Greetings. Welcome to Orion Office REIT's Third Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin.

Thank you. Good morning, everyone. Yesterday, Orion released its financial results for the quarter ended September 30, 2023, filed its Form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website. These documents are available in the Investors section of the company's website at onlreit.com. Certain statements made during this call are not strictly historical information and constitute forward-looking statements. These statements, which include the company's guidance estimates for calendar year 2023, are based on management's current expectations and are subject to a number of risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-Q and other SEC filings. The company undertakes no duty to update any forward-looking statements made during this call. Additionally, during the conference call today, we will be discussing certain non-GAAP financial measures, such as funds from operations, or FFO, and core funds from operations or core FFO. The company's earnings release and supplement include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure. Our presentation of this information is not a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Paul McDowell, the company's Chief Executive Officer; and Gavin Brandon, the company's Chief Financial Officer. And joining us for the Q&A session are Gary Landriau, our Chief Investment Officer; and Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell. Paul?

Good morning, everyone, and welcome to Orion Office REIT's Third Quarter 2023 Earnings Call. On behalf of our team, I want to thank you all for joining us today. I will discuss our portfolio, performance and operations for the third quarter and highlight our ongoing progress in executing our business strategy of owning a diversified portfolio of high-quality office properties leased primarily on a single-tenant net lease basis in markets across the United States. I will then turn the call over to Gavin to provide an update on our financial results and on our outlook for the rest of the year. At quarter end, we owned 79 properties and six unconsolidated joint venture properties, comprising 9.5 million rentable square feet that were 80.5% occupied. Adjusted for properties that have been sold subsequent to quarter end or are currently under agreement to be sold, our occupancy rate was 88.7% as of September 30, 2023. The properties in the portfolio are predominantly either triple or double net leased to creditworthy tenants. As a percentage of annualized base rent as of September 30, 2023, 72% of our tenants were investment grade, up from 69.9% as of September 30, 2022. Our strong portfolio of assets is well diversified by tenant, tenant industry and geography. Our largest tenant by annualized base rent is the United States government, and our two largest tenant industries are healthcare and government, representing 14.7% and 13.7% of annualized base rent, respectively. Over 30% of our annualized base rent is derived from Sunbelt markets. Our largest markets by state remain Texas and New Jersey, which represent 16.7% and 13.2% of annualized base rent, respectively. Our portfolio's weighted average lease term stayed steady at 3.9 years at quarter end. Maintaining a strong capital structure that can support the necessary investments in our core portfolio is a critical part of our business plan beyond being proactive in our approach to new and renewal leasing. Carefully balancing our leverage, asset sales and capital investment is the right strategy since we cannot control the macro environment or the financial climate for the office sector, which continues to be very difficult. To that point, the continued negative sentiment has certainly weighed on valuation for not just Orion, but also the entire office and net lease sectors. In September, we learned that Orion would transition out of certain stock indexes, resulting in a significant temporary spike in trading volumes and added selling pressure on our shares as investors rotated out of their ownership positions. Given the dislocation, we executed a repurchase of 900,000 shares of our common stock for $5 million at a weighted average price of $5.46 per share as part of the company's previously announced $50 million share repurchase program. Beyond that investment, we continue to prioritize current and expected future capital spending for building improvement allowances and lease incentives to retain and attract new tenants and enable us to maintain and extend our existing portfolio's weighted average lease term to drive sustained cash flows. We spend a significant amount of time on capital allocation decisions and remain guided by ascertaining which properties will provide the greatest return over time. We still believe that the best use of our capital is to continue to stabilize and reposition the existing portfolio and recycle capital as appropriate through the sale of properties that do not align with our long-term strategy. During the third quarter and shortly thereafter, we closed on the sale of three vacant properties, representing 452,000 square feet for an aggregate gross sales price of $15.4 million or $34 per square foot. We also have agreements to sell nine additional properties representing 779,000 square feet for approximately $47 million. Regarding the six property former Walgreens campus in Deerfield, Illinois, that we have had under contract to sell for the past several quarters, the buyer continues to progress with its redevelopment plans for the property despite the challenging financing environment and has reached an additional milestone, therefore, adding to their at-risk deposit towards the purchase price. We are now targeting this sale to close sometime in mid-2024. The reason it is so important to execute on these sales of vacant and non-core assets is the costs that are associated with maintaining a vacant building where re-tenanting opportunities over the near to intermediate term appear unlikely. Through the nine months ended September 30, 2023, we estimate that we have spent $8.2 million in carrying costs on vacant and partially vacant properties, as shown on Page 18 of the supplemental. As we have said before, while asset sales reduced operating expense drag in the short term, it will pressure our ability to grow earnings in the future as we become smaller with fewer buildings. That said, we believe that in this environment, it is the right approach to maximize the long-term value of the overall portfolio and position the company to grow profitably in the future. Leasing continues to be challenging, and we did not sign any leases during the third quarter despite decent activity. However, in October, we secured a 10-year early lease renewal for approximately 90,000 square feet in Memphis, Tennessee, where the investment-grade tenant's lease term will now run until December 31, 2034. We also entered into a new 10-year lease for approximately 3,000 square feet of retail space on the ground floor in our building in Covington, Kentucky, leased primarily to the United States government. From an office sentiment perspective, we have not seen or heard of much change from what we shared over the summer on a return to office for many employees. But anecdotally, the parking lots do seem a bit fuller as we travel throughout our markets. We also are seeing an increase in conversations and showings at some of our properties. And while there is a long road to convert market interest into new leases, it is definitely a positive step forward for office space demand relative to the sentiment over the summer. Despite these green shoots, we do not think that office utilization will revert back to historical norms even as return to office gains traction. Hybrid work practices are not going away, and lower utilization will likely continue to result in office tenants seeking less square footage on renewal for the foreseeable future. Tenant retention remains our highest priority. But as we've provided in our supplemental filing, we do have significant lease roll in 2024 of approximately 1.9 million square feet, and several of our larger tenants have publicly indicated they do not intend to renew with us, which will impact revenues until those properties can be re-tenanted. From the leasing pipeline perspective, however, we continue to be in various stages of discussion and negotiation for new leases and renewals of over 1.5 million square feet, including at some of our properties where we have lease roll next year. While our pipeline is encouraging, corporate decision-making remains slow and converting interest into signed leases can be a slow and uncertain process. Given the timing of leases and the size of our portfolio, retention will remain volatile quarter-over-quarter depending on the needs and timing of tenants' decisions. Our strategy remains intact: retain tenants, lease vacant space and dispose of non-core assets. We know it will take a few more years to fully reposition our portfolio, but we continue to progress towards overcoming the challenges and are building a solid foundation from which we intend to grow our core portfolio and produce sustained cash flows to create value for our shareholders. With that, I will now turn the call over to Gavin. Gavin?

Thanks, Paul. I will start by discussing Orion's GAAP results for the third quarter. We generated total revenues of $49.1 million as compared to $51.8 million in the same quarter of the prior year. We reported a net loss attributable to common stockholders of $16.5 million or $0.29 per share as compared to a net loss of $53 million or $0.94 per share reported in 2022. The change year-over-year was primarily due to impairment charges of $11.4 million for the third quarter of 2023 compared to $44.8 million for the same quarter in 2022. Core funds from operations for the quarter were $24.1 million or $0.43 per share as compared to $25.6 million or $0.45 per share in the same quarter of 2022. Adjusted EBITDA was $30 million versus $32.1 million in the same quarter of 2022. The changes year-over-year are primarily related to vacancies and the disposition of properties. G&A was $4.4 million compared to $4.7 million in the third quarter of 2022 due to bonus accrual adjustments in the prior year, offset by higher compensation expenses as a result of achievement of optimal headcount during 2022 and an additional year of stock awards and the associated stock-based compensation expense. CapEx this quarter was $8.4 million compared to $3.7 million in the third quarter of 2022, including property improvements of $6.3 million and leasing costs of $2.1 million. As a reminder, CapEx timing will be dependent on when leases are signed and work is completed on properties. CapEx will likely increase over time as leases roll over and new and existing tenants draw upon tenant improvement allowances. Turning to the balance sheet. We ended the quarter with strong liquidity of $316.2 million, comprised of $33 million of cash and cash equivalents, including the company's pro rata share of cash from the Arch Street joint venture, $250 million of available capacity on the company's $425 million revolving credit facility and $33.2 million of restricted cash deposited with our credit facility lenders, which will be used to prepay borrowings on the revolver this month and thereby increase the company's borrowing capacity of the revolver by the equivalent amount. We have $557.3 million of outstanding debt, which is 100% fixed rate or swap to fixed rate. However, only until November 12, 2023, in the case of our revolving credit facility and until May 27, 2024, in the case of our share of the Arch Street joint venture mortgage debt. Upon the expiration of the interest rate swap agreements, the outstanding borrowings on the revolving credit facility will no longer be effectively fixed and the interest rate and the associated interest expense will rise materially to reflect current conditions. The company may enter into new derivative transactions in the future to fix the borrowing cost on all or part of its floating rate borrowings under the revolver. Net debt to annualized adjusted EBITDA was 4.09 times at quarter end, and the weighted average interest rate was 4.65%. Because the market for financing office real estate assets is still dislocated, it remains our intention to maintain significant liquidity on the balance sheet for the foreseeable future given the expected capital commitments in our future leasing efforts and the necessary financial flexibility to execute on our business plan over the next several years. Orion's Board of Directors declared a quarterly cash dividend of $0.10 per share for the fourth quarter of 2023 to be paid on January 16, 2024, to stockholders of record as of December 29, 2023. Finally, we are updating our expectations for our full year 2023 guidance for core FFO and net debt to adjusted EBITDA. Core FFO is now anticipated to range from $1.65 to $1.68 per diluted share, up from $1.59 to $1.63 per diluted share. Much of the increase is attributable to one-time items and includes the impact of property operating expense reimbursements, lower public company costs than anticipated and lower share count due to share repurchase activity. Net debt to adjusted EBITDA is now expected to range from 4.0 times to 4.7 times, down from 4.3 times to 5.0 times. G&A expectations are unchanged, ranging from $18.25 million to $18.75 million. One additional note, while we do not provide quarterly guidance, given scheduled lease vacancies during this year and next, we expect to continue to have sequential reductions in the quarterly amount of earnings and core FFO on a per share basis as we move through the rest of the year and into the coming year. As we head towards the close of the year, the capital allocation decisions that we have made have put the company in a strong financial position, which is further supported by our cash from operations and property sales that should enable us to reach our near- and long-term objectives. We remain focused on creating value by effectively executing our business plan. With that, we will open the line for questions.

At this time we’ll be conducting a question and answer session. Our first question comes from the line of Mitch Germain with JMP Securities.

Good morning. How are you guys?

Well, Mitch. Thank you.

I'm curious about the timing of Walgreens and Experian's move-out dates during the quarter. I'm trying to understand how much that influenced the quarter's results.

I think Walgreens, their lease expired in the very end of July to the beginning of August.

Walgreens was 8/31.

8/31, okay, thank you, Chris.

And Experian was 7/31.

Okay. So you had them swapped.

Yes, I did. My mistake.

It's okay. That's perfect. I'm trying to understand, Paul. You started the year with a 4.1-year average weighted average lease term. You've done some leasing and sold some vacancy, and now you're entering the fourth quarter with a 3.9-year average. When do you expect this pressure to ease, especially since most of the leasing you've done has been for 10 years? Is it simply due to a declining base of assets that's preventing much change?

Yes, to some degree, and it's a function of not as much new leasing as we'd like to achieve and hope to achieve in the future, Mitch. I think we're going to continue to see pressure on our WALT throughout next year because we've got quite a number of leases that are rolling over. And then hopefully, in the out years, that is 2025 and beyond, we'll start to see gradual increases in WALT as we both renew leases and add new leases.

Okay, that's helpful. You mentioned something I believe is the first time you've provided insight into the volume in your leasing pipeline. If I'm not mistaken, you said it stands at 1.5 million square feet. Is that correct?

That's correct. In the past, we've provided indications of our volumes. For 2024, we have a significant amount of lease roll and some upcoming vacancies, which will negatively impact our revenues. However, we also have substantial interest from tenants, both for renewals and new leases, which we hope will help fill some of the vacancies. There's good leasing activity, with people visiting our properties and us exchanging requests for proposals. But it's important to note that moving from interest to a signed lease can take time, as corporate decision-making processes can be lengthy. While we have positive momentum in leasing, translating that into signed leases may take a while. Nonetheless, we are quite optimistic about filling the vacancies that will arise in the near term.

And this is the second quarter in a row where you've referenced a little bit of an uptick in activity. So I guess, do you feel like we're nearing a bottom here and kind of moving a little bit maybe up? Or do you think that there's still a little bit more pain, not just your portfolio, but just in the office sector in general?

I guess I have a couple of responses to that, Mitch. One is, I certainly hope this is the bottom. It's certainly been painful getting to where we are today, and the overall market is under a fair amount of stress with a lot of vacancy across the office markets. For Orion, we're a little different. And by that, I only mean because of our size, and we have single tenants, we're so granular. So we've got a lot of lease roll in 2024, a couple of several properties of our larger properties where the tenant has said they're going to move out. So that we have some pain to come looking forward. But when we think about refilling that vacancy, I would say we're more optimistic about that today than we probably were six months ago. So hopefully, both for Orion and for the industry at large, if we're not at the bottom, maybe we can see it from here.

Got you. Okay. Last one for me. Your guidance implies a pretty significant deceleration in the fourth quarter. You get the benefit of the lower share count. Obviously, you're offsetting that against some of those vacancies or Walgreens and Experian not being in the full quarter some new vacancies. I'm just trying to understand, I mean, how do you bridge me from 3Q to 4Q to get to kind of midpoint of your guidance?

Yes. I mean I think we've got a fair amount of deceleration in revenues as a result of Walgreens being moved out. And we also were helped recently with some one-time items that won't be recurring. We did a little bit better on some tax appeals and some property expenses. So there are a number of items that sort of have helped us in the past and won't be helping us in the fourth quarter. Obviously, the share repurchase will continue to help us to some degree. But I think it's really the things I just mentioned: that is the deceleration in revenues, coupled with the positive impacts of some one-time items that won't be recurring.

Great. Appreciate it. Thank you.

Thanks, Mitch.

And we have reached the end of the question-and-answer session. And I'll turn the call back over to Paul McDowell for closing remarks.

Thank you all for joining us today on our third quarter call, and we look forward to updating you further in the beginning of next year. Thank you.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.