Greetings. Welcome to the Orion Office REIT’s Second Quarter 2022 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. At this time, I'll turn the conference over to Paul Hughes, General Counsel for Orion. Mr. Hughes, you may now begin.

Thank you, operator. Good morning, everyone. Yesterday, Orion released its financial results for the quarter ended June 30, 2022, 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 www.onlreit.com. Forward-looking statements made during today's call, such as the company's guidance estimates for calendar year 2022, are subject to a number of risks and uncertainties that could cause actual results to differ materially from our expectations. These risks and uncertainties 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 that may be made during the course of today's 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 measures. Hosting the call today are Paul McDowell, the company's Chief Executive Officer; 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 second quarter 2022 earnings call. On behalf of our team, I want to thank you all for joining us. On the call today, I will discuss our performance during the second quarter, which is only our second full quarter of operations, as well as highlight the progress we continue to make in optimizing Orion for future success. I will then turn the call over to Gavin to provide an update on our financial results and guidance. As we have detailed, since November 2021, following our spin off from Realty Income, we inherited a portfolio that needed some intensive asset management and repositioning to address significant lease maturities and vacancies. While this process will take time and certainly consists of a variety of challenges along the way, we have made strong progress in the first half of the year. We remain excited about the importance of suburban net lease office in the evolving landscape of office space and the workforces of tomorrow, and have strong conviction in our ability to ultimately grow Orion and maximize long-term value for our shareholders. As a quick reminder, Orion is unique in that we are the only public net lease REIT, that is exclusively focused on owning a diversified portfolio of mission-critical and corporate headquarters office buildings, located in high-quality suburban markets throughout the United States. As a result, our business represents a specialized opportunity to invest in suburban net lease office. At quarter end, the portfolio consisted of 91 properties and six unconsolidated joint venture properties, representing 10.5 million square feet that was 86.7% occupied. The properties are leased predominantly to creditworthy tenants, primarily on a net lease basis. As a percentage of annualized base rent as of June 30, 2022, there was 67.3% investment-grade…

Thanks Paul. I will begin by discussing Orion's GAAP results for the second quarter of 2022, which is our second full quarter operating as a public company. Orion generated total revenue for the second quarter of 2022 of $52.8 million and reported net loss attributable to common stockholders of $15.6 million, or a loss of $0.27 per share. Core funds from operations was $26.8 million, or $0.47 per share, and adjusted EBITDA was $34.7 million. G&A in the second quarter of 2022 was $3.3 million. CapEx with tenant and property improvements and leasing commissions this quarter were $2.4 million consistent with last quarter. As we have discussed, CapEx timing will be dependent on when leases are signed and work is completed on properties and likely will increase over time as our leases roll over. Turning to the balance sheet. We ended the quarter with $628.3 million of outstanding debt, including Orion's proportionate share of debt in the joint venture. During the quarter, we repaid $20 million outstanding on our revolving credit facility to bring the balance down to $71 million from $91 million. As of June 30, 2022, we had total liquidity of $374 million consisting of $354 million of available capacity on our revolving credit facility and $20 million in cash and cash equivalents, including Orion's proportionate share of cash in the joint venture. We have no debt maturities this year, and over 84% of our debt is fixed or swapped to fixed rate. Our net debt to annualized adjusted EBITDA was 4.38 times at the quarter end. We also want to highlight that Orion's Board of Directors has declared a quarterly dividend of $0.10 per share for the third quarter of 2022 to be paid on October 17, 2022 to stockholders of record, as of September 30 2022.…

Thank you. We will now being conducting question-and-answer session. [Operator Instructions] Our first question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.

Hi. Good morning, everyone. This is Jyoti Yadav on for Mitch. So my first question is, Paul you mentioned in your opening remarks about asset dispositions. We're hearing from a number of landlords that, they are slowing sales efforts due to pricing. So, just curious about your view on potential volume and timing of your sales?

Yeah. Well, we're lucky. The assets that we've been looking to sell are sort of the assets that fall a little bit in the more specialized category versus typical institutional investment assets. So the market for – the markets in which we're operating to sell our properties seem to be functioning pretty well. We've got very strong number of bids for the properties that we've been looking to sell. We've got as we said in the remarks, six properties under contract, and a couple of more under LOI. And we see continued demand in the market for the types of properties that we're selling. So we feel pretty good about our expectations for selling this noncore portfolio over the next couple of quarters.

Okay. Thank you. The second question that I have is, so your 2022 guidance midpoint is up from the first quarter that you gave us initially. But it kind of implies $0.40 per quarter going forward compared to $0.47 in the second quarter. So, how do you think what would cause this change? What are the key components there?

Well, I mean, I think – look we – our guidance is our guidance and we don't give quarterly guidance. But I think that we will begin to see the impact of some of the lease expirations that we've had earlier this year on revenues, and that will impact revenues in the current quarter by that, I mean, the third quarter and then again in the fourth quarter and of course to some extent next year as well.

Right. Okay. That makes sense. And then last one for me really is, is there some sort of guidance that you have on the capital expenditure, just considering your leasing strategy going forward?

We haven't issued guidance on capital expenditures, but what we have said is that we see capital expenditures running anywhere between $5 and $10 per square foot per year for new and renewed leases.

Okay. Thank you so much. That’s all for me.

Thank you

[Operator Instructions] Your next question is from the line of Edward Reilly with EF Hutton. Please proceed with your question.

Good morning, gentlemen. A bunch of housekeeping. You had three properties under LOI for an aggregate sale price of $13.8 million?

I think we have two under LOI 13.9 – $13.8 million. I'm sorry, $13.8 million, Eddie.

Okay. And – so there's eight properties in the queue right now to be sold. Could you tell us how many of these are currently vacant?

About half of them are vacant. And the remainder, as I mentioned in my prepared remarks have short lease terms, where we expect the tenant will not renew.

Okay. Got you. So – let's see here. So there's currently 11 vacant properties. So you expect there to be maybe seven vacant properties after sale of these. I was wondering what the carrying costs for those seven baking properties are?

I'm going to let Chris Day answer that.

I think the average roughly around $7 a square foot per year. Some are higher, some are lower. Your properties in the Chicago area typically have higher property taxes, et cetera versus a property in a smaller market. But on average they are around $7 a square foot.

Okay. Got you. And of these remaining seven, are they considered [Technical Difficulty]?

Well I would say more generally when we look at the remaining vacant properties we have, several of them we may in the future decide to sell. Several of them we think are good properties and we think deserve a very solid and strong effort to re-lease them. We're prepared to spend money on updating those properties and we're prepared to spend money to attract new tenants to those properties. And the expectation is that we will. But if for some reason we feel like leasing is stalled or we're not seeing the momentum we hope to see, we recognize how expensive it is to carry these properties we'll then take a hard look at them and we may sell those as well.

Okay. Got you. And I'm wondering what industries have the most lease expirations in 2023 and 2024?

I don't think I have that data right in front of me Eddie. Let me just look that up and we'll get it back to you.

Okay. I mean do you think the – there's a strong probability of [Technical Difficulty] to some of the tenants that have [Technical Difficulty] 2023 and 2024?

Sorry, could you repeat that? You were sort of going in and out a little bit.

Sorry. No I was just wondering if there is a strong probability of re-leasing to the tenants that have lease expirations in 2023 and 2024.

Yes. We've got – I would say that – our – last quarter I think our recapture or – was about 55%, 56% of tenants; about half renewed half terminated. I think looking forward we don't know exactly where that's going to come out. But quarter-to-quarter will be very, very volatile. So we may have one quarter where we have very strong renewal because if you have two leases expire and they both renew you're at 100% renewal. And then if you have two leases and they both don't renew, you're at 0%. But we think over time, we'll have strong renewal in the portfolio but there will be some volatility quarter-to-quarter. Next looking into the coming periods, the coming two quarters – remaining two quarters of this year and then looking into next year, it will be a mixed bag like it has been this year. We'll have some very good renewals. We've got some good new leasing visibility on properties that are going vacant. And we'll have some departures and additional vacancy.

Okay. Great. Thanks, guys. Appreciate it.

Thank you. [Operator Instructions] Thank you. We've reached the end of our question-and-answer session. I'll now turn the floor back to Mr. McDowell for closing comments.

Okay. Thank you all for joining us today. We look forward to updating you on our next quarterly conference call. Have a good weekend.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.