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

Thank you, operator. Good morning, everyone. Yesterday, Orion released its financial results for the quarter ended March 31, 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 www.onlreit.com. I would like to remind everyone that 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 beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from our estimates. The risks and uncertainties are discussed in our earnings release as well as in our Form 10-Q and other SEC filings. You should not place undue reliance on these forward-looking statements and 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 intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. As discussed during our year-end conference call and in our earnings release and Form 10-Q, we revised our definition of core FFO beginning in 2023 to exclude certain noncash amortization charges, which do not reflect the ongoing performance of our business. We will apply this definitional change retrospectively for comparison purposes. 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 is 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 First Quarter 2023 Earnings Call. On behalf of our team, I want to thank you all for joining us today. I will highlight the ongoing progress we are making executing on our business strategy and discuss our first quarter performance and operations. 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. We are continuing our intensive efforts to reposition the portfolio of properties we inherited, but we were spun off from Realty Income in late 2021. Our focus remains on ensuring that we have the right capital structure in place to support investments in our core portfolio in the form of CapEx and lease incentives in order to retain tenants and lease vacancy so we can deliver sustained cash flow and ultimately position the company to grow. There is no question that our pursuit to execute on Orion's differentiated net lease-focused investment strategy has been impacted by the persistent and deteriorating economic backdrop for real estate and specifically for office. The current conditions notwithstanding, we remain confident that over time, our focus on owning a diversified portfolio of mission-critical and corporate headquarter office buildings located in high-quality suburban markets will allow us to build a strong platform for success. This will require over the next few years that we resolve pending lease maturities and vacancies across a large portion of our portfolio that we must continue to intensively manage. We will include making capital allocation decisions that acknowledge that capital is precious and not always available when needed from external sources. We still believe that the best use of our capital is to continue to stabilize and reposition the portfolio and recycle capital…

Thanks, Paul. I'll begin by discussing Orion's GAAP results for the first quarter. Orion generated total revenue of $50.2 million as compared to $53.2 million in the same quarter of the prior year. We reported a net loss attributable to common stockholders of $8.9 million or $0.16 per share as compared to a net loss of $9.9 million or $0.17 per share reported in 2022. Core funds from operations for the quarter was $25.3 million or $0.45 per share as compared to $29.3 million or $0.52 per share in the first quarter of 2022. Adjusted EBITDA was $31.2 million versus $34.7 million in the same quarter of 2022. The changes year-over-year are primarily related to current vacancies and the disposition of properties. G&A was $4.3 million compared to $3.5 million in the first quarter of 2022. As we discussed on prior calls, the expiration of spin-related expense subsidies from reality income, the achievement of optimal headcount during 2022 and an additional year of stock-based compensation will impact year-over-year 2023 comparisons. CapEx this quarter was $3.3 million compared to $2.4 million in 2022, including tenant improvements of $1.6 million and other property improvements of $800,000, leasing commissions associated with the property's leasing activity were an additional $900,000. As a reminder, CapEx timing will be dependent on when leases are signed and what is completed on the 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 $557.3 million of outstanding debt, and there was no outstanding borrowings on the $425 million revolving credit facility. It is important to note that in less than two years as a public company, we have reduced debt by approximately $90 million or 15%. At…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from Mitch Germain with JMP Securities. Please go ahead.

Thank you. Paul, I'm just curious, six or so quarters since you've been public. And in assessing the portfolio when you inherited it to today, how has some of the leasing that's transpired? Is that somewhat in line with expectations? Has it been somewhat under? Has it been ahead? I'm curious about your thoughts there.

Thanks, Mitch. Good morning. I'd say from when we started to where we are today, we've been -- the leasing that we've been able to accomplish has been largely in line with what we originally expected, but we have had a couple of leases that we had properties that we had hoped to backfill more quickly than we've been able to do so. So I would say from a renewal perspective, it's pretty much been as we've expected. But what has been very slow to develop is the ability to attract new tenants to vacant properties. We have several vacant properties now where we have very active opportunities for potentially backfilling that space. But I would say, overall, that's what's been slow is backfilling vacant space.

Got you. I mean probably consistent with your comments on decision-making slowdown. You mentioned an improvement in asset pricing. So it's a little bit inconsistent with what we've been hearing. I guess our discussions suggest that there could be further downside. So I'd love for your commentary on that topic, please.

Yes. I mean I think we're actually saying the same thing, Mitch. When I say improvement on asset pricing, I mean from a buyers as compared to a seller's perspective, right? So we seen cap rates for a long time, cap rates seemed persistently stubborn and that sellers were looking for the pricing that was available six, eight, 12 months ago, while buyers were starting to look forward. Recently, as we've looked through our pipeline of possible transactions, what we've seen in the marketplace is the cap rates are now starting to widen out relatively significantly for well-leased long-duration, good properties in good markets, so and those levels are starting to get to the levels that we've seen over a long period of time, my career is dating back to the mid-1990s that over long periods are attractive. So -- but we've been very careful, as you noted. We noted we didn't make any acquisitions in the first quarter. In fact, we haven't made any acquisitions from the balance sheet since we spun. So while we see asset pricing getting better, we're still being pretty cautious or quite cautious in deciding whether or not to add to the portfolio.

I guess my last question is, would you consider an acquisition before you can determine the status of the term loan? Or is that really the motivating factor with regards to potentially using some capital or capacity on the revolver going forward?

I think we look at it from a holistic perspective, Mitch. We've got the capacity to -- we have both the capacity on the line of credit. We have cash on the balance sheet. So we retain the flexibility to add an asset to the balance sheet if we chose to do so, so far, we have not. But we also recognize that the financing markets are tough, and we're working through with our lenders, where we hope the best outcome can be for the term loan. So I'm not going to give you a definitive answer other than to say we're cognizant of the overall market.

Thank you.

Thank you, Mitch.

There are no further questions at this time. I would like to turn the floor back over to Mr. McDowell for closing remarks.

Thank you all for joining us on this first quarter conference call, and we look forward to hosting you again on our second quarter conference call later this summer. Thank you. Goodbye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.