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 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 health care 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 represents 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…

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 was $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…

Thank you. At this time we’ll be conducting a question and answer session. [Operator Instructions] 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, what was the timing in the quarter of when Walgreens and Experian -- when was their move-out dates? I'm trying to figure out how much of that had an impact on the quarter?

I think Walgreens, their lease expired in the end -- very end of July to 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. And -- okay, that's perfect. And then I'm trying to -- help me out here, Paul. I mean, you started the year with 4.1 year average WALT. You did some leasing, you sold some vacancy. And here you enter 4Q with 3.9 of average WALT. When does this pressure begin to moderate because most of the leasing that you've been doing obviously has been 10 years. Is it just a function of a shrinking base of assets that's just causing that to not really change much?

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. And then you referenced -- I think it is the first time you've ever provided some perspective on the volume in your leasing pipeline unless I'm incorrect. I think you said 1.5 million square feet. Is that correct?

That's correct. I mean I think from time to time, Mitch, in the past, we've said we sort of given indications of where our volumes are. So I think what we're trying to say is, on the one hand, in 2024, we've got a lot of lease roll, and we've got some vacancy coming up. And that will have a material negative impact on revenues. On the other side of that coin, we have also got some significant amount of interest, both from -- in tenant interest, both from a renewal perspective and from a new lease perspective, which would fill -- which we would hope would fill some of our vacancy. So we've got good leasing activity. And by that, I mean people visiting our properties, us exchanging requests for proposals and the like. But it's a long way from people visiting a property or asking us to respond with an RFP to a signed lease. One of the things we found over the past year is that decision-making cycle at the corporate level can take a long time. So we've got good momentum in leasing, but getting from that momentum to a signed lease can take some time. But we're -- over the intermediate term, we're quite optimistic about being able to fill up some of these vacancies that we have coming up.

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 onetime 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 deceleration in revenues, coupled with the positive impacts of some onetime items that won't be recurring.

Great. Appreciate it. Thank you.

Thanks, Mitch.

[Operator Instructions] 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.