Orion Office REIT Q2 Earnings Call Highlights

Key Points

• Orion raised its 2026 outlook, narrowing Core FFO guidance to $0.72–$0.77 per share from $0.69–$0.76, while lowering its expected net debt-to-adjusted EBITDA range to 6.0x–6.8x. Second-quarter Core FFO was stable at $0.20 per share.
• The company continued reducing leverage through asset sales, generating nearly $84 million in gross proceeds during the first half and repaying about $61 million of debt. Net debt to annualized adjusted EBITDA fell to 5.4x from 6.4x a year earlier, with approximately $177 million in liquidity.
• Orion’s strategic review remains ongoing, with multiple parties conducting due diligence, although management cautioned that no transaction is assured. Leasing activity improved, with 673,000 square feet completed year to date and dedicated-use properties growing to 38.7% of annualized base rent.

Orion Office REIT NYSE: ONL reported second-quarter 2026 results that included stable Core FFO per share, lower leverage and updated full-year guidance, while the company continued its strategic review process and advanced portfolio repositioning efforts.

Chief Executive Officer Paul McDowell said the strategic options review, announced in late January, remains underway with financial advisers Wells Fargo and JPMorgan. The company has conducted broad outreach to interested parties and made property and corporate information available through a virtual data room to parties that executed non-disclosure agreements.

“With several parties continuing to conduct diligence, we believe it is in shareholders’ interest to see that work through to its reasonable conclusion rather than set arbitrary deadlines,” McDowell said. He added that Orion cannot assure investors that the process will result in any particular transaction. In response to an analyst question, McDowell said the company will announce the outcome once the review concludes, including if it elects to continue pursuing its independent business plan.

Second-Quarter Results and Updated Outlook

For the quarter ended June 30, Orion reported revenue of $34.3 million, compared with $37.3 million in the year-earlier period. Net income totaled $24.6 million, or $0.43 per share, and included a $28.8 million gain primarily related to the sale of two operating properties.

Core FFO was $11.8 million, or $0.20 per share, essentially unchanged from the second quarter of 2025. Adjusted EBITDA was $17.2 million, compared with $18 million a year earlier.

Chief Financial Officer Gavin Brandon said general and administrative expense declined to $4.6 million from $4.8 million, reflecting lower headcount through attrition and other actions. G&A included approximately $100,000 of strategic-review costs during the quarter and $200,000 year to date.

Capital expenditures and leasing costs were $8.9 million, down from $15.6 million a year earlier. McDowell said the company had spent about $27 million year to date on a broad category of capital expenditures, including building and site upgrades, tenant improvements, lease incentives and leasing commissions. He said additional capital expenditures for the remainder of 2026 could range from $30 million to $40 million, an expectation incorporated into guidance.

Orion raised and narrowed its 2026 Core FFO outlook to $0.72 to $0.77 per diluted share, from a prior range of $0.69 to $0.76. The company lowered its expected net debt-to-adjusted EBITDA range to 6.0x to 6.8x, from 6.5x to 7.3x, while reaffirming G&A guidance of $19.8 million to $20.8 million. Brandon attributed the updated guidance to reduced operating expenses, improved leasing expectations, lease termination income, and property tax appeals and refunds.

Leasing Activity and Portfolio Occupancy

McDowell said Orion completed 673,000 square feet of leasing so far in 2026, including 202,000 square feet during the second quarter and 116,000 square feet after quarter-end. The post-quarter leasing included the company’s first new lease at its Tulsa property.

The portfolio’s weighted average lease term was 6.2 years at the end of the quarter, compared with 5.5 years at the end of the second quarter of 2025. Consolidated occupancy was 78.1%, down from the first quarter due to scheduled move-outs and dispositions but up from 76.8% a year earlier.

Cash rent spreads on second-quarter renewals were down 7.7% when comparing ending rent under the prior term with starting rent under the new term. However, the spread was positive 2.1% when comparing current ending rents with new ending rents, reflecting escalations during the new lease terms. For the first half, cash rent spreads were down 0.2% on renewals and up 7.1% using the latter comparison.

The company’s leasing pipeline exceeded 1.1 million square feet, representing more than 17% of the total portfolio in either discussion or documentation stages, McDowell said. The pipeline includes prospective long-term leases for vacant space and some full-building renewals.

Management said it now has four vacant properties, down from roughly 11 or 12 at an earlier point. McDowell said the company evaluates vacant properties based on whether the expected leasing demand and potential returns justify additional investment. He cited leasing progress at properties in Parsippany, New Jersey, and Buffalo, New York, while saying the company is evaluating the remaining vacant assets individually.

Asset Sales, Debt Reduction and Dedicated-Use Strategy

During the first half, Orion generated nearly $84 million of gross proceeds from sales of four properties and a 37.4-acre campus in Deerfield, Illinois. Second-quarter sales generated $70.6 million of aggregate gross proceeds and included a property sold to its existing tenant at a 5.6% cash capitalization rate and a recently vacated property sold to an adjacent user at an implied 5% cash capitalization rate on expiring rent.

Sale proceeds supported roughly $61 million of debt repayment, including more than $35 million paid down on the company’s CMBS loan during the quarter. Net debt to annualized adjusted EBITDA was 5.4x at quarter-end, compared with 6.4x a year earlier. Total debt outstanding was $436.6 million, compared with $483 million a year earlier, excluding the company’s proportionate share of unconsolidated joint venture debt.

Orion reported total liquidity of about $177 million as of June 30, including $63.5 million of cash, cash equivalents and restricted cash, along with $113 million of availability under its revolving credit facility. Its next significant debt maturity is in February 2028, with an option to extend it to February 2029.

McDowell said sales of vacant or near-term vacant properties in 2025 and 2026 are expected to reduce annual carrying costs by more than $12 million. Property operating costs improved by $3.4 million in the second quarter and $5.1 million in the first half from the comparable 2025 periods.

The company is also seeking to increase its exposure to dedicated-use assets, including medical, laboratory, research and development, flex and government properties. Such assets represented 38.7% of annualized base rent at quarter-end, up from 37.1% in the first quarter and 32.6% a year earlier. McDowell said the long-term goal is for dedicated-use assets to represent well more than a majority of the portfolio, though the pace will depend partly on access to outside capital.

Orion’s board declared a quarterly cash dividend of $0.02 per share for the third quarter, payable Oct. 15 to stockholders of record as of Sept. 30.

About Orion Office REIT (NYSE:ONL)

Orion Office REIT is a publicly traded real estate investment trust that acquires, owns and manages a diversified portfolio of Class A office properties across high-growth U.S. markets. The company focuses on suburban and infill locations, targeting properties with strong tenant credit profiles and long-term lease structures. Its business strategy emphasizes active asset management, capital recycling and selective development to enhance income stability and potential total return for shareholders.

Orion Office REIT debuted on the New York Stock Exchange under the ticker ONL following a spin-off from Government Properties Income Trust in June 2021, though many of its core assets trace back to acquisitions made as early as 2013.

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