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to the status of authorized but unissued shares of common stock.
Removed
The graph assumes an investment of $100 on November 15, 2021.
Added
As of December 31, 2023, the approximate dollar value of shares that remain available for repurchase under the Share Repurchase Program was $45.0 million. Item 6. [Reserved]
Removed
The Company has chosen to replace the market and industry indexes used in the prior year performance graph, the Standard & Poor’s 500 Index (“S&P 500”) and the FTSE National Association of Real Estate Investment Trusts All Equity REIT Index (“FTSE Nareit All Equity REITs Index”). 26 Table of Contents The Russell 2000 Index and the FTSE Nareit All Equity Office REITs Index were chosen to replace the S&P 500 Index and the FTSE Nareit All Equity REITs Index because we believe they provide better comparisons and benchmarks against which to measure our stock performance.
Removed
Moreover, the Company is a constituent of the Russell 2000 Index, but the Company is not a constituent of the S&P 500 Index.
Removed
While the Company is a constituent of both the FTSE Nareit All Equity REITs Index and the FTSE Nareit All Equity Office REITs Index, the FTSE Nareit All Equity Office REITs Index was selected because its constituent companies are limited to office REITs, whereas the FTSE Nareit All Equity REITs Index includes all equity REITs.
Removed
Because applicable regulations require that under these circumstances both the new and old index be shown, the line graph below also includes the S&P 500 Index and the FTSE Nareit All Equity REITs Index. We will not include the S&P 500 Index or the FTSE Nareit All Equity REITs Index in the line graph next year.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

117 edited+49 added−51 removed75 unchanged
Biggest changeOther (Expense) Income and Provision for Income Taxes The table below sets forth, for the periods presented, certain financial information and the dollar amount change year over year (in thousands): Year Ended December 31, 2022 2021 2022 vs 2021 Increase/(Decrease) Interest expense, net $ (30,171) $ (4,267) $ 25,904 Gain on disposition of real estate assets $ 2,352 $ — $ 2,352 Loss on extinguishment of debt, net $ (468) $ (3,782) $ (3,314) Other income, net $ 223 $ — $ 223 Equity in loss of unconsolidated joint venture, net $ (524) $ (56) $ 468 Provision for income taxes $ (212) $ (157) $ 55 Interest Expense, net The increase in interest expense of $25.9 million during the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to an increase in debt outstanding from and after the Distribution.
Biggest changeOther (Expense) Income and Provision for Income Taxes The table below sets forth, for the periods presented, certain financial information and the dollar amount change year over year (in thousands): Year Ended December 31, 2023 2022 2023 vs 2022 Increase/(Decrease) Interest expense, net $ (29,669) $ (30,171) $ (502) Loss on extinguishment of debt, net $ (504) $ (468) $ 36 Other income, net $ 911 $ 223 $ 688 Equity in loss of unconsolidated joint venture, net $ (435) $ (524) $ (89) Gain on disposition of real estate assets $ 31 $ 2,352 $ (2,321) Provision for income taxes $ (456) $ (212) $ 244 38 Table of Contents Interest expense, net Interest expense, net decreased $0.5 million during the year ended December 31, 2023 as compared to the same period in 2022, which was primarily due to lower outstanding debt during the year ended December 31, 2023, partially offset by higher interest rates.
During March 2022, Wells Fargo effected a securitization of the CMBS Loan. The CMBS Loan bears interest a fixed rate of 4.971% per annum and matures on February 11, 2027. The CMBS Loan requires monthly payments of interest only and all principal is due at maturity. The proceeds of the CMBS Loan were used to repay the Bridge Facility.
During March 2022, Wells Fargo effected a securitization of the CMBS Loan. The CMBS Loan bears interest at a fixed rate of 4.971% per annum and matures on February 11, 2027. The CMBS Loan requires monthly payments of interest only and all principal is due at maturity. The proceeds of the CMBS Loan were used to repay the Bridge Facility.
In November 2022, the Company established, as part of its Universal Shelf, an “at the market” offering program for its common stock (the “ATM Program”). Pursuant to the ATM Program, the Company may from time to time offer and sell shares of its common stock, having an aggregate offering price of up to $100.0 million.
ATM Program In November 2022, the Company established, as part of its Universal Shelf, an “at the market” offering program for its common stock (the “ATM Program”). Pursuant to the ATM Program, the Company may from time to time offer and sell shares of its common stock, having an aggregate offering price of up to $100.0 million.
Results of Operations For a comparison of the results of operations for certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”) for the period from January 1, 2021 to October 31, 2021 to the year ended December 31, 2020, see “Item 7.
Results of Operations - VEREIT Office Assets For a comparison of the results of operations for certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”) for the period from January 1, 2021 to October 31, 2021 to the year ended December 31, 2020, see “Item 7.
Our ability to refinance debt, raise capital and/or sell assets will be affected by various factors existing at the relevant time, such as capital and credit market conditions, the state of the national and regional economies, commercial real estate market conditions, available interest rate levels, the lease terms for and equity in and value of any related collateral, our financial condition and the operating history of the collateral, if any.
Our ability to extend or refinance debt, raise capital and/or sell assets will be affected by various factors existing at the relevant time, such as capital and credit market conditions, the state of the national and regional economies, commercial real estate market conditions, available interest rate levels, the lease terms for and equity in and value of any related collateral, our financial condition and the operating history of the collateral, if any.
The risks and uncertainties involved in applying the principles related to real estate impairment include, but are not limited to, the following: • The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the value of assets and recognize an impairment loss. • The evaluation of real estate assets for potential impairment requires our management to exercise significant judgment and make certain key assumptions, including the following: (1) capitalization rate; (2) discount rate; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions including the number of months to re-lease, market rental revenue and required tenant improvements.
The risks and uncertainties involved in applying the principles related to real estate impairment include, but are not limited to, the following: • The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the value of assets and recognize an impairment loss. 32 Table of Contents • The evaluation of real estate assets for potential impairment requires our management to exercise significant judgment and make certain key assumptions, including the following: (1) capitalization rate; (2) discount rate; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions including the number of months to re-lease, market rental revenue and required tenant improvements.
The CMBS Loan may be prepaid in whole, but not in part, except as provided in the loan agreement governing the CMBS Loan (the “CMBS Loan Agreement”), at any time following the Prepayment Lockout Release Date (as defined in the CMBS Loan Agreement) (generally two years after the CMBS Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.
The CMBS Loan may be prepaid in whole, but not in part, except as provided in the loan agreement governing the CMBS Loan (the “CMBS Loan Agreement”), at any time following the Prepayment Lockout Release Date (as defined in the CMBS Loan Agreement) (generally in March 2024, two years after the CMBS Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.
Our interest expense was generally in line with what we had budgeted for the year ended December 31, 2022, as increases in interest rates on our floating rate indebtedness were offset by lower amounts of debt outstanding as the Company utilized cash from operations and proceeds from real estate dispositions to repay debt on the Revolving Facility.
Our interest expense was generally in line with what we had budgeted for the year ended December 31, 2023, as increases in interest rates on our floating rate indebtedness were offset by lower amounts of debt outstanding as the Company utilized cash from operations and proceeds from real estate dispositions to repay debt on the Revolving Facility.
As of December 31, 2022, the Company was in compliance with these financial covenants. The Mortgage Borrowers and the Company also provided a customary environmental indemnity agreement, pursuant to which the Mortgage Borrowers and the Company agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities relating to the Mortgaged Properties.
As of December 31, 2023, the Company was in compliance with these financial covenants. The Mortgage Borrowers and the Company also provided a customary environmental indemnity agreement, pursuant to which the Mortgage Borrowers and the Company agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities relating to the Mortgaged Properties.
As of June 30, 2022, the market value of our common stock held by non-affiliates was less than $700.0 million, and therefore, we expect to remain an “emerging growth company” at least until the next measuring date, which is June 30, 2023.
As of June 30, 2023, the market value of our common stock held by non-affiliates was less than $700.0 million, and therefore, we expect to remain an “emerging growth company” at least until the next measuring date, which is June 30, 2024.
The restricted cash included in this reserve totaled $34.7 million as of December 31, 2022, including $23.6 million for tenant improvement allowances and $11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets.
The restricted cash included in this reserve totaled $34.7 million as of December 31, 2023, including $23.6 million for tenant improvement allowances and $11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets.
Real Estate Portfolio Metrics Our financial performance is impacted by the timing of acquisitions and dispositions and the operating performance of our operating properties.
Real Estate Portfolio Metrics Our financial performance is impacted by the timing of dispositions and the operating performance of our operating properties.
Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations, improvements or concessions to tenants, particularly commercial tenants, may be less favorable to us than current lease terms.
Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations, improvements or concessions to tenants, may be less favorable to us than current lease terms.
Also on November 12, 2021, in connection with the entry into the LLCA, the Company granted the Arch Street Partner and Arch Street Capital Partners warrants to purchase up to 1,120,000 shares of our common stock (the “Arch Street Warrants”).
Also on November 12, 2021, in connection with the entry into the LLCA, we granted the Arch Street Partner and Arch Street Capital Partners warrants to purchase up to 1,120,000 shares of our common stock (the “Arch Street Warrants”).
One of our main asset management strategies during year ended December 31, 2022 was to sell vacant and identified non-core assets that do not fit our long-term investment objectives. The sale of these assets will allow us to both reduce carry costs and avoid the uncertainty and significant capital expenditures associated with re-tenanting.
One of our main asset management strategies during year ended December 31, 2023 was to continue to sell vacant and identified non-core assets that do not fit our long-term investment objectives. The sale of these assets will allow us to both reduce carry costs and avoid the uncertainty and significant capital expenditures associated with re-tenanting.
Neither the SEC, Nareit, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate Core FFO and its use as a non-GAAP financial performance measure. The table below presents a reconciliation of FFO and Core FFO to net (loss) income attributable to common stockholders, the most directly comparable U.S.
Neither the SEC, Nareit, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate Core FFO and its use as a non-GAAP financial performance measure. 40 Table of Contents The table below presents a reconciliation of FFO and Core FFO to net loss attributable to common stockholders, the most directly comparable U.S.
The ratings may reflect those assigned by Standard & Poor’s Financial Services LLC or Moody’s Investor Service, Inc. to the lease guarantor or the parent company, as applicable. 32 Table of Contents Operating Performance In addition, management uses the following financial metrics to assess our operating performance (dollar amounts in thousands, except per share amounts).
The ratings may reflect those assigned by Standard & Poor’s Financial Services LLC or Moody’s Investor Service, Inc. to the lease guarantor or the parent company, as applicable. 34 Table of Contents Operating Performance In addition, management uses the following financial metrics to assess our operating performance (in thousands, except per share amounts).
(“Nareit”), an industry trade group, has promulgated a supplemental performance measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.
(“Nareit”), an industry trade group, has promulgated a supplemental performance measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental performance measure to reflect 39 Table of Contents the operating performance of a REIT. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.
During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Revolver/Term Loan Credit Agreement from LIBOR to SOFR, the Company terminated the interest rate swap agreements that had been entered into during the year ended December 31, 2021, and entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2022 and terminating on November 12, 2023, which were designated as cash flow hedges, to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility.
During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR, we terminated the interest rate swap agreements that had been entered into during the year ended December 31, 2021, and entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2022 and terminating on November 12, 2023, which were designated as cash flow hedges, to hedge interest rate volatility with respect to the our borrowings under the Term Loan Facility.
Beginning in 2023, the Company will be revising its definition of Core FFO to also exclude the following non-cash charges which management believes do not reflect the ongoing operating performance of our business: (i) amortization of deferred lease incentives, (ii) amortization of deferred financing costs, (iii) equity-based compensation, and (iv) amortization of premiums and discounts on debt, net.
Beginning in 2023, the Company revised its definition of Core FFO to also exclude the following non-cash charges which management believes do not reflect the ongoing operating performance of our business: (i) amortization of deferred lease incentives, (ii) amortization of deferred financing costs, (iii) equity-based compensation, and (iv) amortization of premiums and discounts on debt, net.
The Company did not acquire any new properties during year ended December 31, 2022, primarily due to the impact of rapidly rising interest rates and disruptions in the financing markets. Our ability to resume asset acquisition activity will be highly dependent upon favorable market conditions, including attractive yields on properties and access to requisite financing.
The Company did not acquire any new properties during the year ended December 31, 2023, primarily due to the impact of rapidly rising interest rates and disruptions in the financing markets. Our ability to execute on asset acquisition activity will be highly dependent upon favorable market conditions, including attractive yields on properties and access to requisite financing.
During the years ended December 31, 2022 and 2021, the Company recognized $1.4 million and $0.3 million, respectively, of lease termination income. Fee income from unconsolidated joint venture Fee income from unconsolidated joint venture consists of fees earned for providing various services to the Arch Street Joint Venture.
During the years ended December 31, 2023 and 2022, the Company recognized $4.3 million and $1.4 million, respectively, of lease termination income. Fee income from unconsolidated joint venture Fee income from unconsolidated joint venture consists of fees earned for providing various services to the Arch Street Joint Venture.
If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants. We also seek to lease our vacant properties to new tenants. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.
If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.
Our efforts to address upcoming lease maturities and vacancies have been adversely impacted by economic conditions, such as rising interest rates, rising inflation and recession fears, along with persistent remote working trends as a result of the COVID-19 pandemic.
Our efforts to address upcoming lease maturities and vacancies have been adversely impacted by economic conditions, such as 30 Table of Contents rising interest rates, rising inflation and recession fears, along with persistent remote and hybrid working trends as a result of the COVID-19 pandemic.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K filed on March 24, 2022. Non-GAAP Measures Our results are presented in accordance with U.S. GAAP. We also disclose certain non-GAAP measures, as discussed further below.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K filed on March 8, 2023. Non-GAAP Measures Our results are presented in accordance with U.S. GAAP. We also disclose certain non-GAAP measures, as discussed further below.
Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see the section in this report entitled “ Ri sk Facto rs ”.
Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see the section in this report entitled “ Risk Factors ”.
Comparison of the year ended December 31, 2021 to the year ended December 31, 2020 (dollars in thousands) For a comparison of the year ended December 31, 2021 to the year ended December 31, 2020, see “Item. 7.
Comparison of the year ended December 31, 2022 to the year ended December 31, 2021 (dollars in thousands) For a comparison of the year ended December 31, 2022 to the year ended December 31, 2021, see “Item. 7.
These securities may include shares of the Company’s common stock, shares of the Company’s preferred stock, depository shares representing interests in shares of the Company’s preferred stock, debt securities, warrants to purchase shares of the Company’s common stock or shares of the Company’s preferred stock and units consisting of two or more shares of common stock, shares of preferred stock, depository shares, debt securities and warrants.
These securities 46 Table of Contents may include shares of the Company’s common stock, shares of the Company’s preferred stock, depository shares representing interests in shares of the Company’s preferred stock, debt securities, warrants to purchase shares of the Company’s common stock or shares of the Company’s preferred stock and units consisting of two or more shares of common stock, shares of preferred stock, depository shares, debt securities and warrants.
As of December 31, 2022, the Company had outstanding commitments of $51.2 million for tenant improvement allowances and $0.3 million for leasing commissions. The actual amount we pay for tenant improvement allowances may be lower than the commitment in the applicable lease and will depend upon the tenant’s use of the capital on the agreed upon timeline.
As of December 31, 2023, the Company had outstanding commitments of $42.3 million for tenant improvement allowances and $0.3 million for leasing commissions. The actual amount we pay for tenant improvement allowances may be lower than the commitment in the applicable lease and will depend upon the tenant’s use of the capital on the agreed upon timeline.
GAAP measure. Leasing Activity and Capital Expenditures The Company remains highly focused on leasing activity, given the 4.1 year weighted-average remaining lease term and the significant lease maturities which will occur across the portfolio over the next few years.
Leasing Activity and Capital Expenditures The Company remains highly focused on leasing activity, given the 4.0 year weighted-average remaining lease term and the significant lease maturities which will occur across the portfolio over the next few years.
No impairments of VEREIT’s goodwill were recorded during the ten months ended October 31, 2021 and year ended December 31, 2020. The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying statements of operations.
No impairments of VEREIT’s goodwill were recorded during the ten months ended October 31, 2021. The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying statements of operations.
If a space has been vacant for more than 12 months prior to the execution of a new lease, the lease will be excluded from this calculation. (2) Excludes one new lease for approximately 41,000 square feet of space that had been vacant for more than 12 months at the time the new lease was executed.
If a space has been vacant for more than 12 months prior to the execution of a new lease, the lease will be excluded from this calculation. (2) Excludes two new leases for approximately 7,000 square feet of space that had been vacant for more than 12 months at the time the new lease was executed.
We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions.
We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, expectations and projections regarding future events and plans, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions.
The ROFO Agreement will expire upon the earlier of (1) the third anniversary of its execution, (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million.
The ROFO Agreement will expire upon the earlier of (1) November 12, 2024 (the third anniversary of its 45 Table of Contents execution), (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million.
Equity • The Company’s Board of Directors declared quarterly cash dividends of $0.10 per share for each of the four quarters of 2022. The dividends were paid on April 15, 2022, July 15, 2022, October 17, 2022 and January 17, 2023.
Equity • The Company’s Board of Directors declared quarterly cash dividends of $0.10 per share for each of the four quarters of 2023, which were paid on April 17, 2023, July 17, 2023, October 16, 2023 and January 16, 2024.
(4) The table above does not include mortgage notes associated with the Arch Street Joint Venture of $136.7 million as of December 31, 2022.
(3) The table above does not include mortgage notes associated with the Arch Street Joint Venture of $136.7 million as of December 31, 2023.
Derivatives and Hedging Activities During the year ended December 31, 2021, the Company entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2021 and terminating on November 12, 2023, which were designated as cash flow hedges, in order to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility.
Derivatives and Hedging Activities During the year ended December 31, 2021, we entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2021 and terminating on November 12, 2023, which were designated as cash flow hedges, in order to hedge interest rate volatility.
Credit Agreement Obligations In connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425.0 million senior revolving credit facility (the “Revolving Facility”), including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “Term Loan Facility” and collectively with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355.0 million senior bridge term loan facility (the “Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
Credit Agreement Obligations In connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Credit Agreement”) providing for a three-year, $425.0 million senior revolving credit facility (the “Revolving Facility”), including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “Term Loan Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the 42 Table of Contents lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement”) providing for a six-month, $355.0 million senior bridge term loan facility (the “Bridge Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
The following table shows the property statistics of our operating properties as of December 31, 2022 and 2021, including our pro rata share of the applicable statistics of the properties owned by the Arch Street Joint Venture: December 31, 2022 December 31, 2021 Portfolio Metrics Operating properties 81 92 Arch Street Joint Venture properties 6 6 Rentable square feet (in thousands) (1) 9,732 10,646 Occupancy rate (2) 89.0% 91.9% Investment-grade tenants (3) 73.3% 67.7% Weighted-average remaining lease term (in years) 4.1 4.1 ____________________________________ (1) Represents leasable square feet of operating properties and the Company’s pro rata share of leasable square feet of properties owned by the Arch Street Joint Venture.
The following table shows the property statistics of our operating properties as of December 31, 2023 and 2022, including our pro rata share of the applicable statistics of the properties owned by the Arch Street Joint Venture: December 31, 2023 December 31, 2022 Portfolio Metrics Operating properties 75 81 Arch Street Joint Venture properties 6 6 Rentable square feet (in thousands) (1) 8,884 9,732 Occupancy rate (2) 80.4% 89.0% Investment-grade tenants (3) 70.6% 73.3% Weighted-average remaining lease term (in years) 4.0 4.1 ____________________________________ (1) Represents leasable square feet of operating properties and the Company’s pro rata share of leasable square feet of properties owned by the Arch Street Joint Venture.
There can be no assurance these pending sale transactions will be completed on their existing terms or at all. • During the year ended December 31, 2022, we completed approximately 0.8 million square feet of lease renewals, expansions and new leases across 11 different properties.
There can be no assurance these pending sale transactions will be completed on their existing terms or at all. • During the year ended December 31, 2023, we completed approximately 0.3 million square feet of lease renewals and entered into new leases across six different properties.
During year ended December 31, 2022, the Company made aggregate commitments for tenant improvement allowances and base building allowances, leasing commissions and free rent of $30.1 million, or $37.41 per rentable square foot leased. The Company anticipates it will continue to agree to tenant improvement allowances and to pay leasing commissions, the amount of which may increase in future periods.
During year ended December 31, 2023, the Company made aggregate commitments for tenant improvement allowances and base building allowances, leasing commissions and free rent of $2.9 million, or $11.23 per rentable square foot leased. The Company anticipates it will continue to agree to tenant improvement allowances and to pay leasing commissions, the amount of which may increase in future periods.
Credit Agreements Summary The following is a summary of the interest rate and scheduled maturities of our consolidated debt obligations as of December 31, 2022 (in thousands): Principal Amounts Due During the Years Ending December 31, Interest Rate Maturity Total 2023 2024 2025 2026 2027 Credit facility revolver (1) (2) SOFR + 2.60% November 2024 $ — $ — $ — $ — $ — $ — Credit facility term loan (1) (3) SOFR + 2.60% November 2023 175,000 175,000 — — — — Mortgages payable (4) 4.971 % February 2027 355,000 — — — — 355,000 Total $ 530,000 $ 175,000 $ — $ — $ — $ 355,000 ____________________________________ (1) Includes interest rate margin of 2.50% plus SOFR adjustment of 0.10%.
Credit Agreements Summary The following is a summary of the interest rate and scheduled maturities of our consolidated debt obligations as of December 31, 2023 (in thousands): Principal Amounts Due During the Years Ending December 31, Interest Rate Maturity Total 2024 2025 2026 2027 Credit facility revolver (1) (2) SOFR + 3.35% May 2026 $ 116,000 $ — $ — $ 116,000 $ — Mortgages payable (3) 4.971 % February 2027 355,000 — — — 355,000 Total $ 471,000 $ — $ — $ 116,000 $ 355,000 ____________________________________ (1) Includes interest rate margin of 3.25% plus SOFR adjustment of 0.10%.
Basis of Presentation The consolidated and combined financial statements of the Company include the accounts of the Realty Income Office Assets presented on a combined basis for the period from January 1, 2021 to October 31, 2021 and for the year ended December 31, 2020, as the ownership interests were under common control and ownership of Realty Income during the respective periods.
Basis of Presentation The consolidated and combined financial statements of the Company include the accounts of the Realty Income Office Assets presented on a combined basis for the period from January 1, 2021 to October 31, 2021, as the ownership interests were 31 Table of Contents under common control and ownership of Realty Income during this period.
The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions.
Critical Accounting Estimates Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions.
The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) by us and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).
The Revolving Facility is guaranteed pursuant to a guaranty by us and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).
From and after the Merger Effective Time, the consolidated and combined financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture, which accounts include the Realty Income Office Assets and the VEREIT Office Assets.
From and after the November 1, 2021, the consolidated and combined financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture, which accounts include the Realty Income Office Assets and the VEREIT Office Assets.
The Revolver/Term Loan Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors. Revolver/Term Loan Facilities Covenants The Revolver/Term Loan Facilities require that Orion OP comply with various covenants, including covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends.
The Revolving Facility is secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors. Revolving Facility Covenants The Revolving Facility requires that Orion OP comply with various covenants, including covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends.
Overview Orion is an internally managed REIT engaged in the ownership, acquisition, and management of a diversified portfolio of mission-critical regional and corporate headquarters office buildings located in high-quality suburban markets across the U.S. and leased primarily on a single-tenant net lease basis to creditworthy tenants.
Overview Orion is an internally managed real estate investment trust (“REIT”) engaged in the ownership, acquisition, and management of a diversified portfolio of office buildings located in high-quality suburban markets across the U.S. and leased primarily on a single-tenant net lease basis to creditworthy tenants.
The Revolver/Term Loan Facilities also include customary events of default, the occurrence of which, following any applicable 41 Table of Contents grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Revolver/Term Loan Facilities to be immediately due and payable and foreclose on the collateral securing the Revolver/Term Loan Facilities.
The Revolving Facility also includes customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Revolving Facility to be immediately due and payable and foreclose on the collateral securing the Revolving Facility.
As of December 31, 2022, we had not sold any shares of common stock pursuant to the ATM Program. Net proceeds from the securities issued, if any, may be used for general corporate purposes, which may include funding potential acquisitions and repaying outstanding indebtedness.
As of December 31, 2023, we had not sold any shares of common stock pursuant to the ATM Program. Net proceeds from the securities issued, if any, may be used for general corporate purposes, which may include funding capital expenditures and leasing costs at our properties and repaying outstanding indebtedness.
(the “Company”, “Orion”, “we”, or “us”) makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “ Forward-Looking Statements ”.
(the 29 Table of Contents “Company,” “Orion,” “we,” or “us”) makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “ Forward-Looking Statements ”.
On November 12, 2021, in connection with the Distribution, Orion OP also entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), with OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
Arch Street Warrants On November 12, 2021, in connection with the Distribution, Orion OP entered into an amendment and restatement of the limited liability agreement (the “LLCA”) for the Arch Street Joint Venture with the Arch Street Partner, an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.
During the year ended December 31, 2022, we entered into new and renewal leases as summarized in the following table (dollars and square feet in thousands): Year Ended December 31, 2022 New Leases Renewals Total Rentable square feet leased 119 686 805 Weighted average rental rate change (cash basis) (1) (2) (6.0) % 5.7 % 4.1 % Tenant leasing costs and concession commitments (3) $ 4,237 $ 25,874 $ 30,111 Tenant leasing costs and concession commitments per rentable square foot $ 35.53 $ 37.73 $ 37.41 Weighted average lease term (by rentable square feet) (years) 7.3 7.2 7.3 Tenant leasing costs and concession commitments per rentable square foot per year $ 4.85 $ 5.21 $ 5.16 ___________________________________ (1) Represents weighted average percentage increase or decrease in (i) the annualized monthly cash amount charged to the applicable tenants (including monthly base rent receivables and certain contractually obligated reimbursements by the applicable tenants, which may include estimates) as of the commencement date of the new lease term (excluding any full or partial rent abatement period) compared to (ii) the annualized monthly cash amount charged to the applicable tenants (including the monthly base rent receivables and certain contractually obligated reimbursements by the applicable tenants, which may include estimates) as of the expiration date of the prior lease term.
During the year ended December 31, 2023, we entered into new and renewal leases as summarized in the following table (dollars and square feet in thousands): Year Ended December 31, 2023 New Leases Renewals Total Rentable square feet leased 21 240 261 Weighted average rental rate change (cash basis) (1) (2) (19.8) % 6.8 % 5.3 % Tenant leasing costs and concession commitments (3) $ 881 $ 2,053 $ 2,934 Tenant leasing costs and concession commitments per rentable square foot $ 41.89 $ 8.54 $ 11.23 Weighted average lease term (by rentable square feet) (years) (4) 8.1 9.1 9.0 Tenant leasing costs and concession commitments per rentable square foot per year $ 5.15 $ 0.94 $ 1.24 ___________________________________ (1) Represents weighted average percentage increase or decrease in (i) the annualized monthly cash amount charged to the applicable tenants (including monthly base rent receivables and certain fixed contractually obligated reimbursements by the applicable tenants, which may include estimates) as of the commencement date of the new lease term (excluding any full or partial rent abatement period) compared to (ii) the annualized monthly cash amount charged to the applicable tenants (including the monthly base rent receivables and certain fixed contractually obligated reimbursements by the applicable tenants) as of the expiration date of the prior lease term.
During the year ended December 31, 2022, amounts capitalized by the Company for lease related costs, lease incentives and building, fixtures and improvements were as follows: Year Ended December 31, 2022 Lease related costs (1) $ 4,362 Lease incentives (2) 1,810 Building, fixtures and improvements (3) 8,452 Total capital expenditures $ 14,624 ____________________________________ (1) Lease related costs generally include lease commissions paid in connection with the execution of new and/or renewed leases.
During the year ended December 31, 2023, amounts capitalized by the Company for lease related costs, lease incentives and building, fixtures and improvements were as follows (in thousands): Year Ended December 31, 2023 Lease related costs (1) $ 1,405 Lease incentives (2) 2,431 Building, fixtures and improvements (3) 17,476 Total capital expenditures $ 21,312 ____________________________________ (1) Lease related costs generally include lease commissions paid in connection with the execution of new and/or renewed leases.
As of December 31, 2022, the Company owned and operated 81 office properties with an aggregate of 9.5 million leasable square feet located in 29 states with an occupancy rate of 88.8% and a weighted-average remaining lease term of 4.0 years.
As of December 31, 2023, we owned and operated 75 office properties with an aggregate of 8.7 million leasable square feet located in 29 states with an occupancy rate of 80.0% and a weighted-average remaining lease term of 3.9 years.
Executive Summary Despite the challenged macroeconomic environment, our real estate portfolio generally performed as expected during the year ended December 31, 2022, with no material amount of scheduled rent payments determined to be uncollectible. Property operating expenses were generally in line with what we had budgeted for the year ended December 31, 2022.
Executive Summary Despite the challenged macroeconomic environment, our real estate portfolio generally performed as expected during the year ended December 31, 2023, with no material amount of scheduled rent payments determined to be uncollectible.
Equity On November 10, 2021, we issued 56,525,650 additional shares of our common stock to Realty Income, such that Realty Income owned 56,625,650 shares of our common stock. On November 12, 2021, Realty Income effected the Distribution.
Equity On November 10, 2021, we issued 56,525,650 additional shares of our common stock to Realty Income, such that Realty Income owned 56,625,650 shares of our common stock. On November 12, 2021, Realty Income effected the Distribution. See the section “Dividends” below for disclosure with regard to the Company’s dividend policy.
General Our principal liquidity needs for the next twelve months are to: (i) fund operating expenses; (ii) pay interest on our debt; (iii) repay or refinance the Term Loan Facility (as defined below) which is scheduled to mature on November 12, 2023; (iv) pay dividends to our stockholders; (v) fund capital expenditures and leasing costs at properties we own; and (vi) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture.
Liquidity and Capital Resources General Our principal liquidity needs for the next twelve months are to: (i) fund operating expenses; (ii) pay interest on our debt; (iii) pay dividends to our stockholders; (iv) fund capital expenditures and leasing costs at properties we own; and (v) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture.
The timing of the Company’s cash outlay for tenant improvement allowances is significantly uncertain and will depend upon the applicable tenant’s schedule for the improvements and corresponding use of capital, if any. The Company estimates that the foregoing tenant improvement allowances and leasing commissions will be funded between 2023 and 2035.
The timing of the Company’s cash outlay for tenant improvement allowances is significantly uncertain and will depend upon the applicable tenant’s schedule for the improvements and corresponding use of capital, if any.
(2) Occupancy rate equals the sum of leased square feet divided by rentable square feet. (3) Based on annualized base rent of our real estate portfolio, including the Company’s pro rata share of annualized base rent for properties owned by the Arch Street Joint Venture, as of December 31, 2022.
(3) Based on annualized base rent of our real estate portfolio, including the Company’s pro rata share of annualized base rent for properties owned by the Arch Street Joint Venture, as of December 31, 2023.
We believe that FFO and Core FFO allow for a comparison of the performance of our operations with other publicly-traded REITs, as FFO and Core FFO, or equivalent measures, are routinely reported by publicly-traded REITs, each adjust for items that we believe do not reflect the ongoing operating performance of our business and we believe are often used by analysts and investors for comparison purposes. 38 Table of Contents For all of these reasons, we believe FFO and Core FFO, in addition to net income (loss), as defined by U.S.
We believe that FFO and Core FFO allow for a comparison of the performance of our operations with other publicly-traded REITs, as FFO and Core FFO, or an equivalent measure, are routinely reported by publicly-traded REITs, each adjust for items that we believe do not reflect the ongoing operating performance of our business and we believe are often used by analysts and investors for comparison purposes.
Following the effectiveness of the Amendment, the interest rate applicable to the loans under the Revolver/Term Loan Facilities may be determined, at the election of Orion OP, on the basis of Daily Simple SOFR, Term SOFR or a base rate, in the case of a SOFR loan, plus a SOFR adjustment of 0.10% per annum, and in the case of a SOFR loan or a base rate loan, plus an applicable margin.
Giving effect to the amendments described above, the interest rate applicable to the loans under the Revolving Facility may be determined, at the election of Orion OP, on the basis of Daily Simple SOFR, Term SOFR or a base rate, in the case of a SOFR loan, plus a SOFR adjustment of 0.10% per annum, and in the case of a SOFR loan or a base rate loan, plus an applicable margin of 3.25% for SOFR loans and 2.25% for base rate loans.
Following the Distribution, Realty Income was no longer the parent of Realty Income Office Assets, and therefore, no further distributions to Realty Income occurred. 45 Table of Contents VEREIT OFFICE ASSETS Critical Accounting Policies Real Estate Investments VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.
VEREIT OFFICE ASSETS Critical Accounting Policies - VEREIT Office Assets Real Estate Investments VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.
Future Lease Expirations For a tabular summary of scheduled lease expirations in our property portfolio as of December 31, 2022, see the Lease Expirations table under “Item 2. Properties” in this Annual Report on Form 10-K.
Future Lease Expirations For a tabular summary of scheduled lease expirations in our property portfolio as of December 31, 2023, see the Lease Expirations table under “Item 2.
FFO and Core FFO should not be considered as alternatives to net income (loss) and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs.
However, not all REITs calculate FFO and Core FFO the same way, so comparisons with other REITs may not be meaningful. FFO and Core FFO should not be considered as alternatives to net income (loss) and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs.
Gain on disposition of real estate assets Gain on disposition of real estate assets was $2.4 million for the year ended December 31, 2022 as compared to no gain during the same period in 2021. The gain was related to five of the Company’s 11 dispositions during the year ended December 31, 2022.
Gain on disposition of real estate assets Gain on disposition of real estate assets was less than $0.1 million for the year ended December 31, 2023 as compared to $2.4 million during the year ended December 31, 2022. The gain recognized in the year ended December 31, 2023 was related to three of the Company’s dispositions.
We intend to make regular distributions to our stockholders to satisfy the requirements to maintain our qualification as a REIT. 43 Table of Contents During the year ended December 31, 2022, the Company’s Board of Directors declared quarterly cash dividends on shares of our common stock as follows (in thousands, except per share data): Declaration Date Record Date Paid Date Distributions Per Share March 22, 2022 March 31, 2022 April 15, 2022 $0.10 May 3, 2022 June 30, 2022 July 15, 2022 $0.10 August 2, 2022 September 30, 2022 October 17, 2022 $0.10 November 1, 2022 December 30, 2022 January 17, 2023 $0.10 On March 7, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first quarter of 2023, payable on April 17, 2023, to stockholders of record as of March 31, 2023.
During the year ended December 31, 2023, the Company’s Board of Directors declared quarterly cash dividends on shares of our common stock as follows: Declaration Date Record Date Paid Date Distributions Per Share March 7, 2023 March 31, 2023 April 17, 2023 $0.10 May 3, 2023 June 30, 2023 July 17, 2023 $0.10 August 8, 2023 September 29, 2023 October 16, 2023 $0.10 November 9, 2023 December 29, 2023 January 16, 2024 $0.10 On February 27, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first quarter of 2024, payable on April 15, 2024, to stockholders of record as of March 29, 2024.
Provision for Income Taxes The provision for income taxes consists of certain state and local income and franchise taxes. The provision for income taxes was $0.2 million during the year ended December 31, 2022 as compared to $0.2 million for the same period in 2021.
These properties were subject to cumulative impairment losses of $16.0 million in prior periods. Provision for income taxes The provision for income taxes consists of certain state and local income and franchise taxes. The provision for income taxes increased $0.2 million during the year ended December 31, 2023 as compared to the same period in 2022.
As of December 31, 2022, we had $20.6 million of cash and cash equivalents and $425.0 million of borrowing capacity under the Revolving Facility. 39 Table of Contents Our principal liquidity needs beyond the next twelve months are to: (i) repay or refinance debt at or prior to maturity; (ii) pay dividends to our stockholders; (iii) fund capital expenditures and leasing costs at properties we own; and (iv) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture.
Our principal liquidity needs beyond the next twelve months are to: (i) repay, extend or refinance debt at or prior to maturity; (ii) pay dividends to our stockholders; (iii) fund capital expenditures and leasing costs at properties we own; and (iv) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture.
We cannot predict if investors will find our common stock less attractive because we rely on the exemptions available to us as an emerging growth company.
We cannot predict if investors will find our common stock less attractive because we rely on the exemptions available to us as an emerging growth company. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Our dividend policy is established at the discretion of the Company’s Board of Directors and future dividends may be funded from a variety of sources. In particular, we expect that, initially, our dividends will exceed our net income under U.S. GAAP because of non-cash expenses, mainly depreciation and amortization expense, which are included in net income.
Our dividend policy is established at the discretion of the Company’s Board of Directors and future dividends may be funded from a variety of sources. In particular, we expect that for the years ended December 31, 2024 and 2025, our dividends will exceed our net income under U.S.
Following the Distribution, we became an independent publicly traded company and have been operating in a manner so as to qualify and have elected to be taxed as a REIT, commencing with our initial taxable year ended December 31, 2021.
Following the Distribution, the Company has been operating as an independent publicly traded company, and the Company has elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with its initial taxable year ended December 31, 2021.
During year ended December 31, 2022, we closed on 11 dispositions totaling 0.9 million square feet for an aggregate sale price of $33.1 million, equating to a price per square foot of approximately $36.42, and primarily used the proceeds to pay down debt and capital expenditures and leasing costs. We expect to continue this non-core asset disposition strategy in 2023.
During year ended December 31, 2023, we closed on six fully vacant dispositions totaling 0.8 million square feet for an aggregate sale price of $25.4 million, equating to a price per square foot of approximately $29.78, and primarily used the proceeds to pay down debt and to fund capital expenditures and leasing costs.
The Revolver/Term Loan Facilities include customary representations and warranties of us and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolver/Term Loan Facilities.
As of December 31, 2023, Orion OP was in compliance with these financial covenants. The Revolving Facility includes customary representations and warranties of us and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolving Facility.
Dividends We have been operating in a manner so as to qualify and have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2021.
Dividends We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2021. We intend to make regular distributions to our stockholders to satisfy the requirements to maintain our qualification as a REIT.
During year ended December 31, 2022, we completed approximately 0.8 million square feet of lease renewals, expansions and new leases, while our weighted average remaining lease term remained consistent at 4.1 years as of December 31, 2022 and 2021, and our occupancy level declined from 91.9% as of December 31, 2021 to 89.0% as of December 31, 2022.
During the year ended December 31, 2023, we completed approximately 0.3 million square feet of lease renewals, expansions and new leases, while our weighted average remaining lease term decreased slightly from 4.1 years as of December 31, 2022 to 4.0 years as of December 31, 2023, and our occupancy level declined from 89.0% as of December 31, 2022 to 80.4% as of December 31, 2023, or 87.2% adjusted for properties that are currently under agreement to be sold.
Revenues The table below sets forth, for the periods presented, revenue information and the dollar amount change year over year (in thousands): Year Ended December 31, 2022 2021 2022 vs 2021 Increase/(Decrease) Rental $ 207,353 $ 79,460 $ 127,893 Fee income from unconsolidated joint venture 765 271 494 Total revenues $ 208,118 $ 79,731 $ 128,387 Rental The increase in rental revenue of $127.9 million during the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to the increase in our overall portfolio size resulting from the closing of the Mergers, which was partially offset by our lower occupancy rate and property dispositions.
Revenues The table below sets forth, for the periods presented, revenue information and the dollar amount change year over year (in thousands): Year Ended December 31, 2023 2022 2023 vs 2022 Increase/(Decrease) Rental $ 194,241 $ 207,353 $ (13,112) Fee income from unconsolidated joint venture 800 765 35 Total revenues $ 195,041 $ 208,118 $ (13,077) Rental The decrease in rental revenue of $13.1 million during the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to the decrease in our overall occupied square footage due to scheduled vacancies and property dispositions.
Year Ended December 31, 2022 2021 Financial Metrics Total revenues $ 208,118 $ 79,731 Net loss $ (97,474) $ (47,464) Basic and diluted net loss per share attributable to common stockholders $ (1.72) $ (0.84) FFO attributable to common stockholders (1) $ 99,657 $ 46,572 FFO attributable to common stockholders per diluted share (1) $ 1.76 $ 0.82 Core FFO attributable to common stockholders (1) $ 101,764 $ 58,263 Core FFO attributable to common stockholders per diluted share (1) $ 1.80 $ 1.03 ____________________________________ (1) See the Non-GAAP Measures section below for descriptions of our non-GAAP measures and reconciliations to the most comparable U.S.
Year Ended December 31, 2023 2022 Financial Metrics Total revenues $ 195,041 $ 208,118 Net loss attributable to common stockholders $ (57,302) $ (97,494) Basic and diluted net loss per share attributable to common stockholders $ (1.02) $ (1.72) FFO attributable to common stockholders (1) $ 86,641 $ 99,657 FFO attributable to common stockholders per diluted share (1) $ 1.54 $ 1.76 Core FFO attributable to common stockholders (1) (2) $ 94,770 $ 108,178 Core FFO attributable to common stockholders per diluted share (1) (2) $ 1.68 $ 1.91 ____________________________________ (1) See the Non-GAAP Measures section below for descriptions of our non-GAAP measures and reconciliations to the most comparable U.S.
The Company has funded and intends to continue to fund tenant improvement allowances with cash on hand, which may include proceeds from dispositions. For assets financed on our CMBS Loan, the Company has funded reserves with the lender 33 Table of Contents for tenant improvement allowances and rent concession commitments.
For assets financed on our CMBS Loan, the Company has funded reserves with the lender for tenant improvement allowances and rent concession commitments.
We cannot provide any assurance as to whether we will be able to renew leases with existing tenants or re-let vacant space to new tenants on favorable terms and in a timely manner, or at all. 28 Table of Contents The Company has agreed to provide rent concessions to tenants and incur leasing costs with respect to its properties, including amounts paid directly to tenants to improve their space and/or building systems, or tenant improvement allowances, landlord agreements to perform and pay for certain improvements, and leasing commissions.
The Company has agreed to provide rent concessions to tenants and incur leasing costs with respect to its properties, including amounts paid directly to tenants to improve their space and/or building systems, or tenant improvement allowances, landlord agreements to perform and pay for certain improvements, and leasing commissions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+2 added−0 removed6 unchanged
Biggest changeAs of December 31, 2022, we did not have any outstanding variable-rate debt that was not swapped-to-fixed through the use of derivative instruments. See Note 6 – Debt, Net to our consolidated and combined financial statements. As of December 31, 2022, our interest rate swaps had a fair value that resulted in net assets of $6.3 million.
Biggest changeAs of December 31, 2023, our outstanding derivative agreements had a fair value that resulted in net liabilities of $0.3 million. See Note 7 – Derivatives and Hedging Activities to our consolidated and combined financial statements for further discussion.
The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from December 31, 2022 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt of $11.6 million.
The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from December 31, 2023 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt of $9.1 million.
Interest Rate Risk As of December 31, 2022, our debt included fixed-rate debt, with a fair value and carrying value of $332.3 million and $355.0 million, respectively. Changes in market interest rates on our fixed-rate debt impact the fair value of the debt, but they have no impact on interest incurred or cash flow.
Interest Rate Risk As of December 31, 2023, our debt included fixed-rate debt, with a fair value and carrying value of $334.9 million and $355.0 million, respectively. Changes in market interest rates on our fixed-rate debt impact the fair value of the debt, but they have no impact on interest incurred or cash flow.
The sensitivity analysis related to our variable-rate debt that was swapped-to-fixed assumes an immediate 100 basis point move in interest rates from December 31, 2022 levels and excludes the impact of the derivative instrument, with all other variables held constant.
The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from December 31, 2023 levels and excludes the impact of the derivative instrument, with all other variables held constant.
The factors we consider in determining the credit risk of our tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs ( i.e. , expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations.
Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us. 49 Table of Contents The factors we consider in determining the credit risk of our tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs ( i.e. , expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations.
A 100 basis point increase in variable interest rates would result in a decrease in the fair value of our variable-rate debt that was swapped-to-fixed of less than $0.1 million. A 100 basis point decrease in variable interest rates would result in an increase in the fair value of our variable-rate debt that was swapped-to-fixed of less than $0.1 million.
A 100 basis point increase or decrease in variable interest rates would result in a decrease or increase in the fair value of our variable-rate debt of less than $0.1 million and would increase or decrease our interest expense by $1.2 million annually.
A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt of $12.1 million. As of December 31, 2022, our debt included variable-rate debt that was swapped-to-fixed through the use of derivative instruments with a fair value and carrying value of $175.0 million.
A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt of $9.4 million. As of December 31, 2023, our debt included variable-rate debt, with a fair value and carrying value of $116.0 million.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs and assume no other changes in our capital structure. 48 Table of Contents Credit Risk Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions.
Credit Risk Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions.
See Note 7 – Derivatives and Hedging Activities to our consolidated and combined financial statements for further discussion. As the information presented above includes only those exposures that existed as of December 31, 2022, it does not consider exposures or positions arising after that date. The information presented herein has limited predictive value.
As the information presented above includes only those exposures that existed as of December 31, 2023, it does not consider exposures or positions arising after that date. The information presented herein has limited predictive value.
Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations. These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs and assume no other changes in our capital structure.
The Company is subject to tenant, geographic and industry concentrations. See “Item 2. Properties” in this Annual Report on Form 10-K. Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us.
The Company is subject to tenant, geographic and industry concentrations. See “Item 2. Properties” in this Annual Report on Form 10-K.
Added
As a result, we are subject to the potential impact of rising interest rates, which could negatively impact our results of operations and cash flows.
Added
As of December 31, 2023, the Company had interest rate collar agreements in place on a total notional amount of $60.0 million to hedge against interest rate volatility on the Revolving Facility. See Note 6 – Debt, Net to our consolidated and combined financial statements.

Other ONL 10-K year-over-year comparisons