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You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating our company and our common stock.
−Removed: Any of the following risks could materially and adversely affect our business, results of operations and financial condition.
+Added: Any of the following risks could materially and adversely affect our business, financial condition and results of operations.
Risks Related to Our Properties and Business
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Temporary closures of businesses and the resulting remote working arrangements for personnel in response to the COVID-19 pandemic or any future pandemic or outbreak of a highly infectious or contagious disease or fear of such pandemics or outbreaks may result in long-term changed work practices that could negatively impact us and our business.
−Removed: For example, the increased adoption of and familiarity with remote work practices could result in decreased demand for office space.
−Removed: If this trend was to continue or accelerate, our tenants may elect to not renew their leases, or to renew them for less space than they currently occupy, which could increase vacancy rates at our properties and decrease rental income.
−Removed: The increase in remote work practices may continue in a post-pandemic environment, even in the suburban markets and markets with lower demand in which we primarily operate.
−Removed: The need to reconfigure leased office space, either in response to the pandemic, or to tenant’ needs may impact space requirements and also may require us to spend increased amounts for tenant improvements.
+Added: For example, the increased adoption of and familiarity with remote work practices has resulted in decreased demand for and utilization of office space.
+Added: We believe these trends have impacted our leasing efforts as certain of our tenants have elected to not renew their leases, or to renew them for less space than they were occupying, resulting in increases in vacancy rates at our properties and decreases in rental income.
+Added: The increase in remote work practices may continue in a post-pandemic environment, even in the suburban markets and markets with lower demand in which we primarily operate, which may cause the trends impacting our leasing efforts to continue or even accelerate.
+Added: Tenants’ evolving preferences regarding office space configuration either in response to the pandemic or for other reasons, may impact their space requirements and also has required and may continue to require us to spend increased amounts for tenant improvements.
If substantial office space reconfiguration is required, a tenant may explore other office space and find it more advantageous to relocate than to renew its lease and renovate the existing space.
−Removed: If so, our business, operating results, financial condition and prospects may be materially adversely impacted.
−Removed: We could experience difficulties or delays renewing leases or re-leasing space, which will increase our costs to maintain such properties without receiving income.
+Added: Less successful leasing efforts and increased leasing costs may cause our business, operating results, financial condition and prospects to be materially adversely impacted.
+Added: We could experience difficulties or delays renewing leases or re-leasing space, which will increase our costs to operate and maintain such properties without receiving income.
We derive nearly all of our net income from rent received from our tenants, and our profitability is significantly dependent upon our ability to minimize vacancies in our properties and ensure our tenants timely pay rent at an attractive rate.
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If lease defaults occur, we may experience delays in enforcing our rights as landlord.
−Removed: As of December 31, 2021, our portfolio, including our pro rata share of properties owned by our unconsolidated joint venture, had a weighted average lease term of 4.1 years, and eight operating properties, with an aggregate 0.6 million square feet, were vacant, including four properties, with an aggregate of 0.3 million square feet, that have remained vacant for over one year.
−Removed: Another two of our properties, comprising 0.4 million square feet, became vacant on January 1, 2022.
−Removed: If our tenants decide not to renew their leases, terminate early or default on their lease, or if we fail to find suitable tenants to lease our vacant properties, we may not be able to release the space or may experience delays in finding suitable replacement tenants.
−Removed: Even if tenants decide to renew or lease new space, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, particularly commercial tenants, may be less favorable to us than current lease terms.
−Removed: As a result, our net income and ability to pay dividends to shareholders could be materially adversely affected.
−Removed: Further, if any of our properties cannot be leased on terms and conditions favorable to us, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties.
+Added: As of December 31, 2022, our portfolio, including our pro rata share of properties owned by the Arch Street Joint Venture, had a weighted average lease term of 4.1 years, and had five vacant operating properties, with an aggregate 0.7 million square feet, including three properties, with an aggregate of 0.3 million square feet, that have remained vacant for over one year.
+Added: If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants.
+Added: We also seek to lease our vacant properties to new tenants.
+Added: We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.
+Added: Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the
+Added: terms of renewals or new leases, including the cost of required renovations or concessions to tenants, particularly commercial tenants, may be less favorable to us than current lease terms.
+Added: As a result, our net income and ability to pay dividends to stockholders could be materially adversely affected.
+Added: Further, if any of our properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property;
+Added: however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations.
Most of our properties depend upon a single tenant for all or a majority of their rental income;
therefore, our financial condition, including our ability to make distributions to stockholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single tenant.
−Removed: During the period ended December 31, 2021, a significant portion of our rental revenue was from our properties leased to single tenants.
+Added: During the year ended December 31, 2022, most of our rental revenue was from our properties leased to single tenants.
The value of our single tenant properties is materially dependent on the performance of those tenants under their respective leases.
These tenants face competition within their industries and other factors that could reduce their ability to pay us rent.
−Removed: Lease payment defaults by such tenants could cause us to reduce the amount of distributions that we pay to our shareholders.
−Removed: A default by a single or major tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease to such a tenant or such tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.
+Added: Lease payment defaults by such tenants could cause us to reduce the amount of distributions that we pay to our stockholders.
+Added: A default by a single or major tenant, the failure of a guarantor to fulfill its obligations or premature termination of a lease to such a tenant or such tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our stockholders.
Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business.
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Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations.
−Removed: However, efforts to manage space utilization rates may result in the government tenant exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy.
+Added: However, efforts to manage space utilization rates may result in the government tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy.
Also, our government tenants’ desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances.
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However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, and it is unclear what the effect of these impacts will be on government demand for leasing office space.
−Removed: Given the significant uncertainties, including as to the COVID-19 pandemic and its economic impact and its aftermath and the new presidential administration, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods.
−Removed: We are invested in the Arch Street Joint Venture and may in the future co-invest in joint ventures with third parties.
+Added: Given the significant uncertainties, including as to the COVID-19 pandemic and its economic impact and its aftermath, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods.
+Added: We are invested in the Arch Street Joint Venture and have co-invested in and may in the future co-invest in joint ventures with third parties.
The Arch Street Joint Venture, including the limitations it places on our ability to acquire new properties, may adversely affect our ability to acquire wholly-owned properties and any joint venture investments could be adversely affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners.
−Removed: We are invested in the Arch Street Joint Venture and may in the future co-invest with third parties through partnerships, joint ventures or other structures in which we acquire non-controlling interests in, or share responsibility for, managing the affairs of a property, partnership, co-tenancy or other entity.
−Removed: In connection with Arch Street Capital Partner’s consent to the transfer of the equity interests in the Arch Street Joint Venture to us in the Separation, we entered into the ROFO Agreement with the Arch Street Joint Venture, whereby we will agree to not acquire any property within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture.
+Added: We are invested in the Arch Street Joint Venture and have co-invested and may in the future co-invest with third parties through partnerships, joint ventures or other structures in which we acquire non-controlling interests in, or share responsibility for, managing the affairs of a property, partnership, co-tenancy or other entity.
+Added: In connection with Arch Street Capital Partners’ consent to the transfer of the equity interests in the Arch Street Joint Venture to us in the Separation, we entered into the ROFO Agreement with the Arch Street Joint Venture, whereby we will agree to not acquire any property within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture.
As our investment in the Arch Street Joint Venture is a minority, non-controlling interest, the investment decision by the Arch Street Joint Venture with respect to any property offered pursuant to the ROFO Agreement is controlled by Arch Street Capital Partners.
−Removed: If the Arch Street Joint Venture decides to acquire a property, our participation in the profitability and growth related to that property may be adversely impacted by our limited participation rights, and our ability to determine the strategy with respect to those properties will be materially limited compared to acquisitions we make directly, including with respect to leasing, disposition and joint venture opportunities (including if such actions are necessary to maintain compliance with our debt commitments).
+Added: If the Arch Street Joint Venture decides to acquire a property, our participation in the profitability and growth
+Added: related to that property may be adversely impacted by our limited participation rights, and our ability to determine the strategy with respect to those properties will be materially limited compared to acquisitions we make directly, including with respect to leasing, disposition and joint venture opportunities (including if such actions are necessary to maintain compliance with our debt commitments).
If the Arch Street Joint Venture elects not to purchase a property offered pursuant to the ROFO Agreement, their rights to first review the opportunity may delay or otherwise interfere in our ability to competitively bid or acquire such property, which, in turn, adversely affect our ability to act on our investment strategies in accordance with our business plan.
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The funding of our capital contributions to such joint ventures may be dependent on proceeds from asset sales, credit facility advances or sales of equity securities.
−Removed: Joint venture partners, including Arch Street Capital Partners, may have business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to its policies or objectives.
+Added: Joint venture partners, including Arch Street Capital Partners, may have business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our best interests.
We may, in specific circumstances, be liable for the actions of our joint venture partners.
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In recent years, the U.S.
−Removed: government has instituted “green lease” policies which allow a government tenant to require Leadership in Energy and Environmental Design for commercial interiors, or LEED ® -CI, designation in selecting new premises or renewing leases at existing premises.
−Removed: In addition, the Energy Independence and Security Act of 2007 allows the GSA to give preference to buildings for lease that have received an “Energy Star” label.
−Removed: Obtaining and maintaining such designation and labels may be costly and time consuming, but our failure to do so may result in our competitive disadvantage in acquiring new or retaining existing government tenants.
+Added: government has instituted “green lease” policies which allow a government tenant to require Leadership in Energy and Environmental Design for commercial interiors, or LEED ® -CI, designation in selecting new premises or renewing leases at existing premises, and these policies have and may continue to be expanded to cover additional enhanced requirements.
+Added: In addition, the Energy Independence and Security Act of 2007 allows the General Services Administration to give preference to buildings for lease that have received an “Energy Star” label.
+Added: Complying with enhanced requirements may be costly and time consuming, but our failure to do so may result in our competitive disadvantage in acquiring new or retaining existing government tenants.
We may suffer adverse effects from acquisitions of commercial real estate properties.
−Removed: We may pursue acquisitions of existing commercial real estate properties as part of our property development and acquisition strategy.
+Added: We may pursue acquisitions of existing commercial real estate properties as part of our acquisition strategy.
Acquisitions of commercial properties entail risks, such as the risk that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions fail to perform as expected.
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• the ongoing need for capital improvements;
−Removed: • increased operating costs, which may not necessarily be offset by increased rents, including insurance premiums, utilities, real estate taxes and capital expenditures and repair and maintenance costs, due to inflation and other factors;
+Added: • increased operating costs, which may not necessarily be offset by increased rents, including insurance premiums, utilities, real estate taxes, capital expenditures and repair and maintenance costs, due to inflation and other factors;
• changes in tax, real estate and zoning laws;
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Should any of the foregoing occur, it may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to our existing leases, or we may expend significant capital in our efforts to re-let space, which may adversely affect our business, financial condition and results of operations.
+Added: We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to our existing leases, or we may expend significant capital in our efforts to re-lease space, which may adversely affect our business, financial condition and results of operations.
We compete with a number of other owners and operators of office properties to renew leases with our existing tenants and to attract new tenants.
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Tenant defaults may have a material adverse effect on our business, financial condition and results of operations.
−Removed: The majority of our revenues and income comes from rental income from real property.
+Added: Nearly all of our revenues and income comes from rental income from real property.
As such, our business, financial condition and results of operations could be adversely affected if our tenants default on their lease obligations.
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As of December 31, 2022, we have approximately $530.0 million of total outstanding indebtedness.
−Removed: In addition, in connection with executing our business strategies going forward, we expect to need to invest in our current portfolio and to continue to evaluate the possibility of acquiring additional properties and making strategic investments, and we may elect to
−Removed: finance these endeavors by incurring additional indebtedness.
+Added: In addition, in connection with executing our business strategies going forward, we expect to invest in our current portfolio and to acquire additional properties and make strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness.
The amount of such indebtedness could have material adverse consequences for us, including:
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If we are able to obtain additional financing, such financing could further raise our borrowing costs and further limit our future access to capital and our ability to satisfy our obligations under our indebtedness, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: In addition, the Orion Charter and Orion Bylaws (as hereinafter defined) do not limit the amount of indebtedness we may incur.
+Added: In addition, our charter and bylaws do not limit the amount of indebtedness we may incur.
Accordingly, our board of directors may permit us to incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT.
We might become more highly leveraged as a result, and our financial condition, results of operations and funds available for distribution to stockholders might be negatively affected, and the risk of default on our indebtedness could increase, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We have existing debt and refinancing risks that could affect our cost of operations.
−Removed: We have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under our Orion Credit Facilities, to finance possible acquisitions and for general corporate purposes.
+Added: We have existing debt and refinancing risks that could have a material adverse effect on our business, financial condition and results of operations, including the risk that interest rates may rise.
+Added: We have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under our Revolver/Term Loan Facilities, to finance possible acquisitions and for general corporate purposes.
+Added: The Revolver/Term Loan Facilities include the $175.0 million Term Loan Facility scheduled to mature in November 2023 and the $425.0 million Revolving Facility scheduled to mature in November 2024.
As a result, we are, and expect to be, subject to the risks normally associated with debt financing including:
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Financial covenants could materially adversely affect our ability to conduct our business.
−Removed: We are currently party to a $175.0 million term loan facility and a $425.0 million revolving credit facility (the “Orion Credit Facilities”), and our subsidiaries have entered into a $355.0 million fixed rate mortgage loan that is secured by the subsidiaries’ fee simple or ground lease interests in 19 properties owned indirectly by us (the “Orion CMBS Loan”) The credit agreement governing the Orion Credit Facilities and the Orion CMBS Loan each contain various financial and other covenants, including, with respect to the Orion Credit Facilities, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales, and the payment of certain dividends, and with respect to the Orion CMBS Loan, certain cash management
−Removed: requirements.
−Removed: These restrictions, as well as any additional restrictions to which we may become subject in connection with additional financings or refinancings, could restrict our ability to pursue business initiatives, effect certain transactions or make other changes to our business that may otherwise be beneficial to us, which could adversely affect our results of operations.
+Added: We have incurred debt pursuant to the Revolver/Term Loan Facilities and the CMBS Loan.
+Added: The credit agreement governing the Revolver/Term Loan Facilities and the CMBS Loan each contain various financial and other covenants, including, with respect to the Revolver/Term Loan Facilities, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales, and the payment of certain dividends, and with respect to the CMBS Loan, certain cash management requirements.
+Added: These restrictions, as well as any additional restrictions to which we may become subject in connection with additional financings or refinancings, could restrict our ability to pursue business initiatives, effect certain transactions or make other changes to our business that may otherwise be beneficial to us, which could adversely affect our business, financial condition and results of operations.
In addition, violations of these covenants could cause declarations of default under, and acceleration of, any related indebtedness, which would result in adverse consequences to our financial condition.
−Removed: The Orion Credit Facilities contain cross-default provisions that give the lenders the right to declare a default if we are in default resulting in (or permitting the) acceleration of other debt under other loans in excess of certain amounts.
+Added: The Revolver/Term Loan Facilities contain cross-default provisions that give the lenders the right to declare a default if we are in default resulting in (or permitting the) acceleration of other debt under other loans in excess of certain amounts.
In the event of a default, we may be required to repay such debt with capital from other sources, which may not be available to us on attractive terms, or at all, which may have a material adverse effect on our business, financial condition and results of operations.
We depend on external sources of capital that are outside of our control, which may affect our ability to pursue strategic opportunities, refinance or repay our indebtedness and make distributions to our stockholders.
−Removed: In order to qualify to be taxed as a REIT, we generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to our stockholders.
+Added: In order to maintain our qualification to be taxed as a REIT, we generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to our stockholders.
Because of this distribution requirement, it is not likely that we will be able to fund all future capital needs from income from operations.
−Removed: As a result, when we engage in the development or acquisition of new properties or expansion or redevelopment of existing properties, we will continue to rely on third-party sources of capital, including lines of credit, collateralized or unsecured debt (both construction financing and permanent debt) and equity issuances.
+Added: As a result, when we engage in the acquisition of new properties or expansion or redevelopment of existing properties, we will continue to rely on third-party sources of capital, including lines of credit, collateralized or unsecured debt and equity issuances.
Our access to third-party sources of capital depends on a number of factors, including general market conditions, the market’s view of the quality of our assets, the market’s perception of our growth potential, our current debt levels and our current and expected future earnings.
−Removed: There can be no assurance that we will be able to obtain the financing necessary to fund our current or new developments or project expansions or our acquisition activities on terms favorable to us or at all.
+Added: There can be no assurance that we will be able to obtain the financing necessary to fund our acquisition of new properties or expansion or redevelopment of existing properties on terms favorable to us or at all.
If we are unable to obtain a sufficient level of third-party financing to fund our capital needs, our ability to make distributions to our stockholders may be adversely affected which may have a material adverse effect on our business, financial condition and results of operations.
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Property taxes may increase without notice.
−Removed: The real property taxes on our properties and any other properties that we develop or acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities.
+Added: The real property taxes on our properties and any other properties that we acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities.
While the majority of our leases are under a net lease structure, some or all of such property taxes may not be collectible from our tenants.
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No assurances can be given that we will recognize full value, at a price and at terms that are acceptable to us, for any property that we determine to sell.
+Added: In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all.
Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations.
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• an inability to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors;
+Added: • we may incur costs on unsuccessful acquisitions that we will not be able to recover;
• an increase in the purchase price for such acquisition property in the event we are able to acquire such desired property.
Accordingly, competition for acquisitions may limit our opportunities to grow our business, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We may acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.
−Removed: We may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in our operating partnership.
−Removed: These transactions can result in stockholder dilution.
−Removed: This acquisition structure can have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require (and in the case of our properties, requires) that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties or the allocation of partnership debt to the contributors to maintain their tax bases.
−Removed: These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We may be unable to develop new properties successfully, which could materially adversely affect our results of operations due to unexpected costs, delays and other contingencies.
−Removed: From time to time, we may acquire unimproved real property for development purposes as market conditions warrant.
−Removed: In addition to the risks associated with the ownership of real estate investments in general, and investments in joint ventures specifically, there are significant risks associated with our development activities, including the following:
−Removed: • delays in obtaining, or an inability to obtain, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in completion delays and increased development costs;
−Removed: • incurrence of development costs for a property that exceed original estimates due to increased materials, labor or other costs, changes in development plans or unforeseen environmental conditions, which could make completion of the property more costly or uneconomical;
−Removed: • abandonment of contemplated development projects or projects in which we have started development, and the failure to recover expenses and costs incurred through the time of abandonment which could result in significant expenses;
−Removed: • risk of loss of periodic progress payments or advances to builders prior to completion;
−Removed: • termination of leases by tenants due to completion delays;
−Removed: • failure to achieve expected occupancy levels, as the lease-up of space at our development projects may be slower than estimated;
−Removed: • other risks related to the lease-up of newly constructed properties.
−Removed: In addition, we also rely on rental income and expense projections and estimates of the fair market value of a property upon completion of construction when agreeing to a purchase price at the time we acquire unimproved real property.
−Removed: If our projections are inaccurate, including due to any of the risks described above, we may overestimate the purchase price for a property and be unable to charge rents that compensate us for our increased costs, which may have a material adverse effect on our business, financial condition and results of operations.
We, our tenants and our properties are subject to various federal, state and local regulatory requirements, such as environmental laws, state and local fire and safety requirements, building codes and land use regulations.
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In addition, compliance with these requirements, including new requirements or stricter interpretation of existing requirements, may require us, or our tenants, to incur significant expenditures.
−Removed: We do not know whether existing requirements will change or whether future requirements, including any requirements that may emerge from pending or future climate change legislation, will develop.
+Added: We do not know whether existing requirements will change or whether future requirements, including any requirements that may emerge from pending or future climate change regulations or legislation, will develop.
Environmental noncompliance liability also could impact a tenant’s ability to make rental payments to us.
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The foregoing could adversely affect occupancy and our ability to develop, sell or borrow against any affected property and could require us to make significant unanticipated expenditures that may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We may be materially adversely affected by laws, regulations or other issues related to climate change.
−Removed: If we become subject to laws or regulations related to climate change, our business, financial condition and results of operations could be materially adversely affected.
−Removed: The federal government has enacted certain climate change laws and regulations which may, among other things, regulate “carbon footprints” and greenhouse gas emissions.
−Removed: Such laws and regulations could result in substantial compliance costs, retrofit costs and construction costs, including monitoring and reporting costs and capital expenditures for environmental control facilities and other new equipment.
−Removed: Furthermore, our reputation could be negatively affected if we violate climate change laws or regulations.
−Removed: We cannot predict how future laws and regulations, or future interpretations of current laws and regulations related to climate change will affect our business, financial condition and results of operations.
−Removed: Additionally, the potential physical impacts of climate change on our operations are highly uncertain.
−Removed: These may include changes in rainfall and storm patterns and intensity, water shortages, changing sea levels and changing temperatures.
−Removed: These impacts may have a material adverse effect on our business, financial condition and results of operations.
+Added: We are subject to risks associated with climate change.
+Added: The physical effects of climate change could have a material adverse effect on our properties, operations and business.
+Added: To the extent the physical effects of climate change impact our markets, over time, we could experience declining demand for leasing our buildings or increasing costs associated with remediation and adaptation.
+Added: Climate change may also make property
+Added: insurance unavailable or available only with less favorable terms and increase energy and other operating costs.
+Added: In addition, we face risks associated with the transition to a lower-carbon economy related to, among other things, federal, state and local legislation and regulations that are being implemented or are under consideration to mitigate the effects of climate change as well as evolving tenant preferences.
+Added: The operating costs and capital expenditures associated with meeting new and evolving regulatory and legal requirements and tenant preferences, including those related to reporting and managing greenhouse gas emissions, could negatively impact our financial results.
+Added: Increased scrutiny and changing expectations from investors, tenants, employees, and others regarding our environmental, social, and governance (“ESG”) practices and reporting could cause us to incur additional costs, devote additional resources and expose us to additional risks.
+Added: Companies across all industries are facing increasing scrutiny related to their ESG practices and reporting.
+Added: Investors, tenants, employees, and other stakeholders have begun to focus increasingly on ESG practices and to place increasing importance on the implications and social costs of their investments, business decisions and consumer choices.
+Added: Many investors, particularly institutional investors, may use ESG practices and scores to benchmark companies against their peers and as a basis for making investment or voting decisions.
+Added: Given this increased focus and demand as well as the potential for future legal or regulatory requirements, public reporting regarding ESG practices is becoming more broadly expected.
+Added: If our ESG practices and reporting do not meet investor, tenant, or employee expectations, which continue to evolve, our reputation and investor interest and tenant and employee retention may be negatively impacted.
+Added: Any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management and workforce inclusion and diversity.
+Added: It is possible that investors and other stakeholders may not be satisfied with our ESG reporting, our ESG practices or the speed or comprehensiveness with which we adopt and implement them.
+Added: In addition, the criteria by which we are benchmarked against our peers and scored may change.
+Added: We could also incur additional costs and devote additional resources to monitoring, reporting and implementing various ESG practices.
+Added: Our failure, or perceived failure, to meet any goals and objectives we may set in any ESG disclosure or the expectations of our various stakeholders could negatively impact our reputation, investor interest and tenant and employee retention, as well as our cost of or access to capital.
Compliance or failure to comply with the Americans with Disabilities Act could result in substantial costs.
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Our assets may be subject to impairment charges.
−Removed: We will regularly review our real estate assets for impairment, and based on these reviews, we may record impairment losses that have a material adverse effect on our business, financial condition and results of operations.
+Added: We regularly review our real estate assets for impairment, and based on these reviews, we have recorded and may continue to record impairment losses on our properties.
Negative or uncertain market and economic conditions, as well as market volatility, increase the likelihood of incurring impairment losses.
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However, we may be subject to certain types of losses that are generally uninsured losses, including, but not limited to losses caused by riots, war or acts of God.
−Removed: In the event of substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the property.
+Added: In the event of substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the
In the event of an uninsured loss, we could lose some or all of our capital investment, cash flow and anticipated profits related to one or more properties.
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Under such circumstances, the insurance proceeds we receive might not be adequate to restore our economic position with respect to such property, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We may be subject to litigation, which could have a material adverse effect on our financial condition.
−Removed: We may be subject to litigation, including claims related to our assets and operations that are otherwise in the ordinary course of business.
−Removed: Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which we may not be insured against.
−Removed: While we generally intend to vigorously defend ourselves against such claims, we cannot be certain of the ultimate outcomes of claims that may be asserted against us.
−Removed: Unfavorable resolution of such litigation may result in our having to pay significant fines, judgments, or settlements, which, if uninsured — or if the fines, judgments and settlements exceed insured levels — would adversely impact our earnings and cash flows, thereby negatively impacting our ability to service debt and pay dividends to our stockholders, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Certain litigation, or the resolution of certain litigation, may affect the availability or cost of some of our insurance coverage, expose us to increased risks that would be uninsured, or adversely impact our ability to attract officers and directors, each of which may have a material adverse effect on our business, financial condition and results of operations.
Our business could be materially adversely affected by security breaches through cyber-attacks, cyber intrusions or otherwise.
−Removed: We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization and other significant disruptions of our information technology networks and related systems.
−Removed: These risks include operational interruptions, private data exposure and damage to our relationships with our tenants, among other things.
+Added: We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions, malware, computer viruses, business email compromise, compromised vendor software, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization and other significant disruptions of our information technology networks and related systems, which are essential to the operation of our business.
+Added: These risks include potential operational interruptions, unauthorized access to and exposure of valuable and confidential data, increased cybersecurity protection and insurance costs, litigation and remediation costs and damage to our relationships with our tenants, among other things.
There can be no assurance that our efforts to maintain the security and integrity of our information technology networks and related systems will be effective.
−Removed: A security breach involving our networks and related systems could disrupt our operations in numerous ways that may have a material adverse effect on our business, financial condition and results of operations.
−Removed: If we are unable to satisfy the regulatory requirements of the Sarbanes-Oxley Act, or if our disclosure controls or internal control over financial reporting is not effective, investors could lose confidence in our reported financial information, which could adversely affect the perception of our business and the trading price of our common stock.
−Removed: As a public company, we are subject to the reporting requirements of the U.S.
+Added: A security breach involving our information technology networks and related systems could disrupt our operations in numerous ways that may have a material adverse effect on our business, financial condition and results of operations.
+Added: We have a limited operating history as a REIT and an independent public company, and the obligations and requirements to which we are subject as a public company are extensive and have resulted in increased cost and time commitments which we anticipate will continue.
+Added: We have a limited operating history as a REIT and as an independent public company, and our stockholders should not rely on the past performance of Realty Income or VEREIT to predict our future results.
+Added: We cannot assure you we will be able to successfully operate our company as a REIT and an independent public company.
+Added: Further, as a public company, we are subject to the reporting requirements of the U.S.
Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act and the Dodd-Frank Act and are required to prepare our financial statements in accordance with the rules and regulations promulgated by the SEC.
+Added: These and other public company obligations and requirements have placed and are expected to continue to place significant demands on our management, administrative and operational resources, including accounting and information technology resources.
+Added: To comply with these obligations and requirements, we have upgraded our systems, including duplicating computer hardware infrastructure, implementing additional financial and management controls, reporting systems and procedures and hiring additional accounting, finance and information technology staff, and we may need to continue to do so.
+Added: These rules and regulations have also increased our legal and financial compliance costs and have made some activities more time-consuming and costlier, and we anticipate these increases in cost and time commitments will continue.
+Added: If we are unable to satisfy these compliance obligations in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired and our business, prospects, financial condition and results of operations could be harmed.
+Added: As of the date of filing of this Annual Report on Form 10-K, we qualify as an “emerging growth company.” As such, we are eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including, but not limited to, compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved.
+Added: We cannot predict if investors will find our common stock less attractive because we will rely on the exemptions available to us as an emerging growth company.
+Added: If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
+Added: Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations.
−Removed: In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2022, and have our independent registered public accounting firm attest to our evaluation for the year in which we cease to be an “emerging growth company.” We are in the process of preparing and implementing an internal plan of action for compliance with Section 404 and strengthening and testing our system of internal controls to provide the basis for our report thereon.
−Removed: The process of implementing our internal controls and complying with Section 404 will be expensive and time consuming and will require significant attention of management.
−Removed: We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.
−Removed: Even if we conclude, and our independent registered public accounting firm concurs, that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
−Removed: Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations.
+Added: While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no assurance that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time.
+Added: Even if we continue to conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
+Added: principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
+Added: Failure to implement or maintain required controls, or difficulties encountered in their implementation or maintenance, could harm our results of operations or cause us to fail to meet our reporting obligations.
If we or our independent registered public accounting firm discover a material weakness in our internal control, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price.
−Removed: In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including ineligibility for short form resale registration, action by the SEC, the suspension or delisting of our common stock from and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.
+Added: In addition, a delay in compliance with Section 404 of the Sarbanes-Oxley Act could subject us to a variety of administrative sanctions, including ineligibility for short form resale registration, action by the SEC, the suspension or delisting of our common stock from and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.
The success of our business depends on retaining officers and employees.
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Failure to hedge effectively against such interest rate changes may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We are subject to risks related to the discontinuance of LIBOR.
−Removed: Our $425 million revolving credit facility provides for borrowings to be made at variable interest rates that use the London Interbank Offered Rate, or LIBOR (or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate applicable to outstanding borrowings thereunder, and we may incur additional indebtedness or enter into new financial arrangements that use LIBOR as a benchmark for establishing the interest rate for borrowing thereunder.
−Removed: LIBOR is in the process of being discontinued.
−Removed: While certain U.S.
−Removed: dollar LIBOR settings are expected to continue to be published on the current basis until June 30, 2023, all other LIBOR settings either are no longer being published or are being published only for a limited time and only on a “synthetic” basis (i.e., not on the basis of submissions made by panel banks).
−Removed: The regulator of the administrator of LIBOR has prohibited any new use of LIBOR by firms subject to its supervision, and certain regulators in the United States have stated that no new contracts using U.S.
−Removed: dollar LIBOR should be entered into after 2021.
−Removed: While our revolving credit facility includes provisions for establishing alternative reference rates when LIBOR is no longer be available, the consequences of the adoption of any such alternative reference rates cannot be predicted and could have an adverse impact on the amount of interest and commitment fees that we pay under those facilities.
−Removed: Similarly, while we have entered into an interest rate swap transaction which effectively fixes the interest rate on our borrowings under our term loan facility for the term of the loan, if the swap arrangement is terminated for any reason, or ceases to cover all of the borrowings under the term loan facility, our borrowings thereunder (or the relevant portion thereof) would be subject to variable interest rates with LIBOR as a benchmark and therefore similar risks to those of our borrowings under our revolving credit facility.
−Removed: Likewise, the unavailability of LIBOR may have an adverse impact on interest rates and other financing costs under other debt instruments and other financial obligations of ours, as well as the market value of and the payments we receive under any LIBOR-linked securities or investments that we may own from time to time.
−Removed: In addition, financial markets generally may be adversely affected by the discontinuation of LIBOR, the uncertainties regarding its discontinuation, the alternative reference rates that are being or may be used in place of LIBOR and other issues related to LIBOR.
−Removed: Any of the foregoing could adversely affect our results of operations and financial condition.
We may amend our investment strategy and business policies without stockholder approval.
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These changes could adversely affect our ability to pay dividends to our stockholders and may have a material adverse effect on our business, financial condition and results of operations.
−Removed: The Transition Services Agreement with Realty Income grants Realty Income certain rights that may restrain our ability to take various actions in the future.
−Removed: In connection with the Separation, we entered into the Transition Services Agreement, pursuant to which we, Realty Income, and our and their respective subsidiaries will provide to each other various services for a transitional period.
−Removed: The services to be provided include information technology, and other financial and administrative functions, which we intend to rely upon during the applicable terms to facilitate our ability to successfully operate as a stand-alone company, manage our information systems and comply with our various reporting and other legal requirements.
−Removed: Any inability of Realty Income to provide these services in accordance with the terms thereof may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Risks Related to the Separation and the Distribution
−Removed: Our business and operating results could be negatively affected if we are unable to successfully integrate the office businesses of Realty Income and VEREIT, which integration is ongoing.
−Removed: Our company involves the combination of the office portfolios of two companies which previously operated as independent public companies.
−Removed: We will be required to devote significant management attention and resources to the integration of the two separate office portfolios of Realty Income and VEREIT.
−Removed: Potential difficulties we may encounter in the overall integration process include the following:
−Removed: • difficulties in the integration of operations and systems of the office real properties of Realty Income and VEREIT;
−Removed: • the inability to realize potential operating synergies;
−Removed: • the failure by us to retain key employees;
−Removed: • the complexities of combining two companies with different histories, cultures, regulatory restrictions, markets and tenant bases;
−Removed: • accounting, regulatory or compliance issues that could arise, including internal control over financial reporting;
−Removed: • potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions;
−Removed: • challenges in retaining the tenants of each of Realty Income and VEREIT prior to the Distribution.
−Removed: For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with tenants, vendors and employees or to achieve the anticipated benefits of the Separation and the Distribution, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Prior to the Distribution, we had no operating history as an independent company, and this inexperience makes our future performance difficult to predict.
−Removed: We have a limited operating history and our stockholders should not rely on the past performance of Realty Income or VEREIT to predict our future results.
−Removed: Factors which may adversely impact our ability to operate as an independent company in the future may include, but are not limited to, the following:
−Removed: • prior to the Separation and the Distribution, portions of our business were operated by VEREIT and Realty Income, as applicable, and as part of their respective corporate organizations.
−Removed: We will need to continue to make investments to replicate or outsource from other providers certain facilities, systems, infrastructure, and personnel to which we no longer have access, which will be costly;
−Removed: • following the Distribution, we are unable to use VEREIT’s and Realty Income’s economies of scope and scale in procuring various goods and services and in maintaining vendor and tenant relationships.
−Removed: Although we have entered into certain transition-related agreements, including a Transition Services Agreement, with Realty Income, these agreements may not fully capture the benefits previously enjoyed as a result of our business being integrated within the businesses of VEREIT and Realty Income, and may result in us paying higher charges than paid in the past by VEREIT or Realty Income for necessary services.
−Removed: In addition, services provided to us under the Transition Services Agreement will generally only be provided for an agreed upon transition period, and may be subject to early termination;
−Removed: • prior to the Separation and the Distribution, the working capital requirements and capital for general corporate purposes, including acquisitions, research and development, and capital expenditures, relative to our assets were satisfied as part of the corporation-wide cash management policies of Realty Income and VEREIT, respectively.
−Removed: Following the Distribution, while we have entered into the Orion Credit Facilities, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may not be on terms as favorable those obtained by Realty Income or VEREIT, and the cost of capital for our business may be higher than Realty Income’s or VEREIT’s cost of capital
−Removed: prior to the Separation and the Distribution, which may have a material adverse effect on our business, financial condition and results of operations;
−Removed: • our cost structure, management, financing and business operations will be significantly different from that of Realty Income and VEREIT as a result of our operating as an independent public company.
−Removed: These changes will result in increased costs on a comparable basis focused on assets under management, including, but not limited to, legal, accounting, compliance and other costs associated with being a public company with equity securities traded on the NYSE.
−Removed: Other significant changes may occur in our cost structure, management, financing and business operations as a result of our status as an independent company.
−Removed: Realty Income may fail to perform under various transaction agreements that were executed as part of the Separation and the Distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
−Removed: We entered into agreements with Realty Income in connection with the Separation and the Distribution including the Separation and Distribution Agreement, the Transition Services Agreement, the Tax Matters Agreement and the Employee Matters Agreement.
−Removed: Certain of these agreements provide for the performance of services by each company for the benefit of the other for a period of time after the Distribution.
−Removed: We will rely on Realty Income to satisfy its performance and payment obligations under such agreements.
−Removed: If Realty Income is unable to satisfy such obligations, including its indemnification obligations, we could incur operational difficulties or losses, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: If we do not have in place similar agreements with other providers of these services when the transaction agreements terminate and we are not able to provide these services internally, we may not be able to operate our business effectively and our profitability may decline, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Potential indemnification obligations owed to Realty Income pursuant to the Separation and Distribution Agreement may have a material adverse effect on our business, financial condition and results of operations.
−Removed: The Separation and Distribution Agreement provides for, among other things, indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist related to our business activities, whether incurred prior to or after the Distribution, as well as certain obligations of Realty Income that we assumed pursuant to the Separation and Distribution Agreement.
−Removed: If we are required to indemnify Realty Income under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Certain of our directors may have actual or potential conflicts of interest because of their previous or continuing equity interests in, or positions at, Realty Income.
−Removed: Certain of our directors are persons who are or have served as directors of Realty Income or who may own Realty Income common stock or other equity awards.
−Removed: Even though our board of directors will consist of a majority of independent directors, certain of our directors will continue to have a financial interest in Realty Income common stock.
−Removed: Continued ownership of Realty Income common stock and equity awards, or service as a director at both companies, could create, or appear to create, potential conflicts of interest, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We may not achieve some or all of the expected benefits of the Separation and the Distribution, and the Separation and the Distribution may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We may not be able to achieve the full strategic and financial benefits expected to result from the Separation and the Distribution, or such benefits may be delayed due to a variety of circumstances, not all of which may be under our control.
−Removed: We may not achieve the anticipated benefits of the Separation and the Distribution for a variety of reasons, including, among others:
−Removed: (i) diversion of management’s attention from operating and growing our business;
−Removed: (ii) disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, which could adversely affect our ability to maintain relationships with tenants;
−Removed: (iii) increased susceptibility to market fluctuations and other adverse events following the Separation and the Distribution;
−Removed: and (iv) lack of diversification in our business, compared to VEREIT’s or Realty Income’s businesses prior to the Separation and the Distribution.
−Removed: Failure to achieve some or all of the benefits expected to result from the Separation and the Distribution, or a delay in realizing such benefits, may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our agreements with Realty Income in connection with the Separation and the Distribution involve conflicts of interest, and we may have received better terms from unaffiliated third parties than the terms we will receive in these agreements.
−Removed: We entered into certain agreements with Realty Income to provide a framework for our relationship with Realty Income following the Separation and the Distribution, including the Separation and Distribution Agreement, the Transition Services Agreement, the Tax Matters Agreement and the Employee Matters Agreement.
−Removed: The terms of these agreements were determined while portions of our business were still owned by Realty Income and VEREIT and were negotiated by persons who were at the time employees, officers or directors of VEREIT, Realty Income or their subsidiaries, or who became employees, officers or directors of Realty Income following the Merger Effective Time, and, accordingly, may have conflicts of interest.
−Removed: For example, during the period in which the terms of those agreements were negotiated, we did not have a board of directors that was independent of VEREIT or Realty Income.
−Removed: As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Pursuant to the Separation and Distribution Agreement, Realty Income will indemnify us for certain pre-Distribution liabilities and liabilities related to the legacy Realty Income and VEREIT assets.
−Removed: However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that Realty Income’s ability to satisfy its indemnification obligation will not be impaired in the future.
−Removed: Pursuant to the Separation and Distribution Agreement, Realty Income will indemnify us for certain liabilities.
−Removed: However, third parties could seek to hold us responsible for any of the liabilities that Realty Income retains, and there can be no assurance that Realty Income will be able to fully satisfy its indemnification obligations to us.
−Removed: Moreover, even if we ultimately succeed in recovering from Realty Income any amounts for which we were held liable by such third parties, any indemnification received may be insufficient to fully offset the financial impact of such liabilities or we may be temporarily required to bear these losses while seeking recovery from Realty Income, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: The Orion Credit Facilities may limit our ability to pay dividends on our common stock, including repurchasing shares of our common stock.
−Removed: Under the credit agreement governing the Orion Credit Facilities, our dividends may not exceed the greater of (1) 95% of our funds from operations, and (2) the amount required for us to qualify and maintain our status as a REIT.
+Added: The Revolver/Term Loan Facilities may limit our ability to pay dividends on our common stock, including repurchasing shares of our common stock.
+Added: Under the credit agreement governing the Revolver/Term Loan Facilities, our dividends may not exceed the greater of (1) 95% of our funds from operations (as defined in the credit agreement), and (2) the amount required for us to maintain our qualification as a REIT.
Any inability to pay dividends may negatively impact our REIT status or could cause stockholders to sell shares of our common stock, which may have a material adverse effect on our business, financial condition and results of operations.
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Risks Related to Our Status as a REIT
−Removed: Failure to qualify as a REIT would materially and adversely affect us and the value of our common shares.
−Removed: We will elect to be taxed as a REIT and believe we have been organized and have operated in a manner that has allowed us to qualify and to remain qualified as a REIT for U.S.
+Added: Our failure to maintain our qualification as a REIT for U.S.
+Added: federal income tax purposes could have a material adverse effect on us.
+Added: We have elected to be taxed as a REIT and believe we have been organized and have operated in a manner that has allowed us to qualify and to remain qualified as a REIT for U.S.
federal income tax purposes commencing with our initial taxable year ended December 31, 2021.
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Therefore, we cannot guarantee that we have qualified as a REIT or that we will remain qualified as such in the future.
−Removed: If we fail to qualify as a REIT or lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution to our stockholders for each of the years involved because:
+Added: If we fail to maintain our qualification as a REIT or lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution to our stockholders for each of the years involved because:
• we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to regular U.S.
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Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to stockholders.
−Removed: In addition, if we fail to qualify as a REIT, we will not be required to make distributions to our stockholders.
−Removed: As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could materially and adversely affect the trading price of our common shares.
+Added: In addition, if we fail to maintain our qualification as a REIT, we will not be required to make distributions to our stockholders.
+Added: As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital and could materially and adversely affect the trading price of our common stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations.
The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT.
−Removed: In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our common shares, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.
−Removed: legislation, new regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
+Added: In order to maintain our qualification as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our common stock, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.
+Added: In addition, legislation, new regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to maintain our qualification as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
Even if we remain qualified as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer.
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Also, the failure of any subsidiary partnerships or limited liability company to qualify as a disregarded entity or partnership for applicable income tax purposes could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners or members, including us.
+Added: Any taxable REIT subsidiaries owned by us are subject to corporate-level taxes and our dealings with our taxable REIT subsidiaries may be subject to 100% excise tax.
+Added: A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries.
+Added: Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary.
+Added: A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary.
+Added: Overall, no more than 20% of the gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries.
+Added: In addition, the taxable REIT subsidiary rules limit the deductibility of amounts paid or accrued by a taxable REIT subsidiary to its parent REIT to assure that the taxable REIT subsidiary is subject to an appropriate level of corporate taxation.
+Added: The rules also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis.
+Added: Taxable REIT subsidiaries that we own or may form will pay federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us, unless necessary to maintain our REIT qualification.
+Added: In certain circumstances, the ability of our taxable REIT subsidiaries to deduct interest expenses for U.S.
+Added: federal income tax purposes may be limited.
+Added: While we plan to monitor the aggregate value of the securities of our taxable REIT subsidiaries and intend to conduct our affairs so that such securities will represent less than 20% of the value of our total assets, there can be no assurance that we will be able to comply with the taxable REIT subsidiary limitation or avoid the application of the 100% excise tax discussed above in all market conditions.
Distribution requirements imposed by law limit our flexibility.
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federal income tax purposes.
−Removed: As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash received in the distribution.
+Added: As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash
+Added: received in the distribution.
If a stockholder sells shares of our stock to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the stock at the time of the sale.
2 unchanged sentences
stockholders, including dividends payable in our stock.
+Added: The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.
+Added: A REIT’s net income from prohibited transactions is subject to a 100% penalty tax.
+Added: In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held in inventory primarily for sale to customers in the ordinary course of business.
+Added: Although we do not intend to hold any properties that would be characterized as inventory held for sale to customers in the ordinary course of our business, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Legislative or other actions affecting REITs could have a negative effect on us or our investors.
6 unchanged sentences
Risks Related to an Investment in Our Common Stock
−Removed: Limitations on the ownership of our common stock and other provisions of the Orion Charter may preclude the acquisition or change of control of our Company.
−Removed: Certain provisions contained in the Orion Charter and certain provisions of Maryland law may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change of control.
−Removed: Provisions of the Orion Charter are designed to assist us in maintaining our qualification as a REIT under the Code by preventing concentrated ownership of our capital stock that might jeopardize REIT qualification.
+Added: Limitations on the ownership of our common stock and other provisions of our charter may preclude the acquisition or change of control of our Company.
+Added: Certain provisions contained in our charter and certain provisions of Maryland law may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change of control.
+Added: Provisions of our charter are designed to assist us in maintaining our qualification as a REIT under the Code by preventing concentrated ownership of our capital stock that might jeopardize REIT qualification.
Among other things, unless exempted by our board of directors, no person may actually or constructively own more than 9.8% of the aggregate of the outstanding shares of our common stock by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the outstanding shares of all classes and series of our outstanding stock by value.
Our board of directors may, in its sole discretion, grant exemptions to the stock ownership limits, subject to such conditions and the receipt by our board of directors of certain representations and undertakings.
−Removed: In addition to these ownership limits, the Orion Charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, shares of our capital stock that would result in us being “closely held” under Section 856(h) of the Code, (b) transferring our capital stock if such transfer would result in our stock being owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), (c) beneficially or constructively owning shares of our capital stock to the extent such ownership would result in us owning (directly or indirectly) an interest in a tenant if the income derived by us from that tenant for our taxable year during which such determination is being made would reasonably be expected to equal or exceed the lesser of one percent of our gross income or an amount that would cause us to fail to satisfy any of the REIT gross income requirements and (d) beneficially or constructively owning shares of our capital stock that would cause us otherwise to fail to qualify as a REIT.
−Removed: If any transfer of our shares of stock occurs which, if effective, would result in any person beneficially or constructively owning shares of stock in excess, or in violation, of the
−Removed: above transfer or ownership limitations, (such person, a prohibited owner), then that number of shares of stock, the beneficial or constructive ownership of which otherwise would cause such person to violate the transfer or ownership limitations (rounded up to the nearest whole share), will be automatically transferred to a charitable trust for the exclusive benefit of a charitable beneficiary, and the prohibited owner will not acquire any rights in such shares.
+Added: In addition to these ownership limits, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, shares of our capital stock that would result in us being “closely held” under Section 856(h) of the Code, (b) transferring our capital stock if such transfer would result in our stock being owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), (c) beneficially or constructively owning shares of our capital stock to the extent such ownership would result in us owning (directly or indirectly) an interest in a tenant if the income derived by us from that tenant for our taxable year during which such determination is being made would reasonably be expected to equal or exceed the lesser of one percent of our gross income or an amount that would cause us to fail to satisfy any of the REIT gross income requirements and (d) beneficially or constructively owning shares of our capital stock that would cause us otherwise to fail to qualify as a REIT.
+Added: If any transfer of our shares of stock occurs which, if effective, would result in any person beneficially or constructively owning shares of stock in excess, or in violation, of the above transfer or ownership limitations (such person, a prohibited owner), then that number of shares of stock, the beneficial or constructive ownership of which otherwise would cause such person to violate the transfer or ownership limitations (rounded up to the nearest whole share), will be automatically transferred to a charitable trust for the exclusive benefit of a charitable beneficiary, and the prohibited owner will not acquire any rights in such shares.
If the transfer to the charitable trust would not be effective for any reason to prevent the violation of the above transfer or ownership limitations, then the transfer of that number of shares of our capital stock that otherwise would cause any person to violate the above limitations will be void.
−Removed: The prohibited owner will not benefit economically from ownership of any shares of our capital stock held in the charitable trust, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to the shares of our capital stock held in the charitable trust.
+Added: The prohibited owner
+Added: will not benefit economically from ownership of any shares of our capital stock held in the charitable trust, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to the shares of our capital stock held in the charitable trust.
Generally, the ownership limits imposed under the Code are based upon direct or indirect ownership by “individuals,” but only during the last half of a taxable year.
−Removed: The ownership limits contained in the Orion Charter are based upon direct or indirect ownership at any time by any “person,” which term includes entities.
−Removed: These ownership limitations in the Orion Charter are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to minimize administrative burdens.
+Added: The ownership limits contained in our charter are based upon direct or indirect ownership at any time by any “person,” which term includes entities.
+Added: These ownership limitations in our charter are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to minimize administrative burdens.
However, the ownership limits on our common stock also might delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
−Removed: Furthermore, under the Orion Charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as our board of directors may determine.
+Added: Furthermore, under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as our board of directors may determine.
The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders’ best interests, which could have a material adverse effect on our business, financial condition and results of operations.
9 unchanged sentences
One of the factors that will influence the price of our common stock will be its dividend yield, or the dividend per share as a percentage of the price of our common stock, relative to market interest rates.
−Removed: An increase in market interest rates, which are currently at historically low levels, may lead prospective purchasers of our common stock to expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.
+Added: If recent increases in market interest rates are sustained or market interest rates continue to rise, prospective purchasers of our common stock may expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.
If market interest rates increase and we are unable to increase our dividend in response, including due to an increase in borrowing costs, insufficient funds available for distribution or otherwise, investors may seek alternative investments with a higher dividend yield, which would result in selling pressure on, and a decrease in the market price of, our common stock.
1 unchanged sentence
The number of shares of our common stock available for future issuance or sale could adversely affect the per share trading price of our common stock and may be dilutive to current stockholders.
−Removed: The Orion Charter authorizes our board of directors to, among other things, issue additional shares of our common stock without stockholder approval.
−Removed: In addition, our board of directors has the power under the Orion Charter to amend the Orion Charter to increase (or decrease) the number of authorized shares of our stock of any class from time to time, without approval of our stockholders.
+Added: Our charter authorizes our board of directors to, among other things, issue additional shares of our common stock without stockholder approval.
+Added: In addition, our board of directors has the power under our charter to amend our charter to increase (or
+Added: decrease) the number of authorized shares of our stock of any class from time to time, without approval of our stockholders.
We cannot predict whether future issuances or sales of shares of our common stock, or the availability of shares for resale in the open market, will decrease the per share trading price of our common stock.
−Removed: The issuance of a substantial number of shares of our common stock in the open market or the issuance of a substantial number of shares of our common stock upon the exchange of OP units, or the perception that such issuances might occur, could adversely affect the per share trading price of our common stock.
+Added: The issuance of a substantial number of shares of our common stock in the open market or the issuance of a substantial number of shares of our common stock upon the exercise of the warrants granted to affiliates of Arch Street Capital Partners in connection with the Distribution or the exchange of OP units or other securities exchangeable or convertible into shares of our common stock, or the perception that such issuances might occur, could adversely affect the per share trading price of our common stock.
In addition, any such issuance could dilute our existing stockholders’ interests in our company.
−Removed: In addition, we have adopted an equity compensation plan, and we have and expect to continue to issue shares of our common stock or grant equity incentive awards exercisable for or convertible or exchangeable into shares of our common stock under the plan.
+Added: In addition, we have adopted an equity compensation plan, and we have issued and expect to continue to issue shares of our common stock or grant equity incentive awards exercisable for or convertible or exchangeable into shares of our common stock under the plan.
Future issuances of shares of our common stock may be dilutive to existing stockholders, which may have a material adverse effect on our business, financial condition and results of operations.
9 unchanged sentences
Our ability to pay dividends on our common stock is limited by Maryland law.
−Removed: Under the MGCL, a Maryland corporation, including Orion, generally may not pay a dividend if, after giving effect to the dividend, the corporation would not be able to pay its debts as such debts become due in the ordinary course of business or the corporation’s total assets would be less than the sum of its total liabilities plus , unless the corporation’s charter permits otherwise, the amount that would be needed, if the corporation were dissolved at the time of the dividend, to satisfy the preferential rights upon dissolution of stockholders whose
−Removed: preferential rights are superior to those receiving the dividend.
+Added: Under the MGCL, a Maryland corporation, including Orion, generally may not pay a dividend if, after giving effect to the dividend, the corporation would not be able to pay its debts as such debts become due in the ordinary course of business or the corporation’s total assets would be less than the sum of its total liabilities plus , unless the corporation’s charter permits otherwise, the amount that would be needed, if the corporation were dissolved at the time of the dividend, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the dividend.
If we are unable to pay dividends, or our ability to pay dividends is limited, investors may seek alternative investments, which would result in selling pressure on, and a decrease in the market price of, our common stock.
5 unchanged sentences
As a result, the price of our common stock may decrease, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: We will incur increased costs as a result of operating as a public company.
−Removed: If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.
−Removed: We are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of The New York Stock Exchange.
−Removed: As of the date of filing of this Annual Report on Form 10-K, we qualify as an “emerging growth company”.
−Removed: For so long as we remain an emerging growth company, we will be exempt from Section 404(b) of the Sarbanes-Oxley Act, which requires auditor attestation to the effectiveness of internal control over financial reporting.
−Removed: We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total gross annual revenues of $1.07 billion or more;
−Removed: (ii) the last day of our fiscal year following the fifth anniversary of the date of the distribution;
−Removed: (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years;
−Removed: or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
−Removed: We cannot predict if investors will find our common stock less attractive because we will rely on the exemptions available to us as an emerging growth company.
−Removed: If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
−Removed: We estimate that we will cease to qualify as an “emerging growth company” beginning with our Annual Report on Form 10-K for the year ended December 31, 2022.
−Removed: As of the expiration of our emerging growth company status, we will be immediately subject to Section 404(a) of the Sarbanes-Oxley Act and we will be broadly subject to enhanced reporting and other requirements under the Exchange Act and Sarbanes-Oxley Act.
−Removed: This will require, among other things, annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments.
−Removed: These and other obligations will place significant demands on our management, administrative and operational resources, including accounting and information technology resources.
−Removed: To comply with these requirements, we anticipate that we will need to further upgrade our systems, including duplicating computer hardware infrastructure, implement additional financial and management controls, reporting systems and procedures and hire additional accounting, finance and information technology staff.
−Removed: Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.
−Removed: Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costlier.
−Removed: If we are unable to do this in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired and our business, prospects, financial condition and results of operations could be harmed.
Unresolved Staff Comments.
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.