What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-03 compared with 2022-05-04 · 222 added, 198 removed, 693 unchanged (38% of the section changed)

3 unchanged sentences

(In thousands, except for share and per share data) (Unaudited)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Real estate investments, at cost:

7 unchanged sentences

Cash and cash equivalents 19,300 29,318

Real estate assets held for sale, net 9,402 —

Other assets, net 91,208 60,501

10 unchanged sentences

Total liabilities 656,193 671,190

Common stock, $ 0.001 par value, 100,000,000 shares authorized and 56,625,650 shares issued and outstanding as of each of March 31, 2022 and December 31, 2021

Common stock, $ 0.001 par value, 100,000,000 shares authorized 56,635,038 and 56,625,650 shares issued and outstanding as of each of June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,145,987 1,145,278

9 unchanged sentences

(In thousands, except for per share data) (Unaudited)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Rental $ 52,659 $ 12,587 $ 105,676 $ 25,615

10 unchanged sentences

Other (expenses) income:

Interest expense ( 6,847 ) ( 465 )

Interest expense, net ( 7,867 ) ( 338 ) ( 14,714 ) ( 803 )

Loss on extinguishment of debt, net — — ( 468 ) —

Other income, net 48 — 87 —

Equity in income of unconsolidated joint venture ( 41 ) —

Equity in income (loss) of unconsolidated joint venture ( 54 ) — ( 95 ) —

Total other (expenses) income, net ( 7,873 ) ( 338 ) ( 15,190 ) ( 803 )

10 unchanged sentences

(In thousands) (Unaudited)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net (loss) income $ ( 15,570 ) $ 4,296 $ ( 25,452 ) $ 8,847

1 unchanged sentence

Unrealized gain on interest rate derivatives 1,526 — 5,344 —

Reclassification of previous unrealized loss on interest rate derivatives into net (loss) income 239 —

Reclassification of previous unrealized (gain) loss on interest rate derivatives into net (loss) income ( 31 ) — 208 —

Total other comprehensive income (loss) 1,495 — 5,552 —

1 unchanged sentence

Comprehensive (income) loss attributable to non-controlling interests (1)

( 1 ) — ( 25 ) —

Total comprehensive (loss) income $ ( 14,076 ) $ 4,296 $ ( 19,925 ) $ 8,847

3 unchanged sentences

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(In thousands, except for share and per share data) (Unaudited)

(In thousands, except for share data) (Unaudited)

of Shares Par

7 unchanged sentences

Balance, March 31, 2022 56,625,650 $ 57 $ 1,145,548 $ 4,356 $ ( 74,328 ) $ 1,075,633 $ 1,393 $ 1,077,026

Net (loss) income — — — — ( 15,571 ) ( 15,571 ) 1 ( 15,570 )

Distributions — — — — ( 5,663 ) ( 5,663 ) — ( 5,663 )

Equity-based compensation, net 9,388 — 439 — — 439 — 439

Other comprehensive income — — — 1,495 — 1,495 — 1,495

Balance, June 30, 2022 56,635,038 $ 57 $ 1,145,987 $ 5,851 $ ( 95,562 ) $ 1,056,333 $ 1,394 $ 1,057,727

of Shares Par

5 unchanged sentences

Balance, March 31, 2021 — $ — $ — $ — $ — $ 487,547 $ 487,547 $ — $ 487,547

Net income — — — — — 4,296 4,296 — 4,296

Contributions from parent company, net — — — — — 3,746 3,746 — 3,746

Balance, June 30, 2021 — $ — $ — $ — $ — $ 495,589 $ 495,589 $ — $ 495,589

The accompanying notes are an integral part of this statement.

2 unchanged sentences

(In thousands) (Unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

15 unchanged sentences

Capital expenditures and leasing costs ( 3,429 ) ( 77 )

Proceeds from disposition of real estate 3,496 —

Return of investment from unconsolidated joint venture 1,217 —

Net cash used in investing activities ( 1,235 ) ( 55 )

Net cash provided by (used in) investing activities 1,284 ( 77 )

Cash flows from financing activities:

Repayment of bridge facility, including debt extinguishment costs ( 355,026 ) —

Proceeds from mortgage notes payable 355,000 —

Payments on mortgage notes payable — ( 163 )

Proceeds from mortgages payable 355,000 —

Payments on mortgages payable — ( 14,279 )

Proceeds from credit facility revolver 70,000 —

Repayments of credit facility revolver ( 89,000 ) —

Distributions paid ( 5,663 ) —

Distributions to parent company, net — ( 10,376 )

15 unchanged sentences

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Note 1 – Organization

7 unchanged sentences

Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and VEREIT Office Assets (the “Separation”) to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”).

On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”).

On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement dated as of November 11, 2021, by and among Realty Income, the Company and Orion OP (the “Separation and Distribution Agreement”), Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”).

Approximately $ 595.0 million was distributed by the Company to Realty Income in accordance with the Separation and Distribution Agreement.

2 unchanged sentences

The Company’s common stock, par value $ 0.001 per share, trades on the New York Stock Exchange (the “NYSE”) under the symbol “ONL”.

At March 31, 2022, the Company owned and operated 92 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.5 million leasable square feet located within 29 states and Puerto Rico.

In addition, the Company owns an equity interest in an unconsolidated joint venture with an affiliate of Arch Street Capital Partners (the “Arch Street Joint Venture”), which, as of March 31, 2022 owned a portfolio consisting of six office properties totaling approximately 1.0 million leasable square feet located within six states.

At June 30, 2022, the Company owned and operated 91 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.4 million leasable square feet located within 29 states and Puerto Rico.

In addition, the Company owns an equity interest in OAP/VER Venture, LLC (the “Arch Street Joint Venture”), an unconsolidated joint venture with an affiliate of Arch Street Capital Partners.

As of June 30, 2022, the Arch Street Joint Venture owned a portfolio consisting of six office properties totaling approximately 1.0 million leasable square feet located within six states.

Note 2 - Summary of Significant Accounting Policies

10 unchanged sentences

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Principles of Consolidation and Combination and Basis of Presentation

The consolidated and combined statements of the Company include the accounts of Realty Income Office Assets presented on a combined basis for the three months ended March 31, 2021 as the ownership interests were under common control and ownership of Realty Income during that period.

For the three months ended March 31, 2022, the consolidated and combined financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture.

The portion of the consolidated joint venture not owned by the Company is presented as non-controlling interest in the Company’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity.

The consolidated and combined statements of the Company include the accounts of Realty Income Office Assets presented on a combined basis for the three and six months ended June 30, 2021 as the ownership interests were under common control and ownership of Realty Income during that period.

For the three and six months ended June 30, 2022, the consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture, which accounts include the Realty Income Office Assets and the VEREIT Office Assets.

For legal entities being evaluated for consolidation, the Company must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity.

19 unchanged sentences

The Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue.

During the three months ended March 31, 2022, the Company did not record a general allowance or any reductions to rental revenue for amounts not probable of collection.

During the three and six months ended June 30, 2022, the Company did not record a general allowance or any reductions to rental revenue for amounts not probable of collection.

For operating leases with minimum scheduled rent increases, the Company recognizes rental revenue on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments is probable.

3 unchanged sentences

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Certain of the Company’s leases also contain provisions for tenants to reimburse the Company for real estate taxes, insurance and maintenance and other property operating expenses.

1 unchanged sentence

Rental revenue also includes lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as amortization of above and below-market leases.

During the quarters ended March 31, 2022 and 2021, the Company did no t recognize any lease termination income.

During the three and six months ended June 30, 2022, the Company recognized $ 0.9 million of lease termination income.

During the three and six months ended June 30, 2021, the Company did no t recognize any lease termination income.

Fee Income from Unconsolidated Joint Venture

The Company provides various services to our unconsolidated joint venture entity in exchange for market-based fees.

Total asset and property management and acquisition fees earned in connection with this entity was $ 0.2 million for the quarter ended March 31, 2022.

No such fee income was earned for the quarter ended March 31, 2021.

The Company provides various services to its unconsolidated joint venture entity in exchange for market-based fees.

Total asset and property management fees earned in connection with this entity was $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2022, respectively.

No such fee income was earned for the three and six months ended June 30, 2021.

Cash and Cash Equivalents

5 unchanged sentences

Restricted cash

The Company had $ 35.5 million in restricted cash as of March 31, 2022, primarily comprised of reserves held by the lender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances.

The Company had $ 35.3 million in restricted cash as of June 30, 2022, primarily comprised of reserves held by the lender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances.

The Company did not have any restricted cash balances as of December 31, 2021.

Restricted cash is included in Other Assets, net on the Company’s consolidated and combined balance sheets.

Restricted cash is included in other assets, net on the Company’s consolidated balance sheets.

Recent Accounting Pronouncements

10 unchanged sentences

Property Acquisitions

During the three months ended March 31, 2022, the Company acquired for no consideration the fee interest in one parcel of land in connection with the maturity of a ground lease.

As a result of the transaction, $ 4.7 million that was previously classified as a finance lease right-of-use asset with respect to such land parcel previously subject to the ground lease was reclassified from other assets, net to real estate investments in the Company’s consolidated balance sheet as of March 31, 2022.

During the three months ended March 31, 2021, the Company had no acquisitions.

During the three months ended June 30, 2022, the Company had no acquisitions.

During the six months ended June 30, 2022, the Company acquired for no consideration the fee interest in one parcel of land in connection with the maturity of the tax advantaged bond and ground lease structure.

During the three and six months ended June 30, 2021, the Company had no acquisitions.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Property Dispositions and Real Estate Assets Held for Sale

During the three and six months ended June 30, 2022, the Company disposed of one property for an aggregate gross sales price of $ 3.7 million.

The Company recorded a loss of $ 1.1 million related to the disposition, which is included in impairments in the accompanying consolidated and combined statements of operations.

During the three and six months ended June 30, 2021, the Company had no dispositions.

During the three and six months ended June 30, 2022, there were two properties classified as held for sale with a carrying value of $ 9.4 million, included in real estate assets held for sale, net, primarily comprised of land of $ 2.0 million and building, fixtures and improvements, net of $ 7.4 million, in the accompanying consolidated balance sheets, and which are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy.

The Company recorded a loss of $ 5.2 million related to held for sale properties, which is included in impairments in the accompanying consolidated and combined statements of operations.

Intangible Lease Assets

Intangible lease assets consisted of the following (amounts in thousands, except weighted-average useful life):

Weighted-Average Useful Life (Years) March 31, 2022 December 31, 2021

Weighted-Average Useful Life (Years) June 30, 2022 December 31, 2021

Intangible lease assets:

9 unchanged sentences

7.8 $ 17,381 $ 20,609

The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $ 0.3 million for the three months ended March 31, 2022.

The aggregate amount of amortization of above-market and below-market leases included as a net decrease to rental revenue was $ 0.2 million for the three months ended March 31, 2021.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 25.2 million and $ 1.7 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of March 31, 2022 (amounts in thousands) :

The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2022, respectively, and $ 0.3 million and $ 0.5 million for the three and six months ended June 30, 2021, respectively.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 24.6 million and $ 49.8 million for the three and six months ended June 30, 2022, respectively, and $ 1.5 million and $ 3.2 million for the three and six months ended June 30, 2021, respectively.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

June 30, 2022 (Unaudited)

Remainder of 2022 2023 2024 2025 2026 2027

7 unchanged sentences

Total projected to be added to rental revenue $ 3,216 $ 6,091 $ 3,786 $ 1,036 $ 817 $ 655

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

Investment in Unconsolidated Entity

The following is a summary of the Company’s investment in one unconsolidated entity, Arch Street Joint Venture, as of March 31, 2022 and for the three months ended March 31, 2022 (dollar amounts in thousands):

The following is a summary of the Company’s investment in one unconsolidated entity, the Arch Street Joint Venture, as of June 30, 2022 and for the six months ended June 30, 2022 (dollar amounts in thousands):

Ownership % (1)

Number of Properties Carrying Amount of

Investment Equity in Income

Three Months Ended (2)

Investment March 31, 2022 March 31, 2022 December 31, 2021 March 31, 2022 March 31, 2021

Investment Equity in Income (Loss)

Six Months Ended (2)

Investment June 30, 2022 June 30, 2022 December 31, 2021 June 30, 2022 June 30, 2021

Arch Street Joint Venture (3) (4)

2 unchanged sentences

(1) The Company’s ownership interest reflects its legal ownership interest.

Legal ownership may, at times, not equal the Company’s economic interest because of various provisions in the joint venture agreement regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses.

The Company’s legal ownership interest may, at times, not equal the Company’s economic interest because of various provisions in the joint venture agreement regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses.

As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.

1 unchanged sentence

Therefore, the Company’s equity in income reflects operations following the Merger Effective Time.

(3) During three months ended March 31, 2022, the Arch Street Joint Venture did not acquire any properties.

(4) The total carrying amount of the Company’s investment in the unconsolidated joint venture was greater than the underlying equity in net assets by $ 1.7 million as of March 31, 2022.

(3) During the six months ended June 30, 2022, the Arch Street Joint Venture did not acquire any properties.

(4) The total carrying amount of the Company’s investment in the unconsolidated joint venture was greater than the underlying equity in net assets by $ 1.4 million as of June 30, 2022.

This difference is related to a step up in the fair value of the investment in the unconsolidated joint venture in connection with the Mergers.

1 unchanged sentence

Note 4 – Receivables and Other Assets :

Accounts receivable, net consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

Accounts receivable, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Accounts receivable, net $ 16,289 $ 10,194

1 unchanged sentence

Total $ 25,731 $ 17,916

Other assets, net consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

June 30, 2022 (Unaudited)

Other assets, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Restricted cash $ 35,265 $ —

7 unchanged sentences

_______________________________________________

(1) Amortization expense for deferred costs related to the revolving credit facility totaled $ 0.5 million for the three months ended March 31, 2022 as compared to no deferred costs for the three months ended March 31, 2021.

Accumulated amortization for deferred costs related to the revolving credit facility was $ 0.8 million and $ 0.3 million as of March 31, 2022 and December 31, 2021, respectively.

(2) Amortization expense for below market right-of-use asset was less than $ 0.1 million for the three months ended March 31, 2022.

There was no amortization expense for below market right-of-use asset for the three months ended March 31, 2021.

Includes right-of-use finance leases of $ 9.0 million, right-of-use operating leases of $ 10.0 million, and a below-market right-of-use asset of $ 7.1 million, net of less than $0.1 million in accumulated amortization as of March 31, 2022.

(1) Amortization expense for deferred costs related to the revolving credit facility totaled $ 0.5 million and $ 1.1 million for the three and six months ended June 30, 2022, respectively, as compared to no deferred costs for the three and six months ended June 30, 2021.

Accumulated amortization for deferred costs related to the revolving credit facility was $ 1.4 million and $ 0.3 million as of June 30, 2022 and December 31, 2021, respectively.

(2) Amortization expense for below market right-of-use asset was less than $ 0.1 million for the three and six months ended June 30, 2022.

There was no amortization expense for below market right-of-use asset for the three and six months ended June 30, 2021.

Includes right-of-use finance leases of $ 9.0 million, right-of-use operating leases of $ 9.8 million, and a below-market right-of-use asset of $ 7.1 million, net of $ 0.1 million in accumulated amortization as of June 30, 2022.

Includes right-of-use finance leases of $ 13.8 million, right-of-use operating leases of $ 10.2 million, and a below-market right-of-use asset of $ 7.1 million, net of less than $ 0.1 million in accumulated amortization as of December 31, 2021.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

Note 5 – Fair Value Measures

Items Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):

Level 1 Level 2 Level 3 Balance as of March 31, 2022

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):

Level 1 Level 2 Level 3 Balance as of June 30, 2022

Derivative assets $ — $ 5,851 $ — $ 5,851

6 unchanged sentences

Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties.

However, as of March 31, 2022 and December 31, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives.

However, as of June 30, 2022 and December 31, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives.

As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

1 unchanged sentence

Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

June 30, 2022 (Unaudited)

Real Estate and Other Investments – The Company performs quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment, right of use assets and its investment in the unconsolidated entity, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of such assets may not be recoverable.

As part of the Company’s impairment review procedures, net real estate assets representing two properties were deemed to be impaired resulting in impairment charges of $ 1.6 million during the three months ended March 31, 2022 that relate to adjustments to expected sales prices for certain non-core assets which have been identified by management for potential sale.

There were no impairment charges recorded during the three months ended March 31, 2021.

As part of the Company’s impairment review procedures, net real estate assets representing six properties were deemed to be impaired resulting in impairment charges of $ 9.4 million during the six months ended June 30, 2022, that relate to adjustments to expected sales prices for certain non-core assets which have been identified by management for potential sale.

There were no impairment charges recorded during the six months ended June 30, 2021.

The following table summarizes our provisions for impairment during the periods indicated below (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Number of properties 6

2 unchanged sentences

Estimated fair value $ 21,959

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

The Company estimates fair values using Level 2 and Level 3 inputs and uses a combined income and market approach, specifically using discounted cash flow analysis and/or recent comparable sales transactions.

6 unchanged sentences

There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of the Company’s tenants.

For the Company’s impairment tests for the real estate assets during the quarter ended March 31, 2022, the fair value measurement for its impaired properties was determined by applying a sales price based on market data.

For the Company’s impairment tests for the real estate assets during the quarter ended June 30, 2022, the fair value measurement for its impaired properties was determined by applying a sales price based on market data.

Real Estate and Other Investments – Separation Fair Value Assessment – Following the Mergers, Realty Income performed a purchase price allocation assessing the value of the assets acquired and liabilities assumed at the date of acquisition of VEREIT.

5 unchanged sentences

The fair values of the Company’s financial instruments are reported below (dollar amounts in thousands):

Level Carrying Amount at March 31, 2022 Fair Value at March 31, 2022 Carrying Amount at December 31, 2021 Fair Value at December 31, 2021

Level Carrying Amount at June 30, 2022

Fair Value at June 30, 2022

Carrying Amount at December 31, 2021

Fair Value at December 31, 2021

Liabilities (1) :

Bridge facility, net 2 — — $ 355,000 $ 355,000

Mortgages payable, net 2 355,000 359,166 — —

Credit facility term loan, net 2 175,000 175,000 175,000 175,000

Bridge facility 2 — — $ 355,000 $ 355,000

Mortgages payable 2 355,000 346,826 — —

Credit facility term loan 2 175,000 175,000 175,000 175,000

Credit facility revolver 2 71,000 71,000 90,000 90,000

5 unchanged sentences

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Note 6 – Debt, Net

As of March 31, 2022, the Company had $ 615.4 million of debt outstanding, including net deferred financing costs, with a weighted-average years to maturity of 3.6 years and a weighted-average interest rate of 4.17 %.

The following table summarizes the carrying value of debt as of March 31, 2022 and December 31, 2021, and the debt activity for the three months ended March 31, 2022 (in thousands):

Three Months Ended March 31, 2022

Balance as of December 31, 2021 Debt Issuances Repayments, Extinguishment and Assumptions Accretion and Amortization Balance, March 31, 2022

As of June 30, 2022, the Company had $ 596.0 million of debt outstanding, including net deferred financing costs, with a weighted-average years to maturity of 3.4 years and a weighted-average interest rate of 4.34 %.

The following table summarizes the carrying value of debt as of June 30, 2022 and December 31, 2021, and the debt activity for the six months ended June 30, 2022 (in thousands):

Six Months Ended June 30, 2022

Balance as of December 31, 2021

Debt Issuances Repayments, Extinguishment and Assumptions Accretion and Amortization Balance as of June 30, 2022

Mortgages payable:

16 unchanged sentences

Credit Agreement

In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion Office REIT LP (“Orion OP”), as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year , $ 425 million senior revolving credit facility (the “Revolving Facility”), including a $ 25 million letter of credit sub-facility, and a two-year , $ 175.0 million senior term loan facility (the “Term Loan Facility,” and together with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month , $ 355.0 million senior bridge term loan facility (the “Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.

In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year , $ 425 million senior revolving credit facility (the “Revolving Facility”), including a $ 25 million letter of credit sub-facility, and a two-year , $ 175.0 million senior term loan facility (the “Term Loan Facility,” and together with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month , $ 355.0 million senior bridge term loan facility (the “Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.

On November 12, 2021, Orion OP borrowed $ 90.0 million under the Revolving Facility, and each of the Term Loan Facility and the Bridge Facility was fully drawn.

2 unchanged sentences

In February 2022, as further described below, the Company refinanced the Bridge Facility in full with the $ 355.0 million CMBS Loan (defined below), and the Bridge Credit Agreement was terminated.

As of March 31, 2022, the Company had borrowed and outstanding $ 91.0 million under the Revolving Facility and had $ 334.0 million of availability under the Revolving Facility, and no borrowings were outstanding under the Bridge Facility.

As of June 30, 2022, the Company had borrowed and outstanding $ 71.0 million under the Revolving Facility and had $ 354.0 million of availability under the Revolving Facility, and no borrowings were outstanding under the Bridge Facility.

The interest rate applicable to the loans under the Facilities may, at the election of Orion OP, be determined on the basis of LIBOR or a base rate, in either case, plus an applicable margin.

2 unchanged sentences

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Term Loan Facility, 2.50 % for LIBOR loans and 1.50 % for base rate loans.

11 unchanged sentences

• ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00.

As of March 31, 2022, Orion OP was in compliance with these financial covenants.

As of June 30, 2022, Orion OP was in compliance with these financial covenants.

The Revolver/Term Loan Facilities include customary representations and warranties of the Company and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolver/Term Loan Facilities.

12 unchanged sentences

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

defined in the CMBS Loan Agreement) (generally two years after the Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.

2 unchanged sentences

In connection with the CMBS Loan Agreement, the Company (as the guarantor) delivered a customary non-recourse carveout guaranty to the Lender (the “Guaranty”), under which the Company guaranteed the obligations and liabilities of the Mortgage Borrowers to the Lender with respect to certain non-recourse carveout events and the circumstances under which the CMBS Loan will be fully recourse to the Mortgage Borrowers, and which includes requirements for the Company to maintain a net worth of no less than $ 355.0 million and liquid assets of no less than $ 10.0 million, in each case, exclusive of the values of the collateral for the CMBS Loan.

As of March 31, 2022, the Company was in compliance with these financial covenants.

As of June 30, 2022, the Company was in compliance with these financial covenants.

The Mortgage Borrowers and the Company also provided a customary environmental indemnity agreement, pursuant to which the Mortgage Borrowers and the Company agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities relating to the Mortgaged Properties.

The loan documents evidencing the CMBS Loan include customary representations, warranties and covenants of the Mortgage Borrowers and the Company.

The loan documents also include customary events of default, the occurrence of which, following any applicable grace period, would permit the Lender to, among other things, declare the principal, accrued interest and other obligations of the Mortgage Borrowers under the loan documents to be immediately due and payable and foreclose on the Mortgaged Properties.

The Company’s mortgages payable consisted of the following as of March 31, 2022 (dollar amounts in thousands):

The CMBS Loan Agreement includes customary representations, warranties and covenants of the Mortgage Borrowers and the Company.

The CMBS Loan Agreement also includes customary events of default, the occurrence of which, following any applicable grace period, would permit the Lender to, among other things, declare the principal, accrued interest and other obligations of the Mortgage Borrowers to be immediately due and payable and foreclose on the Mortgaged Properties.

The Company’s mortgages payable consisted of the following as of June 30, 2022 (dollar amounts in thousands):

Encumbered Properties Net Carrying Value of Collateralized Properties (1)

7 unchanged sentences

Cash Flow Hedges of Interest Rate Risk

As of each of March 31, 2022 and December 31, 2021, the Company had interest rate swap agreements with an aggregate notional amount of $ 175.0 million, which were designated as cash flow hedges under U.S.

As of each of June 30, 2022 and December 31, 2021, the Company had interest rate swap agreements with an aggregate notional amount of $ 175.0 million, which were designated as cash flow hedges under U.S.

The interest rate swap agreements were effective on December 1, 2021 and mature on November 12, 2023.

The table below presents the fair value of the Company’s derivative financial instrument designated as a cash flow hedge as well as its classification in the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021 (in thousands):

Derivatives Designated as Hedging Instruments Balance Sheet Location March 31, 2022 December 31, 2021

The interest rate swap agreements were entered into in order to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility.

The table below presents the fair value of the Company’s derivative financial instrument designated as a cash flow hedge as well as its classification in the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021 (in thousands):

Derivatives Designated as Hedging Instruments Balance Sheet Location June 30, 2022 December 31, 2021

Interest rate swaps Other assets, net $ 5,851 $ 299

During the three months ended March 31, 2022, the Company recorded unrealized gains of $ 3.8 million for changes in the fair value of its cash flow hedge in accumulated other comprehensive income.

There were no similar amounts recorded during the three months ended March 31, 2021, as the interest rate swap agreement did not exist during such period.

During the three and six months ended June 30, 2022, the Company recorded unrealized gains of $ 1.5 million and $ 5.3 million, respectively, for changes in the fair value of its cash flow hedge in accumulated other comprehensive income.

There were no similar amounts recorded during the three and six months ended June 30, 2021, as the interest rate swap agreement did not exist during such periods.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

The Company reclassified previous losses of $ 0.2 million for the three months ended March 31, 2022 from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

There were no similar amounts recorded during the three months ended March 31, 2021.

June 30, 2022 (Unaudited)

During the three and six months ended June 30, 2022, the Company reclassified previous gains of less than $ 0.1 million and previous losses of $ 0.2 million, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

There were no similar amounts recorded during the three and six months ended June 30, 2021.

During the next twelve months, the Company estimates that an additional $ 4.2 million will be reclassified from other comprehensive income as a decrease to interest expense.

Derivatives Not Designated as Hedging Instruments

As of each of March 31, 2022 and December 31, 2021, the Company had no interest rate swaps that were not designated as qualifying hedging relationships.

As of each of June 30, 2022 and December 31, 2021, the Company had no interest rate swaps that were not designated as qualifying hedging relationships.

Tabular Disclosure of Offsetting Derivatives

The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of March 31, 2022 and December 31, 2021 (in thousands).

The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of June 30, 2022 and December 31, 2021 (in thousands).

The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.

1 unchanged sentence

Gross Amounts of Recognized Assets Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets Presented in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Net Amount

March 31, 2022 $ 4,356 $ — $ — $ 4,356 $ — $ — $ — $ 4,356

June 30, 2022 $ 5,851 $ — $ — $ 5,851 $ — $ — $ — $ 5,851

December 31, 2021 $ 299 $ — $ — $ 299 $ — $ — $ — $ 299

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Supplemental cash flow information was as follows during the periods indicated below (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental disclosures:

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Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

Accounts payable and accrued expenses consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Accrued real estate and other taxes $ 9,194 $ 10,322

Accrued other 4,317 4,159

Accounts payable 2,953 1,805

Accrued interest 1,764 1,093

Accounts payable 1,580 1,805

$ 16,855 $ 17,379

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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

June 30, 2022 (Unaudited)

Note 10 – Commitments and Contingencies

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These rent concession and leasing cost commitments could be significant.

The Company is party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business.

The Company does not believe that any of these outstanding claims against it are expected to have a material adverse effect upon its consolidated and combined position or results of operations.

From time to time, the Company may be party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business.

The Company does not believe that any such legal proceedings will have a material adverse effect upon its consolidated and combined position or results of operations.

Environmental Matters

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Note 11 – Leases

As of March 31, 2022, the Company is the lessor for its 92 office properties.

The Company’s operating leases have non-cancelable lease terms ranging from 0.3 to 16.0 years as of March 31, 2022.

As of June 30, 2022, the Company’s operating leases have non-cancelable lease terms ranging from 0.1 to 15.8 years.

Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying assets.

Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index or LIBOR).

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter as of March 31, 2022 (in thousands).

The following table presents future minimum base rent payments due to the Company over the next five years and thereafter as of June 30, 2022 (in thousands).

Future Minimum

Operating Lease Payments

April 1, 2022 - December 31, 2022 $ 113,038

Base Rent Payments

July 1, 2022 - December 31, 2022 $ 75,579

Thereafter 160,315

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GAAP for an operating lease.

As of March 31, 2022, the Company’s operating leases had remaining lease terms ranging from 0.6 years to 62.8 years, which includes options to extend.

As of June 30, 2022, the Company’s operating leases had remaining lease terms ranging from 0.4 years to 62.5 years, which includes options to extend.

Under the operating leases, the Company pays rent and may also pay variable costs, including property operating expenses and common area maintenance.

The weighted-average discount rate used to measure the lease liability for the Company’s operating leases was 3.16 % as of March 31, 2022.

The weighted-average discount rate used to measure the lease liability for the Company’s operating leases was 3.18 % as of June 30, 2022.

As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the lease guidance adoption date or the Merger Effective Time, as applicable, in determining the present value of lease payments.

Operating lease costs were $ 0.3 million and less than $ 0.1 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Operating lease costs were $ 0.3 million and $ 0.5 million for the three and six months ended June 30, 2022, respectively, and less than $ 0.1 million for each of the three and six months ended June 30, 2021.

No cash paid for operating lease liabilities was capitalized.

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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for ground and corporate office lease obligations as of March 31, 2022 (in thousands).

Future Minimum Lease Payments

April 1, 2022 - December 31, 2022 750

Thereafter 12,939

imputed interest 6,170

Total $ 10,078

June 30, 2022 (Unaudited)

Future Minimum Lease Payments

July 1, 2022 - December 31, 2022 491

Thereafter 12,939

6 unchanged sentences

On November 12, 2021, Realty Income effected the Distribution.

On March 22, 2022, the Company’s Board of Directors declared the Company’s first quarterly dividend as an independent public company.

The dividend, which was for the first quarter of 2022, was in the amount of $ 0.10 per share, and was paid on April 15, 2022, to stockholders of record as of March 31, 2022.

On May 3, 2022, the Company’s Board of Directors declared a quarterly dividend of $ 0.10 per share for the second quarter of 2022, which was paid on July 15, 2022, to stockholders of record as of June 30, 2022.

On March 22, 2022, the Company’s Board of Directors declared a quarterly dividend of $ 0.10 per share for the first quarter of 2022, which was paid on April 15, 2022, to stockholders of record as of March 31, 2022.

Stock Warrants

On November 12, 2021, in connection with the Distribution, Orion OP entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

On November 12, 2021, in connection with the Distribution, Orion OP entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of the Arch Street Joint Venture, by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P.

Also on November 12, 2021, in connection with the entry into the LLCA, the Company granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of the Company’s common stock (the “Arch Street Warrants”).

6 unchanged sentences

GAAP as share-based payments.

The expense for such awards is recognized over the vesting period or when the requirements for exercise of the award have been met.

The expense for such awards is recognized over the vesting period or when the requirements

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

June 30, 2022 (Unaudited)

for exercise of the award have been met.

Under the Equity Plan, the Company may grant various types of awards, including restricted stock units that will vest if the recipient maintains employment with the Company over the requisite service period (the “Time-Based Restricted Stock Units”) and restricted stock units that may vest in a number ranging from 0 % to 100 % of the total number of units granted, based on the Company’s total shareholder return measured on an absolute basis (“TSR-Based Restricted Stock Units”) and certain operational performance metrics (“Metrics-Based Restricted Stock Units”), in each case during a three-year performance period, subject to the recipient’s continued service with the Company (collectively, the “Performance-Based Restricted Stock Units”).

During the three months ending March 31, 2022, the Company granted Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units to certain officers and employees of the Company.

The fair value of the Time-Based Restricted Stock Units granted to non-executive directors and employees under the Equity Plan is generally determined using the closing stock price on the grant date and is expensed over the requisite service period on a straight-line basis.

During the three and six months ended June 30, 2022, the Company granted Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units to certain officers and employees of the Company.

The fair value of the Time-Based Restricted Stock Units granted to non-executive directors and employees under the Equity Plan is determined using the closing stock price on the grant date and is expensed over the requisite service period on a straight-line basis.

The fair value of the TSR-Based Restricted Stock Units granted to employees under the Equity Plan is determined using a Monte Carlo simulation which takes into account multiple input variables that determine the probability of satisfying the required total shareholder return, and such fair value is expensed over the performance period.

The fair value of the Metrics-Based Restricted Stock Units is determined when the likelihood of achieving the performance metrics becomes probable.

As of March 31, 2022, the Company determined that the likelihood of achieving the performance metrics was improbable and recognized no compensation expense related to the Metrics-Based Restricted Stock Units.

The fair value of the Metrics-Based Restricted Stock Units is determined using the closing stock price on the grant date and is expensed over the requisite service period to the extent that the likelihood of achieving the performance metrics is probable.

As of June 30, 2022, the Company determined that the likelihood of achieving the performance metrics was improbable and recognized no compensation expense related to the Metrics-Based Restricted Stock Units.

Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units do not provide for any rights of a common stockholder prior to the vesting of such restricted stock units.

Equity-based compensation expense related to Orion Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units for the three months ended March 31, 2022, was $ 0.1 million.

As of March 31, 2022, total unrecognized compensation expense related to Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units was approximately $ 2.4 million, with an aggregate weighted-average remaining term of 2.9 years.

Equity-based compensation expense for the three months ended March 31, 2022, related to Realty Income time-based restricted stock units and stock options granted in connection with the Mergers, was $ 0.1 million.

As of March 31, 2022, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was approximately $ 0.5 million, with an aggregate weighted-average remaining term of 1.6 years.

Equity-based compensation expense related to Orion Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units for the three and six months ended June 30, 2022, was $ 0.3 million and $ 0.5 million, respectively.

As of June 30, 2022, total unrecognized compensation expense related to Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units was approximately $ 3.0 million, with an aggregate weighted-average remaining term of 2.4 years.

The Company is also required under GAAP to recognize equity-based compensation expense for awards to its employees of Realty Income time-based restricted stock units and stock options granted in connection with the Mergers.

Equity-based compensation expense for the three and six months ended June 30, 2022, related to such Realty Income equity-based compensation awards, was $ 0.1 million and $ 0.2 million, respectively.

As of June 30, 2022, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was approximately $ 0.4 million, with an aggregate weighted-average remaining term of 1.4 years.

Note 14 - Net Income (Loss) Per Share

The computation of basic and diluted earnings per share is as follows for the three months ended March 31, 2022 and March 31, 2021 (in thousands, except share and per share data):

Three Months Ended March 31,

The computation of basic and diluted earnings per share is as follows for the three months ended June 30, 2022 and June 30, 2021 (in thousands, except share and per share data):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net (loss) income $ ( 15,570 ) $ 4,296 $ ( 25,452 ) $ 8,847

5 unchanged sentences

Basic and diluted net (loss) income per share attributable to common stockholders $ ( 0.27 ) $ 0.08 $ ( 0.45 ) $ 0.16

_______________________________________________

(1) As of June 30, 2021, there were no adjustments to the weighted average common shares outstanding used in the diluted calculation given there were no potentially dilutive shares.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

March 31, 2022 (Unaudited)

_______________________________________________

(1) As of March 31, 2022 and March 31, 2021, there were no adjustments to the weighted average common shares outstanding used in the diluted calculation given there were no potentially dilutive shares.

June 30, 2022 (Unaudited)

The following were excluded from diluted net (loss) income per share attributable to common stockholders, as the effect would have been antidilutive:

Three Months Ended March 31,

Six Months Ended June 30,

Weighted average unvested Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units (1)

4 unchanged sentences

Distributions

On May 3, 2022, the Company’s Board of Directors declared a quarterly dividend of $ 0.10 per share for the second quarter of 2022, payable on July 15, 2022, to stockholders of record as of June 30, 2022.

On August 2, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.10 per share for the third quarter of 2022, payable on October 17, 2022, to stockholders of record as of September 30, 2022.

During July 2022, we closed on the sale of one additional non-core office property for net proceeds of approximately $ 5.7 million.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands) (Unaudited)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Rental revenue (including reimbursable) $ 41,111 $ 80,894

10 unchanged sentences

Interest expense ( 1,784 ) ( 3,816 )

Loss on extinguishment of debt, net ( 117 )

Gain (loss) on extinguishment of debt, net 37 ( 80 )

Equity in income of unconsolidated joint venture 208 410

Total other expenses, net ( 1,492 ) ( 3,434 )

Loss before taxes ( 9,710 )

Income before taxes 12,153 2,443

Provision for income taxes ( 157 ) ( 313 )

Net loss ( 9,866 )

Net income 11,996 2,130

Net loss attributable to non-controlling interest 29 31

Net loss attributable to VEREIT Office Assets $ ( 9,864 )

Net income attributable to VEREIT Office Assets $ 12,025 $ 2,161

The accompanying notes are an integral part of this statement.

6 unchanged sentences

Balance, March 31, 2021 $ 1,170,495

Distributions, net ( 4,395 )

Net income 11,996

Balance, June 30, 2021 $ 1,178,096

The accompanying notes are an integral part of this statement.

2 unchanged sentences

(In thousands) (Unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Net loss $ ( 9,866 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income $ 2,130

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 29,421

11 unchanged sentences

Real estate developments ( 27 )

Investments in unconsolidated joint venture ( 2,180 )

Return of investment from unconsolidated joint venture 649

16 unchanged sentences

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited)

June 30, 2021 (Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies

6 unchanged sentences

(the “Company”) and its operating partnership, Orion Office REIT LP (“Orion OP”).

On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement dated as of November 11, 2021, by and among Realty Income, the Company and Orion OP, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”).

Following the Distribution, Orion operates as a separate, publicly-traded company and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year ended December 31, 2021.

VEREIT Office Assets includes the combined accounts related to certain of the office properties of VEREIT, historically operated through subsidiaries of VEREIT, and contains certain corporate costs.

As of March 31, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, including one property owned by a consolidated joint venture, totaling approximately 7.6 million leasable square feet located in 25 states in the United States and Puerto Rico, and an investment in one unconsolidated joint venture that owns four office properties totaling approximately 0.7 million leasable square feet located within four states.

As of June 30, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, including one property owned by a consolidated joint venture, totaling approximately 7.6 million leasable square feet located in 25 states in the United States and Puerto Rico, and an investment in one unconsolidated joint venture that owned five office properties totaling approximately 0.8 million leasable square feet located within five states.

Summary of Significant Accounting Policies

2 unchanged sentences

Any applicable intercompany accounts and transactions have been eliminated in consolidation and combination.

The portion of the consolidated joint venture not previously owned by VEREIT, is presented as non-controlling interest in VEREIT Office Assets’ combined and consolidated balances sheets and statements of operations.

The portion of the consolidated joint venture not previously owned by VEREIT, is presented as non-controlling interest in VEREIT Office Assets’ combined and consolidated statements of operations.

The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the entire year or any subsequent interim period.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results for the entire year or any subsequent interim period.

These combined and consolidated financial statements should be read in conjunction with the audited combined and consolidated financial statements of VEREIT Office Assets and notes thereto as of and for the ten months ended October 31, 2021, included in the Form 10-K for Orion Office REIT Inc.

9 unchanged sentences

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

June 30, 2021 (Unaudited) - (Continued)

the entity, or (c) the right to receive the expected returns of the entity.

5 unchanged sentences

These combined and consolidated financial statements were derived from the books and records of VEREIT and were carved out from VEREIT at a carrying value reflective of historical cost in such VEREIT records.

VEREIT Office Assets’ historical balance sheets reflect amounts for goodwill based on its proportion of the cost basis of the real estate assets as of December 31, 2018.

VEREIT Office Assets’ historical financial results reflect charges for certain corporate costs and, we believe such charges are reasonable.

1 unchanged sentence

Annualized rental income is rental revenue on a straight-line basis, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any adjustments to rental income due to changes in the collectability assessment, contingent rent, such as percentage rent, and operating expense reimbursements.

The historical combined and consolidated financial information presented may therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if there had been an independent, stand-alone public company during the periods presented or of Orion’s future performance as an independent, stand-alone company.

The historical combined and consolidated financial information presented may therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if there had been an independent, stand-alone public company during the periods presented or of the Company’s future performance as an independent, stand-alone company.

Use of Estimates

11 unchanged sentences

Investment in Unconsolidated Joint Venture

As of March 31, 2021, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned four properties with total real estate investments, at cost, of $ 169.3 million and total debt outstanding of $ 102.6 million, which was non-recourse to VEREIT Office Assets.

As of June 30, 2021, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned five properties with total real estate investments, at cost, of $ 196.0 million and total debt outstanding of $ 118.4 million, which was non-recourse to VEREIT Office Assets.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

June 30, 2021 (Unaudited) - (Continued)

VEREIT Office Assets accounted for its investment in the unconsolidated joint venture using the equity method of accounting as VEREIT Office Assets had the ability to exercise significant influence, but not control, over operating and financing policies of the joint venture.

7 unchanged sentences

The use of different judgments and assumptions could result in different conclusions.

No impairments were identified during the three months ended March 31, 2021.

No impairments were identified during the three and six months ended June 30, 2021.

Goodwill Impairment

8 unchanged sentences

Goodwill is considered impaired if the carrying value exceeds the fair value.

No impairments of VEREIT’s goodwill were recorded during the three months ended March 31, 2021.

No impairments of VEREIT’s goodwill were recorded during the three and six months ended June 30, 2021.

The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying combined and consolidated statements of operations.

3 unchanged sentences

Restricted Cash

As of March 31, 2021, restricted cash included $ 2.3 million in lender reserves.

As of June 30, 2021, restricted cash included $ 2.7 million in lender reserves.

Reserves relate to lease expirations, as well as maintenance, structural and debt service reserves.

5 unchanged sentences

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

June 30, 2021 (Unaudited) - (Continued)

Deferred Financing Costs

9 unchanged sentences

All other leases are classified as operating leases.

As of March 31, 2021, no leases were classified as sales-type or direct financing leases.

As of June 30, 2021, no leases were classified as sales-type or direct financing leases.

For operating leases with minimum scheduled rent increases, rental revenue is recognized on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments is probable.

15 unchanged sentences

In consideration of each tenant’s payment history, among other factors, there have been no changes in the collectability assessment for any of VEREIT Office Assets’ operating leases.

Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the three months ended March 31, 2021, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.

Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the three and six months ended June 30, 2021, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

June 30, 2021 (Unaudited) - (Continued)

Leases - Lessee

9 unchanged sentences

The operating lease right-of-use (“ROU”) asset balance is initially measured as the lease liability amount, adjusted for any lease payments made prior to the commencement date, initial direct costs, estimated costs to dismantle, remove, or restore the underlying asset and incentives received.

As of March 31, 2021, VEREIT Office Assets was owned by VEREIT, which had elected to be taxed as a REIT for U.S.

As of June 30, 2021, VEREIT Office Assets was owned by VEREIT, which had elected to be taxed as a REIT for U.S.

federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2011.

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Accordingly, no provision has been made for federal income taxes in the accompanying combined and consolidated financial statements of VEREIT Office Assets.

During the three months ended March 31, 2021, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $ 0.2 million.

During the three and six months ended June 30, 2021, VEREIT Office Assets recognized state and local income and franchise tax expense of $ 0.2 million and $ 0.3 million, respectively.

Amounts are included in provision for income taxes in the accompanying combined and consolidated statements of operations.

VEREIT Office Assets had no unrecognized tax benefits as of or during the three months ended March 31, 2021.

VEREIT Office Assets had no unrecognized tax benefits as of or during the three and six months ended June 30, 2021.

Any interest and penalties related to unrecognized tax benefits would be recognized in provision for income taxes in the accompanying combined and consolidated statements of operations.

As of March 31, 2021, VEREIT Office Assets had no material uncertain income tax positions.

As of June 30, 2021, VEREIT Office Assets had no material uncertain income tax positions.

Recent Accounting Pronouncements

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Property Acquisitions/Dispositions

There were no property acquisitions or dispositions during the three months ended March 31, 2021.

There were no property acquisitions or dispositions during the six months ended June 30, 2021.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

June 30, 2021 (Unaudited) - (Continued)

Consolidated Joint Venture

VEREIT Office Assets had an interest in one consolidated joint venture that owned one property as of March 31, 2021.

As of March 31, 2021, the consolidated joint venture had total assets of $ 32.6 million, of which $ 28.7 million were real estate investments, net of accumulated depreciation and amortization at each of the respective dates.

The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a net balance of $ 15.0 million as of March 31, 2021.

VEREIT Office Assets had an interest in one consolidated joint venture that owned one property as of June 30, 2021.

As of June 30, 2021, the consolidated joint venture had total assets of $ 32.5 million, of which $ 28.3 million were real estate investments, net of accumulated depreciation and amortization.

The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a net balance of $ 14.9 million as of June 30, 2021.

The joint venture partner is the managing member of the joint venture.

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VEREIT management performed quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment and right of use assets, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing one property of VEREIT Office Assets was deemed to be impaired resulting in impairment charges of $ 21.2 million during the three months ended March 31, 2021.

The impairment charges related to a property that VEREIT management identified for potential sale or were determined, based on discussions with the current tenants, would not be re-leased by the tenant and VEREIT management believed the property would not be leased to another tenant at a rental rate that supported the book value.

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing two properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 0.4 million and $ 21.6 million during the three and six months ended June 30, 2021, respectively.

The impairment charges related to properties that VEREIT management identified for potential sale or were determined, based on discussions with the current tenants, would not be re-leased by the tenant and VEREIT management believed the properties would not be leased to another tenant at a rental rate that supported the book value.

VEREIT estimated fair values using Level 3 inputs and used a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions.

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There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of VEREIT Office Assets’ tenants.

For VEREIT’s impairment tests for the real estate assets during the three months ended March 31, 2021, VEREIT used a discount rate of 8.6 % and a capitalization rate of 8.1 % .

For VEREIT’s impairment tests for the real estate assets during the six months ended June 30, 2021, VEREIT used a discount rate of 8.6 % and a capitalization rate of 8.1 %.

Note 3 – Commitments and Contingencies

VEREIT Office Assets is party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business.

VEREIT Office Assets does not believe that any of these outstanding claims against it are expected to have a material adverse effect upon its consolidated financial position or results of operations.

VEREIT Office Assets does not believe that any of these outstanding claims against it will have a material adverse effect upon its consolidated financial position or results of operations.

Environmental Matters

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VEREIT Office Assets has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect upon its results of operations.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

Note 4 – Leases

As of March 31, 2021, VEREIT Office Assets is the lessor for its 52 office properties.

VEREIT Office Assets’ operating leases have non-cancelable lease terms ranging from 0.03 years to 12.18 years as of March 31, 2021.

As of June 30, 2021, VEREIT Office Assets’ operating leases had non-cancelable lease terms ranging from 0.2 years to 11.9 years.

Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying assets.

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VEREIT Office Assets believes the residual value risk is not a primary risk because of the long-lived nature of the assets.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021 (Unaudited) - (Continued)

The components of rental revenue from VEREIT Office Assets’ operating leases were as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Cash rent $ 32,278 $ 64,424

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Lease intangible amortization

( 51 ) ( 82 )

Property operating cost reimbursements

32,506 64,804

Total rental revenue $ 41,111 $ 80,894

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VEREIT Office Assets is the lessee under one ground lease arrangement, which meets the criteria of an operating lease.

As of March 31, 2021, VEREIT Office Assets’ lease has a remaining lease term of 36.4 years, which includes options to extend.

As of June 30, 2021, VEREIT Office Assets’ lease has a remaining lease term of 36.1 years, which includes options to extend.

Under the ground lease arrangement, VEREIT Office Assets pays variable costs, including property operating expenses and common area maintenance.

The discount rate for VEREIT Office Assets’ operating lease was 5.17 % as of March 31, 2021.

The discount rate for VEREIT Office Assets’ operating lease was 5.17 % as of June 30, 2021.

As VEREIT Office Assets’ lease does not provide an implicit rate, VEREIT Office Assets used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.

Operating lease costs for the three months ended March 31, 2021 were $ 82,000 .

Operating lease costs for the three and six months ended June 30, 2021 were $ 0.1 million and $ 0.2 million, respectively.

No cash paid for operating lease liabilities was capitalized.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited - (Continued)

Note 5 – Subsequent Events

VEREIT Office Assets evaluated subsequent events through May 4, 2022 and no items have come to the attention of management that require recognition or disclosure, except as set forth below.

Property Acquisition

Subsequent to March 31, 2021, VEREIT Office Assets contributed $ 2.2 million to the unconsolidated joint venture, which acquired one property for a gross purchase price of $ 26.4 million.

Subsequent to March 31, 2021, each of the outstanding mortgage notes of VEREIT Office Assets were repaid in full by VEREIT on behalf of VEREIT Office Assets.

VEREIT Office Assets evaluated subsequent events through August 3, 2022 and no items have come to the attention of management that require recognition or disclosure, except as set forth below.

Subsequent to June 30, 2021, each of the outstanding mortgage notes of VEREIT Office Assets were repaid in full by VEREIT on behalf of VEREIT Office Assets.

Mergers, Separation and Distribution

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements