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Item 9A. Controls and Procedures

2023-03-08 compared with 2022-03-24 · 666 added, 670 removed, 906 unchanged (60% of the section changed)

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Management’s Report on Internal Controls Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act.

Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).

Based on its assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, due to an exemption established by the rules of the SEC for “emerging growth companies.”

Changes in Internal Control Over Financial Reporting

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On March 7, 2023, the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of the Company, approved a new annual incentive program for the Company’s 2023 fiscal year (the “2023 Bonus Program”).

Under the 2022 Bonus Program, each of the Company’s named executive officers, Paul McDowell, Gavin Brandon, and Chris Day (the “executives”), are eligible to earn an annual incentive bonus based on the applicable executive’s individual performance and the Company’s achievement of performance goals relating to (1) core funds from operations per share of Company common stock (“Core FFO per share”), (2) funds available for distribution per share of Company common stock (“FAD per share”), and (3) net debt to last quarter annualized EBITDA (“Net Debt to LQA EBITDA”).

Under the 2023 Bonus Program, each of the Company’s named executive officers, Paul McDowell, Gavin Brandon, and Gary Landriau (the “executives”), are eligible to earn an annual incentive bonus based on the applicable executive’s individual performance and the Company’s achievement of performance goals relating to (1) Core FFO per share, (2) total general and administrative expenses (“G&A expenses”), and (3) Net Debt to Adjusted EBITDA.

The weighting of each component of the 2023 Bonus Program is as follows:

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Core FFO per share

FAD per share

Net Debt to LQA EBITDA

Under the 2022 Bonus Program, 50% of each target bonus component will be earned for performance at the threshold level, 100% of each target bonus component will be earned for performance at the target level and 150% of each target bonus

component will be earned for performance at the maximum level (or above).

Net Debt to Adjusted EBITDA

Under the 2023 Bonus Program, 50% of each target bonus component will be earned for performance at the threshold level, 100% of each target bonus component will be earned for performance at the target level and 150% of each target bonus component will be earned for performance at the maximum level (or above).

Performance between threshold and target and between target and maximum performance levels will be interpolated on a straight-line basis.

Grant of New Equity-Based Awards

On March 22, 2022, the Compensation Committee approved the grant to the executives of performance-based restricted stock units (“RSUs”) covering shares of the Company’s common stock and awards of time-based RSUs covering shares of the Company’s common stock (collectively, the “awards”), under the Company’s 2021 Equity Incentive Plan (the “Plan”).

The following is a brief description of the material terms and conditions of the awards.

Performance-Based RSUs

Pursuant to the performance-based RSUs, each executive is eligible to vest in a number of RSUs ranging from 0% to 100% of the total number of RSUs granted (which is equal to the maximum number of RSUs that may be earned), based on the Company’s total shareholder return (“TSR”) measured on an absolute basis and certain operational performance metrics, in each case, during a three-year performance period commencing on January 1, 2022 (the “Performance Period”), subject to the executive’s continued service with the Company.

Performance Vesting .

The performance-based RSUs are eligible to vest based on the Company’s (i) absolute TSR performance over the Performance Period (“Company TSR”) (50%), (ii) achievement of acquisition related performance metrics (10%), (ii) achievement of average lease term performance metrics (20%), (iii) achievement of disposition related performance metrics (10%) and (iv) achievement of occupancy rate performance metrics (10%).

In the event that the applicable performance metric is achieved at the “threshold,” “target” or “maximum” level as specified in the applicable award agreement, the performance-based RSUs eligible to vest based on achievement of such performance metrics will become vested with respect to the percentage of such performance-based RSUs set forth below:

Performance Vesting Percentage

Below “Threshold Level”

“Threshold Level”

“Target Level”

“Maximum Level”

If the applicable performance vesting percentage falls between the levels specified as “threshold” and “target” or between the levels specified as “target” and “maximum”, such performance vesting percentage will be determined using straight-line linear interpolation between such levels.

The Company’s TSR vesting percentage will be (i) reduced by 0.5% for each percentile that the Company’s TSR relative to a specified group of peer companies is below the 20th percentile, and (ii) increased by 0.5% for each percentile that the Company’s TSR performance relative to such peer companies is above the 80th percentile (provided that in no event will the absolute TSR vesting percentage exceed 100%), in each case, during the Performance Period.

Change in Control .

In the event that a change in control of the Company occurs prior to the completion of the Performance Period, the executive has not incurred a termination of service prior to such change in control and the awards of performance-based RSUs are not continued, converted, assumed or replaced by the successor or surviving entity in such change in control, then the performance-based RSUs will vest with respect to a number of RSUs equal to the greater of (x) the number of RSUs which would have vested based on actual performance levels as of, and assuming the completion of the Performance Period as of the date of such change in control, and (y) the number of RSUs which would vest at target performance levels.

Any such RSUs that have not fully vested as of the date on which the change in control occurs will be cancelled and forfeited by the executive.

Certain Terminations of Service .

If an executive’s service is terminated by the Company other than for “cause,” by the executive for “good reason,” or due to the executive’s death or “disability” (each as defined in the applicable award agreement), in any case, prior to the completion of the Performance Period, the performance-based RSUs will vest with respect to a number of RSUs equal to the greater of (x) the number of RSUs which would have vested based on actual performance levels as of the date of such qualifying termination, and (y) the number of RSUs which would vest at target performance levels.

Any such RSUs that do not become fully vested in accordance with the preceding sentence upon the administrator’s determination, will be cancelled and forfeited by the executive.

Any RSUs that become vested will be paid to the executive in whole shares of Company common stock within 20 days after the applicable vesting date.

Dividend Equivalents .

Each performance-based RSU award is granted in tandem with a corresponding dividend equivalent.

Each dividend equivalent entitles the executive to receive payments equal to the amount of the dividends paid on the share of common stock underlying the RSU to which the dividend equivalent relates.

Any dividend equivalent payments that would have been made prior to the date on which the RSU becomes vested will be paid within 45 days following the date on which the RSU becomes vested (the “Dividend Payment Date”).

Upon the executive’s termination of service for any reason, the executive will not be entitled to any dividend equivalent payments with respect to any RSUs do not become vested.

The table below sets forth the target and maximum number of RSUs subject to each performance-based RSU award granted to the executives on March 22, 2022.

Performance-Based RSUs (Target)

Performance-Based RSUs (Maximum)

Paul McDowell

54,024 108,047

Gavin Brandon

15,476 30,951

11,255 22,510

Time-Based RSUs

Pursuant to the time-based RSU awards, each executive is eligible to vest in a number of RSUs that are subject to vesting based on the executive’s continued service with the Company.

Each award of time-based RSUs will vest as to one-third of the RSUs on each of the first three anniversaries of the applicable vesting commencement date (March 22, 2022), subject to the executive’s continued service through each applicable vesting date.

Dividend Equivalents .

Each time-based RSU award is granted in tandem with a corresponding dividend equivalent.

Each dividend equivalent entitles the executive to receive payments equal to the amount of the dividends paid on the share of common stock underlying the RSU to which the dividend equivalent relates.

Any dividend equivalent payments that would have been made prior to the date on which the RSU becomes vested will be paid within 45 days following the Dividend Payment Date.

The executive will not be entitled to any dividend equivalent payments with respect to any RSUs that are forfeited prior to vesting.

Certain Terminations of Service .

If an executive’s service is terminated by the Company or an affiliate thereof other than for “cause” or by the executive for “good reason” (each as defined in the applicable award agreement), the time-based RSUs will vest in full upon such termination.

In addition, if an executive’s service is termination due to the executive’s death or “disability” (as defined in the applicable award agreement), then a pro-rata portion of the time-based RSUs will vest based on the number of whole months during the vesting period prior to the date of such termination.

Upon an executive’s termination of service for any other reason, any then-unvested time-based RSUs will automatically be cancelled and forfeited by the executive.

The table below sets forth the number of time-based RSUs awarded to each of the executives on March 22, 2022.

Name Time-Based Vesting RSUs

Paul McDowell 36,016

Gavin Brandon 15,476

Chris Day 11,255

The foregoing description of the awards does not purport to be complete and is qualified in its entirety by reference to the Form of Performance-Vesting Restricted Stock Unit Award Agreement (2022) a copy of which is attached to this Annual Report on Form 10-K as Exhibit 10.15 and by reference to the Form of Restricted Stock Unit Award for Employees under the Orion Office REIT Inc.

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.12 to Form 10-Q filed by the Company on December 2, 2021).

Pursuant to their respective employment agreements, in 2023 each of the executives will be eligible to earn an annual cash bonus targeted at a percentage of the executive’s base salary as follows:

McDowell, 100% for Mr.

Brandon and 92% for Mr.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance.

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Exhibits and Financial Statement Schedules.

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (and are numbered in accordance with Item 601 of Regulation S-K):

Financial Statements

The Financial Statements are included herein beginning on page F- 1 .

Financial Statement Schedules

Schedule III - Real Estate and Accumulated Depreciation is included herein beginning on page F- 29 .

All other schedules have been omitted as the required information is either presented in the consolidated and combined financial statements or is not applicable.

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the period ended December 31, 2022 (and are numbered in accordance with Item 601 of Regulation S-K):

2.1 Separation and Distribution Agreement, by and among Realty Income Corporation, Orion Office REIT Inc., and Orion Office REIT LP (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

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(filed as Exhibit 3.2 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

4.1 Form of Warrant (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

4.2* Description of Securities

4.1 Form of Warrant (filed as Exhibit 4.1 to the Company's Registration Statement o n Form S-3 (File No.

333-268121), filed on November 2 , 202 2 and incorporated herein by reference).

4.2 Description of Securities (filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K, filed on March 24, 2022 and incorporated herein by reference).

10.1 Agreement of Limited Partnership of Orion Office REIT LP (filed as Exhibit 2.2 to the Company’s Registration Statement on Form 10, filed on October 4, 2021 and incorporated herein by reference).

10.2 Credit Agreement, dated November 12, 2021, by and among Orion Office REIT Inc., Orion Office REIT LP, the financial institutions party thereto, and Wells Fargo Bank, National Association, as administrative agent, relating to the Revolver/Term Loan Facilities (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

10.3 Credit Agreement, dated November 12, 2021, by and among Orion Office REIT Inc., Orion Office REIT LP, the financial institutions party thereto, and Wells Fargo Bank, National Association, as administrative agent, relating to the Bridge Facility (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

10.3 Guaranty, dated November 12, 2021, by and among Orion Office REIT Inc.

and certain subsidiaries of Orion Office REIT LP in favor of Wells Fargo Bank, National Association, as administrative agent under the Revolver/Term Loan Facilities (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

10.5 Guaranty, dated November 12, 2021, by and among Orion Office REIT Inc.

and certain subsidiaries of Orion Office REIT LP in favor of Wells Fargo Bank, National Association, as administrative agent under the Bridge Facility (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

10.4 Amended & Restated Limited Liability Company Agreement of OAP/VER Venture, LLC, dated November 12, 2021 (filed as Exhibit 10.5 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

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Form of Restricted Stock Unit Award for Employees under the Orion Office REIT Inc.

2021 Equity Incentive Plan (filed as Exhibit 10.12 to the Company’s Form 10-Q, filed on December 2 , 2021 and incorporated herein by reference)

Loan Agreement, dated February 10, 2022, by and between the entities identified on Schedule I thereto, as Borrower, and Wells Fargo Bank, National Association, as Lende r (filed as Exhibit 10.1 to the Company's Form 8-K, filed on February 14, 2022 and incorporated herein by reference)

2021 Equity Incentive P lan (filed as Exhibit 10.12 to t he Com pany ’ s Form 10-Q , filed on December 2, 2021 and incorporated herein by reference).

10.11 Loan Agreement, dated February 10, 2022, by and between the entities identified on Schedule I thereto, as Borrower, and Wells Fargo Bank, National Association, as Lender (filed as Exhibit 10.1 to the Company's Form 8-K, filed on February 14, 2022 and incorporated herein by reference)

10.12 Guaranty of Recourse Obligations, dated February 10, 2022, made by Orion Office REIT Inc.

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10.13† Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Orion Office REIT Inc.

2021 Equity Incentive Plan

2021 Equity Incentive Plan (March 2022 Awards) (filed as Exhibit 10.15 to the Company’s Form 10-K filed on March 24, 2022 and incorporated herein by reference)

10.14†* Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Orion Office REIT Inc.

2021 Equity Incentive Plan (March 2023 Awards)

10.15 First Amendment to Credit Agreement, dated as of December 1, 2022, among Orion Office REIT LP, as Borrower, Orion Office REIT Inc., as Parent, Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto relating to the Revolver/Term Loan Facilities (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on December 5, 2022 and incorporated herein by reference).

21.1* Subsidiaries of the Company

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Orion Office REIT Inc.

Consolidated and Combined Balance Sheets as of December 31, 2021 and 2020

Consolidated Balance Sheets as of December 31, 202 2 and 202 1

Orion Office REIT Inc.

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Schedule III – Real Estate and Accumulated Depreciation

Report of Independent Registered Public Accounting Firm ( Deloitte & Touche LLP , Phoenix, AZ , Firm ID 34 )

VEREIT Office Assets Combined and Consolidated Balance Sheets as of October 31, 2021 and December 31, 2020

VEREIT Office Assets Combined and Consolidated Statements of Operations for the Ten Months Ended October 31, 2021 and the Years Ended December 31, 2020 and 2019

VEREIT Office Assets Combined and Consolidated Statements of Equity for the Ten Months Ended October 31, 2021 and the Years Ended December 31, 2020 and 2019

VEREIT Office Assets Combined and Consolidated Statements of Cash Flows for the Ten Months Ended October 31, 2021 and the Years Ended December 31, 2020 and 2019

Report of Independent Registered Public Accounting Firm ( Deloitte & Touche LLP , Tempe, AZ , Firm ID 34 )

VEREIT Office Assets Combined and Consolidated Balance Sheet as of October 31, 2021

VEREIT Office Assets Combined and Consolidated Statements of Operations for the Ten Months Ended October 31, 2021 and the Year Ended December 31, 2020

VEREIT Office Assets Combined and Consolidated Statements of Equity for the Ten Months Ended October 31, 2021 and the Year Ended December 31, 2020

VEREIT Office Assets Combined and Consolidated Statements of Cash Flows for the Ten Months Ended October 31, 2021 and the Year Ended December 31, 2020

Notes to VEREIT Office Assets Combined and Consolidated Financial Statements

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Opinion on the Consolidated and Combined Financial Statements

We have audited the accompanying consolidated and combined balance sheets of Orion Office REIT Inc.

(the Company) as of December 31, 2021 and December 31, 2020, the related consolidated and combined statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule III (collectively, the consolidated and combined financial statements).

We have audited the accompanying consolidated balance sheets of Orion Office REIT Inc.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated and combined statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule III (collectively, the consolidated and combined financial statements).

In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

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We have served as the Company’s auditor since 2021.

San Diego, California

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ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

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

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Total real estate investments, at cost 1,366,625 1,481,745

accumulated depreciation and amortization 128,109 136,143

accumulated depreciation 133,379 128,109

Total real estate investments, net 1,233,246 1,353,636

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Cash and cash equivalents 20,638 29,318

Real estate assets held for sale, net 2,502 —

Other assets, net 90,214 60,501

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Bridge facility, net $ — $ 354,357

Mortgages payable, net 352,167 —

Credit facility term loan, net 173,815 172,490

Credit facility revolver — 90,000

Mortgages payable, net — 37,052

Accounts payable and accrued expenses 26,161 17,379

Below-market lease liabilities, net 14,068 20,609

Distributions payable 5,664 —

Other liabilities, net 23,340 16,355

Total liabilities 595,215 671,190

Net parent investment — 497,118

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

Common stock, $ 0.001 par value, 100,000,000 shares authorized 56,639,040 and 56,625,650 shares issued and outstanding as of each of December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,147,014 1,145,278

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Total liabilities and equity $ 1,571,073 $ 1,759,478

The accompanying notes are an integral part of this statement.

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(In thousands, except for per share data)

Year Ended December 31,

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Operating expenses:

Transaction costs 7,909 — —

Property operating 61,519 13,411 5,770

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Impairments 66,359 49,859 18,671

Transaction related 675 — —

Spin related 964 7,909 —

Total operating expenses 276,792 118,933 52,442

Other (expenses) income:

Interest expense ( 4,267 ) ( 2,931 ) ( 3,316 )

Interest expense, net ( 30,171 ) ( 4,267 ) ( 2,931 )

Gain on disposition of real estate assets 2,352 — —

Loss on extinguishment of debt, net ( 468 ) ( 3,782 ) —

Equity in income of unconsolidated joint venture ( 56 ) — —

Other income, net 223 — —

Equity in loss of unconsolidated joint venture, net ( 524 ) ( 56 ) —

Total other (expenses) income, net ( 28,588 ) ( 8,105 ) ( 2,931 )

(Loss) income before taxes ( 47,307 ) ( 1,899 ) 15,284

Loss before taxes ( 97,262 ) ( 47,307 ) ( 1,899 )

Provision for income taxes ( 212 ) ( 157 ) —

Net (loss) income ( 47,464 ) ( 1,899 ) 15,284

Net (income) loss attributable to non-controlling interest ( 17 ) — —

Net (loss) income attributable to common stockholders $ ( 47,481 ) $ ( 1,899 ) $ 15,284

Basic and diluted net (loss) income per share attributable to common stockholders $ ( 0.84 ) $ ( 0.03 ) $ 0.27

The accompanying notes are an integral part of this statement.

Net loss ( 97,474 ) ( 47,464 ) ( 1,899 )

Net income attributable to non-controlling interest ( 20 ) ( 17 ) —

Net loss attributable to common stockholders $ ( 97,494 ) $ ( 47,481 ) $ ( 1,899 )

Weighted-average shares outstanding - basic and diluted 56,632 56,626 $ 56,626

Basic and diluted net loss per share attributable to common stockholders $ ( 1.72 ) $ ( 0.84 ) $ ( 0.03 )

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

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2022 2021 2020

Net (loss) income $ ( 47,464 ) $ ( 1,899 ) $ 15,284

Net loss $ ( 97,474 ) $ ( 47,464 ) $ ( 1,899 )

Total other comprehensive income (loss)

Unrealized gain on interest rate derivatives 7,802 209 —

Reclassification of previous unrealized loss on interest rate derivatives into net (loss) income 90 — —

Total other comprehensive income (loss) 299 — —

Total comprehensive (loss) income ( 47,165 ) ( 1,899 ) 15,284

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

Total comprehensive (loss) income $ ( 47,182 ) $ ( 1,899 ) $ 15,284

(1) Represents comprehensive (income) loss attributable to a consolidated joint venture partner.

Reclassification of previous unrealized (gain) loss on interest rate derivatives into net (loss) income ( 1,793 ) 90 —

Total other comprehensive income 6,009 299 —

Total comprehensive loss ( 91,465 ) ( 47,165 ) ( 1,899 )

Comprehensive income attributable to non-controlling interest ( 20 ) ( 17 ) —

Total comprehensive loss $ ( 91,485 ) $ ( 47,182 ) $ ( 1,899 )

The accompanying notes are an integral part of these statements.

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CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(In thousands, except share and per share data)

(In thousands, except for share data)

of Shares Par

Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated

Deficit Net Parent Investment Total Stockholders’ and Parent Company Equity Non-Controlling Interests Total Equity

Value Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated

Deficit Net Parent Investment Total Stockholders’ and Parent Company Equity Non-Controlling Interest Total Equity

Balance, January 1, 2020 — $ — $ — $ — $ — $ 508,006 $ 508,006 $ — $ 508,006

Net income — — — — — 15,284 15,284 — 15,284

Distributions to parent company, net — — — — — ( 37,735 ) ( 37,735 ) — ( 37,735 )

Balance, December 31, 2019 — — — — — 508,006 508,006 — 508,006

Net loss — — — — — ( 1,899 ) ( 1,899 ) — ( 1,899 )

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Balance, December 31, 2021 56,625,650 57 1,145,278 299 ( 58,715 ) — 1,086,919 1,369 1,088,288

The accompanying notes are an integral part of this statement.

Net (loss) income — — — — ( 97,494 ) — ( 97,494 ) 20 ( 97,474 )

Distributions — — — — ( 22,701 ) — ( 22,701 ) — ( 22,701 )

Repurchases of common stock to settle tax obligations ( 2,177 ) — ( 20 ) — — — ( 20 ) — ( 20 )

Equity-based compensation, net 15,567 — 1,756 — — — 1,756 — 1,756

Other comprehensive income, net — — — 6,009 — — 6,009 — 6,009

Balance, December 31, 2022 56,639,040 $ 57 $ 1,147,014 $ 6,308 $ ( 178,910 ) $ — $ 974,469 $ 1,389 $ 975,858

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

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Cash flows from operating activities:

Net (loss) income $ ( 47,464 ) $ ( 1,899 ) $ 15,284

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net loss $ ( 97,474 ) $ ( 47,464 ) $ ( 1,899 )

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

Depreciation and amortization 131,367 43,922 25,950

Non-cash revenue adjustments ( 1,315 ) ( 406 ) ( 792 )

Non-cash revenue adjustments, net 171 ( 1,315 ) ( 406 )

Amortization of net premiums on mortgages payable — ( 60 ) ( 411 )

Impairments 66,359 49,859 18,671

Gain on disposition of real estate assets ( 2,352 ) — —

Loss on extinguishment of debt, net 468 3,782 —

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Equity-based compensation 1,756 65 —

Equity in income of unconsolidated joint venture 56 — —

Equity in loss of unconsolidated joint venture, net 524 56 —

Changes in assets and liabilities:

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Capital expenditures and leasing costs ( 11,624 ) ( 9,916 ) ( 464 )

Investments in unconsolidated joint venture ( 2,478 ) — —

Proceeds from disposition of real estate 31,854 — —

Investment in unconsolidated joint venture — ( 2,478 ) —

Return of investment from unconsolidated joint venture 2,247 133 —

Net cash used in investing activities ( 12,261 ) ( 464 ) ( 536 )

Net cash provided by (used in) investing activities 22,477 ( 12,261 ) ( 464 )

Cash flows from financing activities:

Proceeds from bridge facility — 355,000 —

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

Proceeds from mortgages payable 355,000 — —

Payments on mortgages payable — ( 36,476 ) ( 32,678 )

Proceeds from credit facility term loan — 175,000 —

Proceeds from credit facility revolver 70,000 90,000 —

Distributions to parent company, net ( 587,156 ) ( 8,989 ) ( 37,621 )

Payments on mortgage notes payable ( 36,476 ) ( 32,678 ) ( 968 )

Payments upon extinguishment of mortgage notes payable ( 4,298 ) — —

Repayments of credit facility revolver ( 160,000 ) — —

Payments of deferred financing costs ( 3,096 ) ( 10,514 ) —

Repurchases of common stock to settle tax obligations ( 20 ) — —

Payments of deferred equity offering costs ( 535 ) — —

Distributions paid ( 16,991 ) — —

Distributions to parent company, net — ( 587,156 ) ( 8,989 )

Other financing activities ( 48 ) — —

Payments upon extinguishment of mortgages payable — ( 4,298 ) —

Net cash used in financing activities ( 110,716 ) ( 18,444 ) ( 41,667 )

Net change in cash and cash equivalents and restricted cash 25,993 25,403 196

Cash and cash equivalents and restricted cash, beginning of year 3,915 3,719 2,850

Cash and cash equivalents and restricted cash, end of year $ 29,318 $ 3,915 $ 3,719

Cash and cash equivalents and restricted cash, beginning of period 29,318 3,915 3,719

Cash and cash equivalents and restricted cash, end of period $ 55,311 $ 29,318 $ 3,915

Reconciliation of Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents at beginning of year $ — $ — $ —

Restricted cash at beginning of year 3,915 3,719 2,850

Cash and cash equivalents and restricted cash at the beginning of the year $ 3,915 $ 3,719 $ 2,850

Cash and cash equivalents at end of year $ 29,318 $ — $ —

Restricted cash at the end of the year — 3,915 3,719

Cash and cash equivalents and restricted cash at the end of the year $ 29,318 $ 3,915 $ 3,719

The accompanying notes are an integral part of this statement.

Cash and cash equivalents at beginning of period $ 29,318 $ — $ —

Restricted cash at beginning of period — 3,915 3,719

Cash and cash equivalents and restricted cash at the beginning of the period $ 29,318 $ 3,915 $ 3,719

Cash and cash equivalents at end of period $ 20,638 $ 29,318 $ —

Restricted cash at the end of the period 34,673 — 3,915

Cash and cash equivalents and restricted cash at the end of the period $ 55,311 $ 29,318 $ 3,915

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

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

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

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

In connection with the Separation and the Distribution, the Company entered into certain agreements with Realty Income to govern the ongoing relationships between the Company and Realty Income and to provide mechanisms for an orderly transition to the Company’s status as an independent, publicly traded company, including the Separation and Distribution Agreement and a transition services agreement to provide certain administrative and other services between the parties for a limited time.

Following the Distribution, the Company became independent and publicly traded and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year ending December 31, 2021.

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

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

Following the Distribution, the Company became independent and publicly traded and has been operating in a manner so as to qualify and has elected to be taxed as a REIT, commencing with the Company’s initial taxable year ended December 31, 2021.

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

At December 31, 2021, the Company owned and operated 92 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.5 million leasable square feet located within 29 states and Puerto Rico.

In addition, the Company owns an equity interest in an unconsolidated joint venture with an affiliate of Arch Street Capital Partners, which, as of December 31, 2021 owned a portfolio consisting of six office properties totaling approximately 1.0 million leasable square feet located within six states.

As of December 31, 2022, the Company owned and operated 81 office properties and related assets totaling approximately 9.5 million leasable square feet located within 29 states.

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

As of December 31, 2022, the Arch Street Joint Venture owned a portfolio consisting of six office properties totaling approximately 1.0 million leasable square feet located within six states.

Note 2 – Summary of Significant Accounting Policies

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Principles of Consolidation and Combination and Basis of Presentation

The consolidated and combined statements of the Company include the accounts of Realty Income Office Assets presented on a combined basis for the period from January 1, 2021 to October 31, 2021 and all prior periods presented as the ownership interests were under common control and ownership of Realty Income during the respective periods.

From and after the Merger Effective Time, the consolidated and combined financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture.

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

The consolidated and combined statements of the Company include the accounts of Realty Income Office Assets presented on a combined basis for the period from January 1, 2021 to October 31, 2021 and for the year ended December 31, 2020, as the ownership interests were under common control and ownership of Realty Income during the respective periods.

From and after the Merger Effective Time, the consolidated and combined financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture, which accounts include the Realty Income Office Assets and the VEREIT Office Assets.

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

ORION OFFICE REIT INC.

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If the Company determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”).

VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics:

(a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity.

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Diluted income (loss) per share of common stock considers the effect of potentially dilutive shares of common stock outstanding during the period.

Transaction Costs

Transaction costs are expensed as incurred.

Such costs are comprised of the legal and professional fees associated with the formation and organization of the Company, the Mergers and the Distribution and are included in transaction costs in the accompanying consolidated statement of operations.

Such costs also include expenses related to the fair value of the warrants issued to affiliates of the Arch Street Partner.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Management makes significant estimates regarding real estate investment impairments.

Reclassification

Acquisition, disposition, and leasing deal related costs incurred by the Company, previously included in the acquisition related line on the consolidated and combined statements of operations, have been presented in the transaction related line for prior periods presented to be consistent with the current period presentation.

Spin related costs are costs incurred by the Company in connection with the Separation and the Distribution.

These costs were previously included in the transaction costs line on the consolidated and combined statements of operations and have been presented in the spin related line for prior periods presented to be consistent with the current period presentation.

These reclassifications had no effect on the reported results of operations.

Spin related expenses are expensed as incurred.

Such expenses are primarily comprised of the legal and professional fees associated with the formation and organization of the Company, the Mergers and the Distribution.

Such costs also include expenses related to the fair value of the warrants issued to the Arch Street Partner and one of its affiliates during the year ended December 31, 2021.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

At the inception of a new lease arrangement for which the Company is the lessor, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification.

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Lease classification tests and measurement procedures are performed at the lease commencement date.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as finance lease, otherwise it is classified as an operating lease.

The lease liability is initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate is readily determinable;

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The lease liability is remeasured when the contract is modified, upon the resolution of a contingency such that variable payments become fixed or if the assessment of exercising an extension, termination or purchase option changes.

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

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

Revenue Recognition

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The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection.

For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term and the Company recognizes a general allowance on a portfolio-wide basis.

For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term.

For leases that are deemed not probable of collection, revenue is recorded as cash is received and the Company reduces rental revenue for any straight-line rent receivables.

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

During the year ended December 31, 2021, the Company did not record a general allowance or any reductions to rental revenue for amounts not probable of collection.

During the year ended December 31, 2022, the Company recorded a reduction to rental revenue of $ 1.5 million for income not probable of collection.

During the years ended December 31, 2021 and 2020, the Company did not record any reductions to rental revenue for amounts not probable of collection.

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

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Variable lease payments, including contingent rent, which is paid by a tenant when the tenant’s sales exceed an agreed upon minimum amount, are recognized once tenant sales exceed contractual tenant lease thresholds and is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease.

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

Such reimbursements are included in rental revenue and amounts paid directly by tenants are recorded on a net basis, as applicable.

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

During the year ended December 31, 2021, the Company recognized termination income of $ 0.3 million.

The Company did no t recognize any termination income during the years ended December 31, 2020 and 2019.

Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic

The FASB issued a question-and-answer document, Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic for concessions related to the effects of COVID-19 that provide a deferral of payments with no substantive changes to the consideration of the original contract, which allows an entity to elect to not analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and to elect to apply or not apply the lease modification guidance in Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), to those contracts (the “COVID-19 Lease Concessions Relief”).

During the years ended December 31, 2021 and 2020, the Company has not granted any concessions.

Fee Income from Unconsolidated Joint Venture

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

Total asset and property management and acquisition fees earned in connection with this entity was $ 0.3 million for the year ended December 31, 2021.

No such fee income was earned for the years ended December 31, 2020 and 2019, respectively.

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

Such reimbursements are included in rental revenue and amounts paid directly by tenants are recorded on a net basis, as applicable (i.e., the property operating expenses paid directly by tenants are not included in the Company’s consolidated and combined financial statements).

ORION OFFICE REIT INC.

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December 31, 2022

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

During the years ended December 31, 2022 and 2021, the Company recognized $ 1.4 million and $ 0.3 million, respectively, of lease termination income.

During the year ended December 31, 2020, the Company did not recognize any lease termination income.

Fee Income from Unconsolidated Joint Venture

The Company provides various services to the Arch Street Joint Venture in exchange for market-based fees.

Total asset and property management fees earned in connection with this entity was $ 0.8 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively.

No such fee income was earned for the year ended December 31, 2020.

Real Estate Investments

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Factors considered by the Company in its analysis of the in-place leases include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases.

In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which typically ranges from six to 18 months.

In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period.

The Company also estimates costs to execute similar leases, including leasing commissions, legal and other related expenses.

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Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including any bargain renewal periods.

A bargain renewal period is provision in a lease which allows a lessee, at their option, to renew a lease at a rate that is sufficiently lower than fair market lease rates at the date such option is exercisable such that exercise of the option appears, at the inception of the lease, to be reasonably certain.

A bargain renewal period is provision in a lease which allows a lessee, at its option, to renew a lease at a rate that is sufficiently lower than fair market lease rates at the date such option is exercisable such that exercise of the option appears, at the inception of the lease, to be reasonably certain.

Above-market leases are amortized as a reduction to rental revenue over the remaining terms of the respective leases.

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The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations.

Following the Mergers, Realty Income performed a purchase price allocation assessing the value of the business.

See Note 5 – Fair Value Measures for further discussion on this purchase price allocation.

In accordance with ASC Topic 805, Business Combinations, adjustments to the allocated purchase price may be made within one year of the closing date of the Mergers as acquisition date uncertainties are resolved.

ORION OFFICE REIT INC.

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December 31, 2022

Investment in Unconsolidated Entity

The Company accounts for its investment in the unconsolidated joint venture arrangement using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over the operating and financing policies of the investment.

Assets Held for Sale

The Company classifies a real estate investment as held for sale when certain criteria are met in accordance with U.S.

Upon classifying a real estate investment as held for sale, the Company will no longer recognize depreciation or amortization expense related to the depreciable assets of the property.

Assets held for sale are recorded at the lower of carrying value or estimated fair value, less the estimated cost to dispose of the assets.

See Note 3 – Real Estate Investments and Related Intangibles for further discussion regarding properties held for sale.

If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the Company will reclassify the property as held and used.

The Company measures and records a property that is classified as held and used at the lower of (i) its carrying value before the property was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.

Investment in Unconsolidated Joint Venture

The Company accounts for its investment in the Arch Street Joint Venture arrangement using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over the operating and financing policies of the investment.

The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint venture’s earnings and distributions.

The Company records its proportionate share of net income (loss) from the unconsolidated joint venture in equity in income of unconsolidated entity in the consolidated statements of operations.

See Note 3 – Real Estate Investments and Related Intangibles for further discussion on the Company’s investment in the unconsolidated joint venture.

The Company is required to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of its investment in the unconsolidated joint venture.

If an event or change in circumstance has occurred, the Company is required to evaluate its investment in the unconsolidated joint venture for potential impairment and determine if the carrying value of its investment exceeds its fair value.

The Company records its proportionate share of net income (loss) from the Arch Street Joint Venture in equity in loss of unconsolidated joint venture, net in the consolidated statements of operations.

See Note 3 – Real Estate Investments and Related Intangibles for further discussion on the Company’s investment in the Arch Street Joint Venture.

The Company is required to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of its investment in the Arch Street Joint Venture.

If an event or change in circumstance has occurred, the Company is required to evaluate its investment in the Arch Street Joint Venture for potential impairment and determine if the carrying value of its investment exceeds its fair value.

An impairment charge is recorded when an impairment is deemed to be other-than-temporary.

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

No impairments of the unconsolidated joint venture were identified during the year ended December 31, 2021.

No impairments of the Arch Street Joint Venture were identified during the years ended December 31, 2022 and 2021.

Prior to the Distribution, the Company did not own any investments in an unconsolidated joint venture.

Property and Equipment

Property and equipment, which typically include computer hardware and software, furniture and fixtures, among other items, are stated at cost less accumulated depreciation.

Property and equipment are depreciated on a straight-line method over the estimated useful lives of the assets, which range from three to seven years .

The Company reassesses the useful lives of its property and equipment and adjusts the future monthly depreciation expense based on the new useful life, as applicable.

If the Company disposes of an asset, the asset and related accumulated depreciation are written off upon disposal.

Real Estate Assets

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Impairment indicators that the Company considers include, but are not limited to, decrease in a property’s net operating cash flows, bankruptcy or other credit concerns of a property’s major tenant or tenants, such as history of late payments, rental concessions and other factors, as well as significant decreases in a property’s revenues due to lease terminations, vacancies or reduced lease rates.

When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition.

When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition.

GAAP requires us to utilize the Company’s expected holding period of our properties when assessing recoverability.

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The assumptions and uncertainties utilized in the evaluation of the impairment of real estate assets are discussed in Note 5 – Fair Value Measures.

Building, Fixtures and Improvements

Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

If this review indicates that the carrying value of the asset is not recoverable, the Company records an impairment loss, measured at fair value based on estimated discounted cash flows or market appraisals.

The evaluation of property and equipment for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions.

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

No impairments of property and equipment were identified during the years ended December 31, 2021, 2020 and 2019.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

Right of Use Assets

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See Note 5 – Fair Value Measures for further discussion.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Cash and Cash Equivalents

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Restricted Cash

The Company did no t have any restricted cash balances as of December 31, 2021.

The Company had $ 3.9 million and $ 3.7 million in restricted cash as of December 31, 2020 and 2019, respectively.

Restricted cash primarily consists of impounds and security deposits related to mortgages payable.

In accordance with certain debt agreements that were outstanding as of December 31, 2020, rent from certain of the Company’s tenants is deposited directly into a lockbox account, from which the monthly debt service payments are disbursed to the lender and the excess funds are then disbursed to the Company.

Included in restricted cash at December 31, 2020 was $ 3.4 million in impounds related to mortgages payable and $ 0.5 million in security deposits related to mortgages payable.

Included in restricted cash at December 31, 2019 was $ 3.2 million in impounds related to mortgages payable and $ 0.5 million in security deposits related to mortgages payable.

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

The Company had $ 34.7 million in restricted cash as of December 31, 2022, primarily comprised of reserves held by the lender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances.

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

The Company had $ 3.9 million in restricted cash as of December 31, 2020, which primarily consisted of mortgage impounds and security deposits related to mortgages payable.

In accordance with certain debt agreements that were outstanding as of December 31, 2020, rent from certain of the Company’s tenants was deposited directly into a lockbox account, from which the monthly debt service payments were disbursed to the lender and the excess funds were then disbursed to the Company.

Included in the restricted cash as of December 31, 2020 was $ 3.4 million in mortgage impounds related to mortgages payable and $ 0.5 million in security deposits related to mortgages payable.

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

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing.

D eferred financing costs, other than those associated with the Revolving Facility (as defined in Note 6 – Debt, Net ), are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability rather than as an asset .

Deferred financing costs related to the Revolving Facility are included in other assets in the accompanying consolidated balance sheets.

These costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method.

D eferred financing costs, other than those associated with the Revolving Facility (as defined in Note 6 – Debt, Net ), are presented on the consolidated balance sheets as a direct deduction from the carrying value of the related debt liability rather than as an asset .

Deferred financing costs related to the Revolving Facility are included in other assets, net in the accompanying consolidated balance sheets.

Deferred financing costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method.

Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity.

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The Company’s interest rate management objectives are intended to limit the impact of interest rate fluctuations on earnings and cash flows and to manage the Company’s overall borrowing costs.

To accomplish this objective, the Company intends to use interest rate swaps as part of its cash flow hedging strategy.

To accomplish this objective, the Company has used and intends to continue to use interest rate swaps as part of its cash flow hedging strategy.

The Company does not intend to utilize derivatives for trading or speculative purposes or for purposes other than interest rate risk management.

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Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment.

If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in other income, net in the consolidated and combined statements of operations and consolidated and combined statements of comprehensive income (loss).

If the derivative is designated and qualifies for cash flow hedge accounting treatment, the change in fair value of the derivative is recorded in other

ORION OFFICE REIT INC.

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December 31, 2022

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment.

If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in other income, net in the consolidated statements of operations and consolidated statements of comprehensive income (loss).

If the derivative is designated and qualifies for hedge accounting treatment, the change in fair value of the derivative is recorded in other comprehensive income (loss).

comprehensive income (loss).

Unrealized gains and losses in other comprehensive income (loss) are reclassified to interest expense when the related hedged items impact earnings.

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If a material loss is reasonably possible but not known or probable, and is reasonably estimable, the estimated loss or range of loss is disclosed.

The Company intends to qualify and elect to be taxed as a REIT for U.S.

The Company has been operating in a manner so to qualify and has elect to be taxed as a REIT for U.S.

federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code, as amended (the “Code”), commencing with the taxable year ended December 31, 2021.

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain to its stockholders.

We believe we are organized and operating in such a manner as to qualify and elect to be taxed as a REIT for the taxable year ended December 31, 2021.

However, Orion OP is still subject to certain state and local income, franchise and property taxes in the various jurisdictions in which it operates.

The Company may also be subject to federal income taxes on certain income and excise taxes on its undistributed income.

During the year ended December 31, 2021, the Company conducted all of its business in the United States and Puerto Rico and will file income tax returns in the U.S.

federal jurisdiction, Puerto Rico, and various state and local jurisdictions.

To maintain the Company’s qualification as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain to its stockholders.

However, Orion OP is still subject to certain state and local income, franchise, property, and other taxes in the various jurisdictions in which it operates.

The Company may also be subject to federal income taxes on certain income and federal excise taxes on its undistributed income.

The Company provides for income taxes in accordance with current authoritative accounting and tax guidance.

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The accounting estimates used to compute the provision for or benefit from income taxes may change as new events occur, additional information is obtained or the tax environment changes.

During the year ended December 31, 2021, the Company recognized state and local income and franchise tax expense of $ 0.2 million, which is included in provision for income taxes in the accompanying consolidated statements of operations.

The Company had no unrecognized tax benefits as of or during the year ended December 31, 2021.

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

For periods presented prior to the Merger Effective Time, Realty Income Office Assets was owned by Realty Income, a Maryland corporation which had elected to be taxed as a REIT, under the Code, as amended.

During both the years ended December 31, 2022 and 2021, the Company recognized state and local income and franchise tax expense of $ 0.2 million, which is included in provision for income taxes in the accompanying consolidated and combined statements of operations.

The Company regularly analyzes its income tax positions in the jurisdictions in which it operates and only recognizes the income tax effect in the financial statements when certain criteria regarding uncertain tax positions have been met.

The Company believes that its material income tax positions would more likely than not be sustained upon examination by the relevant taxing authorities.

Therefore, no provisions related to material uncertain income tax positions have been recognized in the accompanying consolidated and combined financial statements during the years ended December 31, 2022 and 2021.

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

For periods presented prior to the Merger Effective Time, Realty Income Office Assets was owned by Realty Income, a Maryland corporation which had elected to be taxed as a REIT, under the Code.

Under the REIT operating structure, Realty Income was permitted to deduct dividends paid to its stockholders in determining its taxable income.

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direct ownership and operation of commercial real estate.

Recent Accounting Pronouncements

ORION OFFICE REIT INC.

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December 31, 2022

In July 2021, the FASB issued ASU 2021-05 establishing Topic 842, Lessors - Certain Leases with Variable Lease Payments.

ASU 2021-05 further clarifies ASC 842 classification guidance as it relates to a lessor’s accounting for certain leases with variable lease payments.

This guidance requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss.

This guidance is effective for reporting periods beginning after December 15, 2021, with early adoption permitted.

We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated and combined statements.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform.

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The guidance is optional and is effective between March 12, 2020 and December 31, 2022.

The guidance may be elected over time as reference rate reform activities occur.

We are currently evaluating the impact that the expected market transition from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.

The FASB issued ASU 2022-06 in December 2022, in association with Topic 848, to extend the sunset date from December 31, 2022 to December 31, 2024.

The guidance under Topic 848 may be elected over time as reference rate reform activities occur.

As of December 31, 2022, all of our debt and derivative instruments have been converted from the London Interbank Offered Rate, commonly referred to as LIBOR, to the Secured Overnight Financing Rate, commonly referred to as SOFR.

In connection with the transition of the benchmark rate for borrowings under the Revolver/Term Loan Credit Agreement (as defined in Note 6 – Debt, Net) from LIBOR to SOFR, the Company terminated the existing interest rate swap agreements and entered into new interest rate swap agreements during the three months ended December 31, 2022.

The new interest rate swap agreements continue to be accounted for as a cash flow hedge.

The adoption of ASU 2020-04 did not have a material impact on our consolidated and combined financial statements.

Note 3 – Real Estate Investments and Related Intangibles

Property Acquisitions

During the years ended December 31, 2021, 2020 and 2019, the Company had no acquisitions.

Intangible Lease Assets

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

During the year ended December 31, 2022, the Company acquired for no consideration the fee interest in one parcel of land in connection with the maturity of the tax advantaged bond and ground lease structure.

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

The Company did not have any other acquisitions during the year ended December 31, 2022 and during the years ended December 31, 2021 and 2020, the Company had no acquisitions.

Property Dispositions and Real Estate Assets Held for Sale

The following table summarizes the Company’s property dispositions for the years ended December 31, 2022, 2021 and 2020 (dollars in thousands) :

Year Ended December 31,

2022 2021 2020

Total dispositions 11 — —

Aggregate gross sales price $ 33,098 $ — $ —

Gain on disposition of real estate assets $ 2,352 $ — $ —

Property count 5 — —

Impairments on disposition of real estate assets $ 5,089 $ — $ —

Property count 6 — —

As of December 31, 2022, there was one property classified as held for sale, which the Company expected to be sold in the next 12 months as part of its portfolio management strategy.

The property had a carrying value of $ 2.5 million primarily comprised of land of $ 0.6 million and building, fixtures and improvements, net of $ 1.9 million, included in real estate assets held for sale, net in the accompanying consolidated and balance sheets.

During the year ended December 31, 2022, the Company recorded a loss of $ 6.0 million related to held for sale properties, which is included in impairments in the accompanying consolidated and combined statements of operations.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Intangible Lease Assets and Liabilities

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

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

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5.4 $ 177,698 $ 272,743

Leasing commissions, net of accumulated amortization of $ 456

Leasing commissions, net of accumulated amortization of $ 1,553 and $ 456 , respectively

12.4 13,614 10,349

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5.5 9,826 15,015

Deferred lease incentives, net of accumulated amortization of $ 116

Total intangible lease assets, net $ 202,832 $ 298,107

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The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $ 1.2 million, $ 1.0 million and $ 0.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 23.1 million for the year ended December 31, 2021, and $ 7.9 million and $ 8.7 million for the years ended December 31, 2020 and 2019, respectively.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of December 31, 2021 (amounts in thousands) :

The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was $ 0.1 million for the year ended December 31, 2022 as compared to no impact to rental revenue for the years ended December 31, 2021 and 2020.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 95.4 million, $ 23.1 million and $ 7.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

2023 2024 2025 2026 2027

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Total projected to be included in amortization expense $ 1,340 $ 1,297 $ 1,229 $ 1,229 $ 1,226

Above-market lease assets and deferred lease incentives:

Above-market lease assets:

Total projected to be deducted from rental revenue $ 4,776 $ 2,995 $ 860 $ 682 $ 237

Deferred lease incentives:

Total projected to be deducted from rental revenue $ 403 $ 403 $ 386 $ 288 $ 212

Below-market lease liabilities:

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Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2021.

As of December 31, 2021, the consolidated joint venture had total assets of $ 27.4 million, of which $ 26.1 million were real estate investments, net of accumulated depreciation and amortization.

The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2022 and 2021.

As of December 31, 2022 and 2021, the consolidated joint venture had total assets of $ 27.7 million and $ 27.4 million, respectively, of which $ 24.9 million and $ 26.1 million, respectively, were real estate investments, net of accumulated depreciation and amortization.

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

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The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.

Investment in Unconsolidated Entity

The following is a summary of the Company’s investment in one unconsolidated entity, Arch Street Joint Venture, as of December 31, 2021 and for the year ended December 31, 2021 (dollar amounts in thousands):

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Investment in Unconsolidated Joint Venture

The following is a summary of the Company’s investment in the Arch Street Joint Venture, as of December 31, 2022 and 2021 and for the year ended December 31, 2022 and 2021 (dollars in thousands):

Ownership % (1)

Number of Properties Carrying Amount of

Investment Equity in Income

Number of Properties Carrying Value of

Investment Equity in Loss, Net

Year Ended (2)

Investment December 31, 2021 December 31, 2021 December 31, 2021

Investment December 31, 2022 December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 December 31, 2020

Arch Street Joint Venture (3) (4)

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

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

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

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

(2) The interest in the Arch Street Joint Venture was acquired by Realty Income as part of the Mergers and was transferred to the Company upon the consummation of the Distribution.

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

(3) During year ended December 31, 2021, the Arch Street Joint Venture acquired one property from a third party for a purchase price of $ 30.5 million.

(4) The total carrying amount of the Company’s investment in the unconsolidated joint venture was greater than the underlying equity in net assets by $ 2.1 million as of December 31, 2021.

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

The step up in fair value was allocated to the Company’s investment in the unconsolidated joint venture and is amortized in accordance with the Company’s depreciation policy.

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

(3) During the year ended December 31, 2022, the Arch Street Joint Venture did not acquire any properties.

During the year ended December 31, 2021, the Arch Street Joint Venture acquired one property from a third party for a purchase price of $ 30.5 million.

(4) The total carrying value of the Company’s investment in the Arch Street Joint Venture was greater than the underlying equity in net assets by $ 0.9 million and $ 2.1 million as of December 31, 2022 and 2021, respectively.

This difference is related to a step up in the fair value of the investment in the Arch Street Joint Venture in connection with the Mergers.

The step up in fair value was allocated based on the underlying assets and liabilities of the Arch Street Joint Venture and is being amortized over the estimated useful lives of the respective assets and liabilities in accordance with the Company’s accounting policies.

Note 4 – Receivables and Other Assets :

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December 31, 2022 December 31, 2021

Straight-line rent receivable, net $ 7,722 $ 7,043

Accounts receivable, net $ 10,461 $ 10,194

Straight-line rent receivable, net 11,180 7,722

Total $ 21,641 $ 17,916

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

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

December 31, 2022 December 31, 2021

Restricted cash $ 34,673 $ —

Right-of-use assets, net (1)

26,422 30,958

Investment in unconsolidated joint venture 15,824 18,631

Derivative assets 6,308 299

Deferred costs, net (2)

Prepaid expenses 1,305 3,730

Right-of-use assets, net (2)

Investment in unconsolidated entity 18,631 —

Restricted cash — 3,915

Other assets, net 1,063 637

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____________________________________

(1) Amortization expense for deferred costs related to the revolving credit facility totaled $ 0.3 million for the year ended December 31, 2021 as compared to no deferred costs for the year ended December 31, 2020.

Accumulated amortization for deferred costs related to the revolving credit facility was $ 0.3 million at December 31, 2021.

(2) Amortization expense for below market right-of-use asset was less than $ 0.1 million.

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

(1) Amortization expense for below market right-of-use asset was $ 0.2 million and less than $ 0.1 million for the years ended December 31, 2022 and 2021, respectively.

There was no amortization expense for below market right-of-use asset for the year ended December 31, 2020.

Includes right-of-use finance leases of $ 9.0 million and $ 13.8 million, right-of-use operating leases of $ 10.6 million and $ 10.2 million, and a below-market right-of-use asset, net of $ 6.8 million and $ 7.1 million, as of December 31, 2022 and 2021, respectively.

(2) Amortization expense for deferred costs related to the Revolving Facility totaled $ 2.2 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively, as compared to no amortization expense for deferred costs for the year ended December 31, 2020.

Accumulated amortization for deferred costs related to the Revolving Facility was $ 2.5 million and $ 0.3 million as of December 31, 2022 and 2021, respectively.

Includes outstanding deferred equity offering costs of $ 0.5 million, which will be offset against additional paid in capital for future issuances of shares of the Company’s common stock, as of December 31, 2022.

There was no such balance as of December 31, 2021.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Note 5 – Fair Value Measures

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment.

GAAP guidance defines three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

Changes in the type of inputs may result in a reclassification for certain assets.

The Company does not expect that changes in classifications between levels will be frequent.

Items Measured at Fair Value on a Recurring Basis

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

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

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

Derivative assets $ — $ 6,308 $ — $ 6,308

Derivative Assets – The Company’s derivative financial instruments relate to interest rate swaps.

Level 1 Level 2 Level 3 Balance as of December 31, 2021

Derivative assets $ — $ 299 $ — $ 299

Derivative Assets – The Company’s derivative financial instruments relate to interest rate swap agreements entered into in order to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility (as defined in Note 6 – Debt, Net).

The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative.

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In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

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

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

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

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

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

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

As part of the Company’s impairment review procedures, net real estate assets representing ten properties were deemed to be impaired resulting in impairment charges of $ 49.9 million during the year ended December 31, 2021 that relate to certain non-core assets which were identified by management for potential sale.

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

As part of the Company’s impairment review procedures, net real estate assets representing 18 and 10 properties were deemed to be impaired during the years ended December 31, 2022 and 2021, respectively, resulting in impairment charges of $ 66.4 million and $ 49.9 million during the years ended December 31, 2022 and 2021, respectively.

The impairment charges relate to adjustments to expected sales prices for certain non-core assets which have been identified by management for potential sale or management determined would not be re-leased by the existing tenant.

During the year ended December 31, 2020, the Company analyzed a unique triggering event related to one property that had a near term lease expiration, combined with a mortgage loan maturity.

The estimated future undiscounted cash flows of this property indicated that carrying amounts were not expected to be recovered, and after estimating the fair value, an impairment charge of $ 18.7 million was recorded for the year ended December 31, 2020.

The estimated future undiscounted cash flows of this property indicated that carrying value was not expected to be recovered, and after estimating the fair value, an impairment charge of $ 18.7 million was recorded for the year ended December 31, 2020.

The fair value measurement for this property was determined by applying a sales price based on market comparable sales provided by a third party.

This input is categorized as level two on the valuation hierarchy.

The Company also identified the impact of the COVID-19 pandemic as an impairment triggering event.

However, after performing review procedures, the Company did not identity additional carrying values of properties impacted by the COVID-19 pandemic during the year ended December 31, 2020.

There were no impairment charges recorded during the year ended December 31, 2019.

The Company also identified the impact of the COVID-19 pandemic as an impairment triggering event during the year ended December 31, 2020.

However, after performing review procedures, the Company did not identify additional carrying values of properties impacted by the COVID-19 pandemic during the year ended December 31, 2020.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

Year Ended December 31,

2022 2021 2020

Number of properties 18 10 1

3 unchanged sentences

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

The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and make certain key assumptions, including, but not limited to, the following:

The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and make certain key assumptions, including the following:

(1) capitalization rate;

(2) discount rates;

(3) number of years property will be held;

(3) number of years the property will be held;

(4) property operating expenses;

1 unchanged sentence

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

For the Company’s impairment tests for the real estate assets during the year ended December 31, 2021, the fair value measurement for its impaired properties was primarily determined by applying a sales price based on market data and, where applicable, the Company used a weighted-average discount rate of 8.9 %.

For the Company’s impairment tests for the real estate assets during the year ended December 31, 2022, the fair value measurement for 17 impaired properties was determined by applying an estimated sales price based on market data and one impaired property by applying a weighted average discount rate of 8.5 % and capitalization rate of 8.0 %.

During the year ended December 31, 2022, impairment charges of $ 39.5 million were recorded for held and used properties , $ 0.2 million for held for sale properties, and $ 26.7 million for disposed properties.

For the Company’s impairment tests for the real estate assets during the year ended December 31, 2021, the fair value measurement for all 10 impaired properties was determined by applying an estimated sales price based on market data.

During the year ended December 31, 2021, impairment charges of $ 49.9 million were recorded for held and used properties, and no impairment charges were recorded for held for sale properties or disposed properties.

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

Level 1 Level 2 (1)

Balance as of December 31, 2022

Assets of properties held and used $ — $ 38,900 $ 11,957 $ 50,857

Assets of properties held for sale — 2,502 — 2,502

$ — $ 41,402 $ 11,957 $ 53,359

Level 1 Level 2 (1)

Balance as of December 31, 2021

Assets of properties held and used $ — $ — $ 59,339 $ 59,339

Assets of properties held for sale — — — —

$ — $ — $ 59,339 $ 59,339

____________________________________

(1) The fair value of the level 2 category was derived using negotiated sales prices and the fair value of the level 3 category was derived using discounted cash flow analysis and management estimates of selling prices.

Fair Value of Financial Instruments

The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate their carrying value in the accompanying consolidated balance sheets due to their short-term nature.

The fair values of the Company’s long-term financial instruments are reported below (dollars in thousands):

ORION OFFICE REIT INC.

1 unchanged sentence

December 31, 2022

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

The assessment of fair value is preliminary and is based on information that was available to Realty Income management at the time the consolidated and combined statements were prepared.

Measurement period adjustments, if any, will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.

The finalization of Realty Income’s purchase accounting assessment could result in changes in the valuation of real estate assets and liabilities up to one year after the date of the Mergers, and these changes could be material.

Fair Value of Financial Instruments

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

Level Carrying Amount at December 31, 2021 Fair Value at December 31, 2021 Carrying Amount at December 31, 2020 Fair Value at December 31, 2020

Level Carrying Value at December 31, 2022

Fair Value at December 31, 2022

Carrying Value at December 31, 2021

Fair Value at December 31, 2021

Liabilities (1) :

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

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

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

Mortgages payable 2 355,000 332,323 — —

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

Credit facility revolver (2)

Mortgages payable assumed in connection with acquisitions 2 — — 36,476 37,095

2 — — 90,000 90,000

Total $ 530,000 $ 507,323 $ 620,000 $ 620,000

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(1) Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.

(2) As of December 31, 2022, the Company did not have any amounts outstanding under its $ 425.0 million Revolving Facility.

Debt – The fair value is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of credit spreads and observable market interest rates, representing level 2 on the fair value hierarchy.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

Note 6 – Debt, Net

As of December 31, 2022, the Company had $ 526.0 million of debt outstanding, including net deferred financing costs, with a weighted-average years to maturity of 3.0 years and a weighted-average interest rate of 4.38 %.

The following table summarizes the carrying value of debt as of December 31, 2021 and December 31, 2020, and the debt activity for the year ended December 31, 2021 (in thousands):

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

Year Ended December 31, 2022

Balance as of December 31, 2020 Debt Issuances Repayments, Extinguishment and Assumptions Accretion and Amortization Balance as of December 31, 2021

Balance as of December 31, 2021

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

Mortgages payable:

Outstanding balance $ — $ 355,000 $ — $ — $ 355,000

Premium, net 576 — ( 516 ) ( 60 ) —

Deferred costs — ( 3,446 ) — 613 ( 2,833 )

Mortgages payable, net — 351,554 — 613 352,167

10 unchanged sentences

Outstanding balance 90,000 70,000 ( 160,000 ) — —

Credit facility revolver, net — 90,000 — — 90,000

Credit facility revolver 90,000 70,000 ( 160,000 ) — —

Total debt $ 616,847 $ 421,510 $ ( 514,558 ) $ 2,183 $ 525,982

Credit Agreement

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

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

Approximately $ 595.0 million of the net proceeds of the Facilities was distributed to Realty Income in accordance with the Separation and Distribution Agreement.

Orion OP retained the remaining net proceeds of such borrowings as working capital that will be used for the general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries.

As of December 31, 2021, the Company had approximately $ 620.0 million of total consolidated debt outstanding and $ 335.0 million of availability under the Revolving Facility.

The Bridge Facility is subject to one 6-month extension option at the election of Orion OP.

The exercise of such extension option requires the payment of an extension fee and the satisfaction of certain other customary conditions.

The Bridge Facility was refinanced with a $ 355.0 million mortgage loan during February 2022 (see Note 15 – Subsequent Events below).

ORION OFFICE REIT INC.

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December 31, 2022

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

Under the Revolver/Term Loan Facilities, the applicable margin is (1) in the case of the Revolving Facility, 2.50 % for LIBOR loans and 1.50 % for base rate loans and (2) in the case of the Term Loan Facility, 2.50 % for LIBOR loans and 1.50 % for base rate loans.

Under the Bridge Facility, the applicable margin for LIBOR loans was initially 2.50 % with scheduled increases over time to a maximum of 3.50 % and the applicable margin on base rate loans was initially 1.50 % with scheduled increases over time to a maximum of 2.50 %, in each case, based on the number of days elapsed after November 12, 2021.

The following table summarizes the scheduled aggregate principal repayments due on the Company’s debt outstanding as of December 31, 2022 (in thousands):

2023 $ 175,000

Total $ 530,000

Credit Agreement

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

The Term Loan Facility is scheduled to mature on November 12, 2023, and the Revolving Facility is scheduled to mature on November 12, 2024.

The Company expects to extend, repay or refinance (or some combination of the foregoing) the Revolver/Term Loan Facilities on or prior to maturity.

The Company has sufficient available capacity under the Revolving Facility to repay the Term Loan Facility, if needed.

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

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

Orion OP retained the remaining net proceeds of such borrowings as working capital for the general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries.

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

As of December 31, 2022, the Company did not have any borrowings under the Revolving Facility and, therefore, had $ 425.0 million of availability under the Revolving Facility.

The interest rate applicable to the loans under the Revolver/Term Loan Facilities was initially determined, at the election of Orion OP, on the basis of LIBOR or a base rate, in either case, plus an applicable margin.

On December 1, 2022, the Company, as parent, and Orion OP, as borrower, entered into that certain First Amendment to the Revolver/Term Loan Credit Agreement (the “Amendment”).

The Amendment, among other things, (i) changed the benchmark rate under the Revolver/Term Loan Credit Agreement for borrowings from LIBOR to SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York), subject to certain adjustments specified in the Revolver/Term Loan Credit Agreement, and (ii) updated certain other provisions regarding successor interest rates to LIBOR.

Following the effectiveness of the Amendment, the interest rate applicable to the loans under the Revolver/Term Loan Facilities may be determined, at the election of Orion OP, on the basis of Daily Simple SOFR, Term SOFR or a base rate, in the case of a SOFR loan, plus a SOFR adjustment of 0.10 % per annum, and in the case of a SOFR loan or a base rate loan, plus an applicable margin.

This applicable margin was not adjusted as a result of the Amendment other than the change from LIBOR to SOFR and is now (1) in the case of the Revolving Facility, 2.50 % for SOFR loans and 1.50 % for base rate loans, and (2) in the case of the Term Loan Facility, 2.50 % for SOFR loans and 1.50 % for base rate loans.

Loans under the Revolver/Term Loan Facilities may be prepaid, and unused commitments under the Revolver/Term Loan Facilities may be reduced, at any time, in whole or in part, without premium or penalty (except for LIBOR breakage costs).

To the extent that amounts under the Revolving Facility remain unused, Orion OP is required to pay a quarterly commitment fee on the unused portion of the Revolving Facility in an amount equal to 0.25 % per annum of the unused portion of the Revolving Facility.

The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) and the Bridge Facility was guaranteed pursuant to a Guaranty (the “Bridge Guaranty”), in each case, by the Company and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).

The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) by the Company and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).

The Revolver/Term Loan Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.

The Revolver/Term Loan Facilities require that Orion OP comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends.

In addition, the Revolver/Term Loan Facilities require that Orion OP satisfy certain financial covenants, including a:

The Revolver/Term Loan Facilities require that Orion OP comply with various covenants, including, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends.

In addition, the Revolver/Term Loan Facilities require that Orion OP satisfy the following financial covenants:

• ratio of total debt to total asset value of not more than 0.60 to 1.00;

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The Revolver/Term Loan Facilities also include customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Revolver/Term Loan Facilities to be immediately due and payable and foreclose on the collateral securing the Revolver/Term Loan Facilities.

On February 10, 2022, certain indirect subsidiaries of the Company (the “Mortgage Borrowers”) obtained a $ 355.0 million fixed rate mortgage loan (the “CMBS Loan”) from Wells Fargo Bank, National Association (together with its successor, the “Lender”), which is secured by the Mortgage Borrowers’ fee simple or ground lease interests in 19 properties owned indirectly by the Company (collectively, the “Mortgaged Properties”).

During March 2022, Wells Fargo effected a securitization of the CMBS Loan.

The CMBS Loan bears interest at a fixed rate of 4.971 % per annum and matures on February 11, 2027.

The CMBS Loan requires monthly payments of interest only and all principal is due at maturity.

The proceeds of the CMBS Loan were used to repay the Bridge Facility.

Upon closing of the CMBS Loan, the Mortgage Borrowers funded $ 35.5 million of loan reserves primarily for future rent concessions and tenant improvement allowances under the leases with respect to the 19 Mortgaged Properties.

These amounts, as well as the transaction expenses incurred in connection with the CMBS Loan, were funded with cash on hand and borrowings under the Company’s Revolving Facility.

The CMBS Loan is secured by, among other things, first priority mortgages and deeds of trust granted by the Mortgage Borrowers and encumbering the Mortgaged Properties.

The CMBS Loan is generally not freely prepayable by the Mortgage Borrowers without payment of certain prepayment premiums and costs.

The CMBS Loan may be prepaid in whole, but not in part, except as provided in the loan agreement governing the CMBS Loan (the “CMBS Loan Agreement”), at any time following the Prepayment Lockout Release Date (as defined in the CMBS Loan Agreement) (generally in March 2024, two years after the CMBS Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.

Further, releases of individual properties are permitted in connection with an arms’ length third party sale upon repayment of the Release Price (as defined in the CMBS Loan Agreement) for the applicable individual property and subject to payment of the applicable yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.

The CMBS Loan Agreement also contains customary cash management provisions, including certain trigger events (such as failure of the Mortgage Borrowers to satisfy a minimum debt yield) which allow the Lender to retain any excess cash flow as additional collateral for the Loan, until such trigger event is cured.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

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

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

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

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

The Company’s mortgages payable consisted of the following as of December 31, 2022 (dollars in thousands):

Encumbered Properties Net Carrying Value of Collateralized Properties (1)

Outstanding Balance Weighted-Average

Interest Rate Weighted-Average Years to Maturity

Fixed-rate debt 19 $ 465,098 $ 355,000 4.97 % 4.1

____________________________________

(1) Net carrying value is real estate assets, including right-of-use assets, net of real estate liabilities.

The table above does not include mortgage notes associated with the Arch Street Joint Venture of $ 136.7 million as of December 31, 2022.

Note 7 – Derivatives and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

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

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

As of December 31, 2020, the Company had no interest rate swap agreements.

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

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

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

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

The initial interest rate swap agreements were effective on December 1, 2021 and were scheduled to terminate on November 12, 2023.

During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Revolver/Term Loan Credit Agreement from LIBOR to SOFR, the Company terminated the initial interest rate swap agreements and entered into new interest rate swap agreements with an aggregate notional amount of $ 175.0 million, effective on December 1, 2022 and terminating on November 12, 2023.

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

Interest rate swaps Other assets, net $ 6,308 $ 299

During the years ended December 31, 2022 and 2021, the Company recorded unrealized gains of $ 7.8 million and $ 0.2 million, respectively, for changes in the fair value of its cash flow hedge in accumulated other comprehensive income.

There were no similar amounts recorded during the year ended December 31, 2020, as the interest rate swap agreement did not exist during that period.

During the years ended December 31, 2022 and 2021, the Company reclassified previous gains of $ 1.8 million and previous losses of $ 0.1 million, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

There were no similar amounts recorded during the year ended December 31, 2020.

During the next twelve months, the Company estimates that an additional $ 6.3 million will be reclassified from other comprehensive income as a decrease to interest expense.

ORION OFFICE REIT INC.

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December 31, 2022

During the year ended December 31, 2021, the Company recorded unrealized gains of $ 0.2 million for changes in the fair value of its cash flow hedge in accumulated other comprehensive income.

There were no similar amounts recorded during the years ended December 31, 2020 and 2019, respectively.

The Company reclassified previous losses of $ 0.1 million for the year ended December 31, 2021 from accumulated other comprehensive income (loss) into interest expense as a result of the hedged transactions impacting earnings.

There were no similar amounts recorded during the years ended December 31, 2020 and 2019, respectively.

During the next twelve months, the Company estimates that an additional $ 0.4 million will be reclassified from other comprehensive income (loss) as an increase to interest expense.

Derivatives Not Designated as Hedging Instruments

As of December 31, 2021 and December 31, 2020, the Company had no interest rate swaps that were not designated as qualifying hedging relationships.

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

Tabular Disclosure of Offsetting Derivatives

The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of December 31, 2021 and December 31, 2020 (in thousands).

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

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

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Note 8 – Supplemental Cash Flow Disclosures

Supplemental cash flow information was as follows for the years ended December 31, 2021, 2020 and 2019 (in thousands):

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

Year Ended December 31,

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Cash paid for income taxes

$ 634 $ 98 $ —

Non-cash investing and financing activities:

Accrued capital expenditures and leasing costs $ 3,243 $ 286 $ —

Accrued deferred financing costs

Non-cash assets and liabilities contributed by parent company $ — $ 1,142,002 $ —

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$ 1,193 $ 989 $ —

Distributions declared and unpaid

$ 5,664 $ — $ —

Land acquired upon finance lease termination $ 4,707 $ — $ —

Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of December 31, 2021 and December 31, 2020 (in thousands):

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

December 31, 2022 December 31, 2021

Accrued interest

$ 1,093 $ 100

Accrued real estate and other taxes $ 10,191 $ 10,322

Accrued transaction costs 129 —

Accrued operating and other 10,034 4,127

Accrued capital expenditures and leasing costs 2,333 32

Accrued interest 1,810 1,093

Accounts payable 1,793 1,805

Accrued other

$ 26,161 $ 17,379

Note 10 – Commitments and Contingencies

As part of its ordinary re-leasing activities, the Company has agreed and anticipates that it will continue to agree to provide rent concessions to tenants and incur leasing costs with respect to its properties, including amounts paid directly to tenants to improve their space and/or building systems, or tenant improvement allowances, landlord agreements to perform and pay for

ORION OFFICE REIT INC.

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December 31, 2022

Note 10 – Commitments and Contingencies

As part of its ordinary re-leasing activities, the Company has agreed and anticipates that it will continue to agree to provide rent concessions to tenants and incur leasing costs with respect to its properties, including tenant improvement allowances, landlord agreements to pay for certain improvements, as well as leasing commissions.

These rent concession and leasing cost commitments could be significant.

For example, during November 2021, in connection with the 11-year extension of an investment grade tenant at the Company’s largest property measured by annualized base rent, the Company agreed to $ 11.1 million of future rent concessions and to fund up to $ 22.9 million of tenant improvement allowances, the full amount of which was funded as loan reserves as part of the closing of the CMBS Loan in February 2022.

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

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

certain improvements, and leasing commissions.

These rent concession and leasing cost commitments could be significant and are expected to vary due to factors such as competitive market conditions for leasing of commercial office space and the volume of square footage subject to re-leasing by the Company.

As of December 31, 2022, the Company had total commitments of $ 51.2 million outstanding for tenant improvement allowances and $ 0.3 million for leasing commissions.

The timing of the Company’s cash outlay for tenant improvement allowances is significantly uncertain and will depend upon the applicable tenant’s schedule for the improvements and corresponding use of capital, if any.

For assets financed on the CMBS Loan, the Company has funded reserves with the lender for tenant improvement allowances and rent concession commitments.

The restricted cash included in the reserve totaled $ 34.7 million as of December 31, 2022, including $ 23.6 million for tenant improvement allowances and $ 11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets.

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

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

Environmental Matters

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Note 11 – Leases

As of December 31, 2021, the Company is the lessor for its 92 office properties.

The Company’s operating leases have non-cancelable lease terms ranging from 0.08 years to 16.26 years as of December 31, 2021 and 0.30 years to 13.12 years as of December 31, 2020, respectively.

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

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

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter as of December 31, 2021 (in thousands).

As of December 31, 2022, the Company’s operating leases have non-cancelable lease terms ranging from 0.2 years to 15.3 years.

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

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

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

Future Minimum

Operating Lease Payments

2022 $ 153,592

Base Rent Payments

Thereafter 184,574

Total $ 625,947

The Company is the lessee under operating lease arrangements and corporate office leases, which meet the criteria under U.S.

The Company is the lessee under ground lease arrangements and corporate office leases, which meet the criteria under U.S.

GAAP for an operating lease.

As of December 31, 2022, the Company’s operating leases had remaining lease terms ranging from 0.9 years to 62.0 years, which includes options to extend.

Under the ground lease arrangements, the Company pays variable costs, including property operating expenses and common area maintenance.

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

The weighted-average discount rate used to measure the lease liability for the Company’s operating leases was 3.49 % as of December 31, 2022.

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

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

ORION OFFICE REIT INC.

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December 31, 2022

Operating lease costs for the year ended December 31, 2021 were $ 0.3 million.

Operating lease costs for each of the years ended December 31, 2020 and 2019 were $ 0.1 million.

Operating lease costs were $ 1.0 million, $ 0.3 million, and $ 0.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

No cash paid for operating lease liabilities was capitalized.

4 unchanged sentences

Total $ 10,692

The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for ground lease obligations as of December 31, 2020 (in thousands).

Future Minimum Lease Payments

Thereafter 3,432

imputed interest 1,887

Total $ 2,102

Note 12 – Stockholder’s Equity

The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock ($ 0.01 par value per share) to Realty Income for a total of $ 1,000 .

Note 12 – Stockholders’ Equity

The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock to Realty Income for a total of $ 1,000 .

On November 10, 2021, the Company issued 56,525,650 additional shares of common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Company’s common stock.

Also on November 10, 2021, in connection with the filing of the Company’s Articles of Amendment, the Company changed the par value of its common stock from $ 0.01 per share to $ 0.001 per share.

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

During the year ended December 31, 2022, the Company’s Board of Directors declared quarterly cash dividends on shares of the Company’s common stock as follows (in thousands, except per share data):

Declaration Date Record Date Paid Date Distributions Per Share

March 22, 2022 March 31, 2022 April 15, 2022 $ 0.10

May 3, 2022 June 30, 2022 July 15, 2022 $ 0.10

August 2, 2022 September 30, 2022 October 17, 2022 $ 0.10

November 1, 2022 December 30, 2022 January 17, 2023 $ 0.10

The following table sets forth the federal income tax characterization of dividends paid on a percentage basis on the Company’s common stock for the year ended December 31, 2022:

Year Ended December 31,

Ordinary dividends — %

Capital gain distributions — %

Nondividend distributions 100.0 %

Total 100.0 %

Stock Warrants

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

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

ORION OFFICE REIT INC.

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The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Company common stock determined according to the formula set forth in the Arch Street Warrants.

The Arch Street Warrants expire on the earlier of (a) 10 years after issuance and (b) the later of the termination of the Arch Street Joint Venture and seven years after issuance.

The Company has agreed that, prior to six months following the Company’s eligibility to use Form S-3 for the registration of securities of the Company, the Company will file with the SEC a registration statement on Form S-3 (the “Registration Statement”) for the registration, under the Securities Act, of the shares of the Company’s common stock issuable upon exercise of the Arch Street Warrants.

The Company will use its commercially reasonable efforts to cause the Registration Statement to become effective and to maintain the effectiveness of the Registration Statement, and a current prospectus relating thereto, until the earlier of (a) the expiration of the Arch Street Warrants, or (b) the shares issuable upon such exercise shall become freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act (or any successor rule)) of us.

The holders of the Arch Street Warrants will also remain subject to the ownership limitations pursuant to the Company’s organizational documents.

The Arch Street Warrants were measured at fair value on their grant date at an amount of $ 3.3 million and are classified as equity in the Company’s consolidated and combined balance sheets.

The corresponding cost of $ 3.3 million was recognized as an expense for the year ended December 31, 2021, which is included in Transaction costs in the Company’s consolidated and combined statements of operations.

The Arch Street Warrants expire on the earlier of (a) ten years after issuance and (b) if the Arch Street Joint Venture is terminated, the later of the termination of the Arch Street Joint Venture and seven years after issuance.

Note 13 - Equity-Based Compensation

The Company has an equity-based incentive award plan (the “Equity Plan”) for officers, employees, non-employee directors and consultants who provide services to the Company.

The Company has an equity-based incentive award plan (the “Equity Plan”) for officers, other employees, non-employee directors and consultants who provide services to the Company.

Awards under the Equity Plan are accounted for under U.S.

GAAP as share-based payments.

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

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

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

Equity-based compensation expense related to Orion Time-Based Restricted Stock Units for the year ended December 31, 2021, was $ 0.1 million.

As of December 31, 2021, total unrecognized compensation expense related to these awards was approximately $ 0.5 million, with an aggregate weighted-average remaining term of 2.2 years.

Equity-based compensation expense for the year ended December 31, 2021, related to Realty Income time-based restricted stock units and stock options granted in connection with the Mergers, was $ 0.1 million.

As of December 31, 2021, total unrecognized compensation expense related to these awards was approximately $ 0.6 million, with an aggregate weighted-average remaining term of 1.7 years.

The expense for such awards is recognized over the requisite service period, which is generally the vesting period.

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

During the year ended December 31, 2021, the Company granted Time-Based RSUs to non-employee directors and officers of the Company.

During the year ended December 31, 2022, the Company granted Time-Based RSUs and/or Performance-Based RSUs to non-employee directors and officers and other employees of the Company.

The fair value of the Time-Based RSUs is determined using the closing stock price on the grant date and is expensed over the requisite service period on a straight-line basis.

The fair value of the TSR-Based RSUs is determined using a Monte Carlo simulation which takes into account multiple input variables that determine the probability of satisfying the required total shareholder return, and such fair value is expensed over the performance period.

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

As of December 31, 2022, the Company determined that the likelihood of achieving some of the performance metrics was probable and, accordingly, the Company began recognizing compensation expense for such Metrics-Based RSUs and determined that the likelihood of achieving the remaining performance metrics was improbable and the Company recognized no compensation expense for the remaining Metrics-Based RSUs.

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

Equity-based compensation expense related to Orion Time-Based RSUs and Performance-Based RSUs for the years ended December 31, 2022 and 2021 was $ 1.4 million and $ 0.1 million, respectively.

As of December 31, 2022 and 2021, total unrecognized compensation expense related to Time-Based RSUs and Performance-Based RSUs was approximately $ 2.7 million and $ 0.5 million, respectively, with an aggregate weighted-average remaining term of 2.0 years and 2.2 years, respectively.

The following table details the activity of the Time-Based RSUs during the year ended December 31, 2022:

Time-Based RSUs Weighted-Average Grant Date Fair Value

Unvested units, December 31, 2021 27,920 $ 20.96

Granted 144,594 $ 16.81

Vested ( 15,567 ) $ 21.10

Forfeited — $ —

Unvested units, December 31, 2022 156,947 $ 17.12

ORION OFFICE REIT INC.

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December 31, 2022

The following table details the activity of the Performance-Based RSUs during the year ended December 31, 2022:

Performance-Based RSUs Weighted-Average Grant Date Fair Value

Unvested units, December 31, 2021 — $ —

Granted 212,154 $ 13.65

Forfeited — $ —

Unvested units, December 31, 2022 212,154 $ 13.65

The Company is also required under U.S.

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

Equity-based compensation expense for the years ended December 31, 2022 and 2021, related to such Realty Income equity-based compensation awards, was $ 0.4 million and $ 0.1 million.

As of December 31, 2022 and 2021, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was approximately $ 0.2 million and $ 0.6 million, respectively, with an aggregate weighted-average remaining term of 1.0 year and 1.7 years, respectively.

Note 14 - Net Income (Loss) Per Share

The financial statements reflect the common shares as if they were outstanding for the entire period presented, and are as of the date of Separation and Distribution.

The computation of basic and diluted EPS is as follows for the years ended December 31, 2021, 2020 and 2019 (in thousands, except share and per share data):

The computation of basic and diluted earnings per share is as follows for the year ended December 31, 2022, 2021 and 2020 (in thousands, except share and per share data):

Year Ended December 31,

2022 2021 2020

Net (loss) income $ ( 47,464 ) $ ( 1,899 ) $ 15,284

(Income) loss attributable to non-controlling interests ( 17 ) — —

Net (loss) income available to common stockholders used in basic and diluted net income per share ( 47,481 ) ( 1,899 ) 15,284

Weighted average number of Common Stock outstanding - basic

56,625,650 56,625,650 56,625,650

Net loss $ ( 97,474 ) $ ( 47,464 ) $ ( 1,899 )

Income attributable to non-controlling interests ( 20 ) ( 17 ) —

Net loss available to common stockholders used in basic and diluted net income per share ( 97,494 ) ( 47,481 ) ( 1,899 )

Weighted average shares of common stock outstanding - basic 56,631,826 56,625,650 56,625,650

Effect of dilutive securities (1)

Weighted average number of common shares - diluted 56,625,650 56,625,650 56,625,650

Basic and diluted net (loss) income per share attributable to common stockholders $ ( 0.84 ) $ ( 0.03 ) $ 0.27

Weighted average shares of common stock - diluted 56,631,826 56,625,650 56,625,650

Basic and diluted loss per share attributable to common stockholders $ ( 1.72 ) $ ( 0.84 ) $ ( 0.03 )

____________________________________

(1) As of December 31, 2022, 2021 and 2020, there were no adjustments to the weighted average common shares outstanding used in the diluted calculation given there were no potentially dilutive shares.

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

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

Year Ended December 31,

2022 2021 2020

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

Weighted average unvested Time-Based RSUs and Performance-Based RSUs (1)

Weighted average stock warrants 1,120,000 1,120,000 —

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Note 15 – Subsequent Events

On February 10, 2022, certain indirect subsidiaries of the Company (the “Mortgage Borrowers”) entered into a credit agreement with Wells Fargo Bank, National Association (the “Lender”), to obtain a $ 355.0 million fixed rate mortgage loan (the “CMBS Loan”), which is secured by the Mortgage Borrower’s fee simple or ground lease interest in 19 properties owned directly by the Company (collectively, the “Mortgaged Properties”).

The CMBS Loan bears interest at a fixed rate of 4.971 % per annum and matures on February 11, 2027.

The CMBS Loan requires monthly payments of interest only, and all principal is due at maturity.

The proceeds of the CMBS Loan were used to repay the Bridge Facility.

These amounts, as well as the transaction expenses incurred in connection with the CMBS Loan, were funded with cash on hand and borrowings under the Company’s Revolving Facility.

The CMBS Loan is secured by, among other things, first priority mortgages and deeds of trust granted by the Mortgage Borrowers and encumbering the Mortgaged Properties.

The CMBS Loan is generally not freely prepayable by the Mortgage Borrowers without payment of certain prepayment premiums and costs.

The CMBS Loan may be prepaid in whole, but not in part, except as provided in the CMBS Loan agreement, at any time following the Prepayment Lockout Release Date (as defined in the CMBS Loan agreement) (generally two years after the Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan agreement.

Further, releases of individual properties are permitted in connection with an arms length third party sale upon repayment of the Release Price (as defined in the CMBS Loan agreement)

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2021

for the applicable individual property and subject to payment of the applicable yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan agreement.

The CMBS Loan agreement also contains customary cash management provisions, including certain trigger events (such as failure of the Mortgage Borrowers to satisfy a minimum debt yield) which allow the Lender to retain any excess cash flow as additional collateral for the Loan, until such trigger event is cured.

In connection with the CMBS Loan agreement, the Company (as the guarantor) delivered a customary non-recourse carveout guaranty to the Lender (the “Guaranty”), under which the Company guaranteed the obligations and liabilities of the Mortgage Borrowers to the Lender with respect to certain non-recourse carveout events and the circumstances under which the CMBS Loan will be fully recourse to the Mortgage Borrowers, and which includes requirements for the Company to maintain a net worth of no less than $ 355 million and liquid assets of no less than $ 10 million, in each case, exclusive of the values of the collateral for the CMBS Loan.

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

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

Distributions

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

On March 7, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.10 per share for the first quarter of 2023, payable on April 17, 2023, to stockholders of record as of March 31, 2023.

ORION OFFICE REIT INC.

7 unchanged sentences

Property Encumbrances at

December 31, 2021 Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Vacant - El Centro, CA $ — $ 520 $ 2,186 $ — $ 2,706 $ ( 1,068 ) 9/17/2009 2009

Software & Services - Dublin, OH — 2,400 17,044 — 19,444 ( 7,311 ) 3/31/2011 1992

December 31, 2022

Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Food, Beverage & Tobacco - St.

Charles, MO $ — $ 3,675 $ 13,828 $ — $ 17,503 $ ( 6,212 ) 4/1/2011 1993

Telecommunication Services - Augusta, GA — — 11,128 — 11,128 ( 4,736 ) 4/1/2011 2007

Telecommunication Services - Brownsville, TX — 1,740 11,571 — 13,311 ( 5,198 ) 4/1/2011 2007

Telecommunication Services - Augusta, GA — — 11,128 — 11,128 ( 4,999 ) 4/1/2011 2007

Telecommunication Services - Salem, OR — 1,722 10,074 — 11,796 ( 4,300 ) 6/22/2011 2000

Insurance - Cedar Falls, IA — 634 6,331 — 6,965 ( 2,358 ) 8/28/2012 2012

Financial Institutions - Harleysville, PA — 1,486 16,591 ( 13,185 ) 4,892 — 1/22/2013 1929

Financial Institutions - Mount Pleasant, SC — 10,803 25,511 — 36,314 ( 7,259 ) 1/22/2013 2003

Health Care Equipment & Services - St.

Louis, MO 12,041 — 38,799 ( 36 ) 38,763 ( 11,022 ) 1/22/2013 2009

Transportation - Uniontown, OH — 2,238 53,114 ( 43,452 ) 11,900 ( 111 ) 1/22/2013 2003

Government & Public Services - Brownsville, TX 1,345 321 6,803 28 7,152 ( 1,993 ) 1/22/2013 2008

Government & Public Services - Caldwell, ID — 666 2,929 ( 867 ) 2,728 — 1/22/2013 2011

Government & Public Services - Dallas, TX — 399 9,748 ( 4 ) 10,143 ( 2,513 ) 1/22/2013 2011

Government & Public Services - Eagle Pass, TX — 146 2,086 ( 67 ) 2,165 ( 576 ) 1/22/2013 2002

Government & Public Services - Eagle Pass, TX — 68 812 ( 52 ) 827 ( 213 ) 1/22/2013 2002

Government & Public Services - Knoxville, TN — 761 9,042 130 9,932 ( 2,322 ) 1/22/2013 2011

Government & Public Services - Malone, NY — 824 9,486 — 10,309 ( 2,511 ) 1/22/2013 2011

Government & Public Services - Minneapolis, MN — 1,046 8,588 — 9,634 ( 2,198 ) 1/22/2013 2005

Government & Public Services - New Port Richey, FL — 780 10,111 ( 175 ) 10,716 ( 2,561 ) 1/22/2013 2000

Government & Public Services - Paris, TX — 274 5,391 ( 2 ) 5,664 ( 1,381 ) 1/22/2013 2010

Government & Public Services - Parkersburg, WV — 494 12,902 1 13,397 ( 3,672 ) 1/22/2013 2009

Government & Public Services - Paris, TX 2,292 274 5,392 246 5,912 ( 1,540 ) 1/22/2013 2010

Government & Public Services - Eagle Pass, TX — 146 2,086 ( 8 ) 2,224 ( 639 ) 1/22/2013 2002

Government & Public Services - Dallas, TX — 399 9,748 ( 4 ) 10,143 ( 2,813 ) 1/22/2013 2011

Government & Public Services - Redding, CA — 676 20,553 ( 173 ) 21,056 ( 5,874 ) 1/22/2013 2003

Government & Public Services - Minneapolis, MN — 1,046 8,588 — 9,634 ( 2,443 ) 1/22/2013 2005

Government & Public Services - Malone, NY 5,134 824 9,485 40 10,349 ( 2,794 ) 1/22/2013 2011

Government & Public Services - Sioux City, IA — 77 4,761 ( 5 ) 4,833 ( 1,380 ) 1/22/2013 2011

Government & Public Services - Knoxville, TN — 761 9,041 154 9,956 ( 2,611 ) 1/22/2013 2011

Government & Public Services - New Port Richey, FL — 780 10,111 ( 5,991 ) 4,900 — 1/22/2013 2000

Health Care Equipment & Services - Bedford, TX 34,167 1,608 56,219 — 57,827 ( 15,996 ) 1/22/2013 2010

Transportation - Uniontown, OH — 2,238 53,114 — 55,352 ( 13,581 ) 1/22/2013 2003

Health Care Equipment & Services - St.

Louis, MO — — 38,799 ( 36 ) 38,763 ( 9,906 ) 1/22/2013 2009

Vacant - Sierra Vista, AZ — 369 9,338 ( 5,892 ) 3,815 — 1/22/2013 2001

Vacant - Tucson, AZ — 3,800 6,554 ( 42 ) 10,312 ( 271 ) 1/22/2013 1999

Government & Public Services - Eagle Pass, TX — 68 811 ( 52 ) 827 ( 236 ) 1/22/2013 2002

Transportation - Memphis, TN 17,114 3,570 16,601 276 20,447 ( 4,798 ) 2/27/2013 1999

7 unchanged sentences

Capital Goods - Cedar Rapids, IA 7,000 1,000 12,981 — 13,981 ( 3,415 ) 10/10/2013 2013

Consumer Durables & Apparel - Providence, RI — 2,550 21,779 — 24,329 ( 5,579 ) 1/31/2014 1985

Materials - East Windsor, NJ 10,391 240 13,446 ( 6 ) 13,680 ( 3,340 ) 4/30/2014 2008

Media & Entertainment - East Syracuse, NY 11,002 880 15,817 — 16,697 ( 3,935 ) 4/30/2014 2000

Government & Public Services - Cocoa, FL — 450 949 62 1,461 ( 35 ) 11/1/2021 2009

Vacant - Berkeley, MO — — 9,163 4,752 13,915 ( 375 ) 11/1/2021 2011

ORION OFFICE REIT INC.

6 unchanged sentences

Property Encumbrances at

December 31, 2021 Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Consumer Durables & Apparel - Providence, RI $ — $ 2,550 $ 21,779 $ — $ 24,329 $ ( 4,954 ) 1/31/2014 1985

Vacant - Buffalo Grove, IL — 3,130 17,353 ( 15,483 ) 5,000 — 4/1/2014 1989

Materials - East Windsor, NJ — 240 13,446 ( 6 ) 13,680 ( 2,948 ) 4/30/2014 2008

Media & Entertainment - East Syracuse, NY — 880 15,817 — 16,697 ( 3,483 ) 4/30/2014 2000

Commercial & Professional Services - Schaumburg, IL — 3,313 6,532 — 9,845 ( 36 ) 11/1/2021 1986

Capital Goods - Blair, NE — 558 1,210 — 1,768 ( 8 ) 11/1/2021 2009

Consumer Durables & Apparel - Englewood, CO — 3,354 14,714 — 18,068 ( 76 ) 11/1/2021 2009

Financial Institutions - Hopewell, NJ — 19,325 57,846 — 77,171 ( 282 ) 11/1/2021 2001

Financial Institutions - Warwick, RI — 1,358 3,983 — 5,340 ( 20 ) 11/1/2021 1995

Government & Public Services - Cocoa, FL — 450 949 — 1,399 ( 5 ) 11/1/2021 2009

Government & Public Services - Fort Worth, TX — 572 3,985 — 4,557 ( 20 ) 11/1/2021 2010

December 31, 2022

Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Government & Public Services - Grangeville, ID $ — $ 1,385 $ 3,436 $ 22 $ 4,843 $ ( 165 ) 11/1/2021 2007

Government & Public Services - Fort Worth, TX — 572 3,985 — 4,557 ( 139 ) 11/1/2021 2010

Government & Public Services - Plattsburgh, NY — 1,136 2,486 — 3,622 ( 99 ) 11/1/2021 2008

Government & Public Services - Ponce, PR — 457 2,832 — 3,288 ( 15 ) 11/1/2021 1995

Health Care Equipment & Services - Indianapolis, IN — 1,430 4,386 — 5,816 ( 23 ) 11/1/2021 1993

Health Care Equipment & Services - Irving, TX — 9,267 19,852 — 29,120 ( 98 ) 11/1/2021 1997

Financial Institutions - Warwick, RI — 1,358 3,982 — 5,340 ( 142 ) 11/1/2021 1995

Energy - Longmont, CO — 2,106 12,543 — 14,649 ( 435 ) 11/1/2021 1993

Health Care Equipment & Services - Waukegan, IL — 636 4,136 204 4,976 ( 140 ) 11/1/2021 1980

Telecommunication Services - Nashville, TN — 2,588 9,587 86 12,261 ( 48 ) 11/1/2021 2002

Telecommunication Services - Richardson, TX — 1,187 21,037 — 22,224 ( 100 ) 11/1/2021 1986

Insurance - Buffalo, NY — 4,710 36,740 — 41,450 ( 179 ) 11/1/2021 2007

Health Care Equipment & Services - Fresno, CA — 4,454 17,292 — 21,746 ( 599 ) 11/1/2021 1984

Insurance - Oklahoma City, OK — 3,393 22,998 — 26,391 ( 117 ) 11/1/2021 2009

Health Care Equipment & Services - Phoenix, AZ — 4,786 21,346 — 26,132 ( 110 ) 11/1/2021 2012

Health Care Equipment & Services - Plano, TX — 9,834 35,893 — 45,727 ( 178 ) 11/1/2021 2009

Insurance - Urbana, MD — 4,028 19,888 — 23,916 ( 101 ) 11/1/2021 2011

Software & Services - Amherst, NY — 3,561 3,186 — 6,747 ( 24 ) 11/1/2021 1986

Telecommunication Services - Richardson, TX — 1,187 21,037 28 22,252 ( 702 ) 11/1/2021 1986

Health Care Equipment & Services - San Antonio, TX — 2,125 15,425 367 17,917 ( 543 ) 11/1/2021 2008

Energy - Tulsa, OK — 6,865 34,716 — 41,581 ( 1,158 ) 11/1/2021 1995

Vacant - Englewood, CO — 2,291 2,989 323 5,603 ( 132 ) 11/1/2021 2011

Consumer Durables & Apparel - Denver, CO — 5,707 36,047 1,068 42,822 ( 1,247 ) 11/1/2021 2001

Vacant - Richardson, TX — 2,047 12,733 7 14,787 ( 478 ) 11/1/2021 2008

Commercial & Professional Services - Lawrence, KS — 3,576 2,996 — 6,572 ( 132 ) 11/1/2021 1997

Commercial & Professional Services - Lawrence, KS — 3,334 3,449 — 6,783 ( 149 ) 11/1/2021 2003

Materials - The Woodlands, TX — 5,772 14,236 2,234 22,242 ( 562 ) 11/1/2021 2009

Consumer Durables & Apparel - Englewood, CO 20,537 3,354 14,714 463 18,531 ( 545 ) 11/1/2021 2009

Vacant - Malvern, PA — 3,853 25,296 — 29,149 ( 895 ) 11/1/2021 1999

Media & Entertainment - Milwaukee, WI — 2,727 18,083 — 20,810 ( 607 ) 11/1/2021 2001

Telecommunication Services - Nashville, TN 9,291 2,588 9,587 337 12,512 ( 358 ) 11/1/2021 2002

Commercial & Professional Services - The Woodlands, TX — 2,550 17,481 715 20,746 ( 620 ) 11/1/2021 2014

Retailing - Santee, CA — — 9,859 337 10,196 ( 353 ) 11/1/2021 2003

Capital Goods - Annandale, NJ — 847 3,657 — 4,503 ( 20 ) 11/1/2021 1999

Capital Goods - Duluth, GA — 3,684 14,786 — 18,470 ( 75 ) 11/1/2021 1999

Materials - Glen Burnie, MD — 3,095 11,466 611 15,172 ( 395 ) 11/1/2021 1984

Energy - Longmont, CO — 2,106 12,543 — 14,649 ( 62 ) 11/1/2021 1993

Pharmaceuticals, Biotechnology & Life Sciences - Malvern, PA — 3,853 25,296 — 29,149 ( 128 ) 11/1/2021 1999

Health Care Equipment & Services - Irving, TX — 9,267 19,853 — 29,120 ( 683 ) 11/1/2021 1997

Capital Goods - Tulsa, OK — 1,904 1,238 — 3,142 ( 52 ) 11/1/2021 1982

Government & Public Services - Covington, KY — 4,087 56,991 466 61,544 ( 1,917 ) 11/1/2021 2002

Software & Services - Amherst, NY — 3,561 3,186 — 6,747 ( 165 ) 11/1/2021 1986

Commercial & Professional Services - Dublin, OH — 1,287 4,688 — 5,975 ( 169 ) 11/1/2021 1997

Capital Goods - Sterling, VA 29,094 10,515 25,393 — 35,908 ( 901 ) 11/1/2021 2011

Capital Goods - Malvern, PA 11,552 2,607 10,844 — 13,451 ( 414 ) 11/1/2021 2014

Pharmaceuticals, Biotechnology & Life Sciences - Parsippany, NJ — 9,537 9,174 — 18,711 ( 55 ) 11/1/2021 2009

Health Care Equipment & Services - San Antonio, TX — 2,125 15,424 — 17,550 ( 77 ) 11/1/2021 2008

Health Care Equipment & Services - Indianapolis, IN — 1,430 4,386 80 5,896 ( 163 ) 11/1/2021 1993

Health Care Equipment & Services - Plano, TX — 9,834 35,893 45 45,772 ( 1,249 ) 11/1/2021 2009

Capital Goods - Blair, NE — 558 1,210 — 1,768 ( 54 ) 11/1/2021 2009

Commercial & Professional Services - Schaumburg, IL — 3,313 6,532 — 9,845 ( 251 ) 11/1/2021 1986

Insurance - Oklahoma City, OK — 3,393 22,998 — 26,391 ( 817 ) 11/1/2021 2009

Software & Services - Lincoln, NE — — 6,587 — 6,587 ( 267 ) 11/1/2021 2009

ORION OFFICE REIT INC.

6 unchanged sentences

Property Encumbrances at

December 31, 2021 Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Software & Services - Bedford, MA — 22,381 26,029 4 48,414 ( 145 ) 11/1/2021 2001

Commercial & Professional Services - Dublin, OH — 1,287 4,688 — 5,975 ( 24 ) 11/1/2021 1997

Commercial & Professional Services - Lawrence, KS $ — $ 3,576 $ 2,996 $ — $ 6,572 $ ( 19 ) 11/1/2021 1997

Commercial & Professional Services - Lawrence, KS — 3,334 3,450 — 6,783 ( 21 ) 11/1/2021 2003

Software & Services - Lincoln, NE — — 6,587 — 6,587 ( 38 ) 11/1/2021 2009

Media & Entertainment - Milwaukee, WI — 2,727 18,083 — 20,810 ( 87 ) 11/1/2021 2001

December 31, 2022

Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Insurance - Buffalo, NY $ — $ 4,710 $ 36,740 $ — $ 41,450 $ ( 1,253 ) 11/1/2021 2007

Insurance - Urbana, MD 23,165 4,028 19,888 — 23,916 ( 709 ) 11/1/2021 2011

Health Care Equipment & Services - Nashville, TN — 1,165 11,749 — 12,914 ( 415 ) 11/1/2021 2010

Capital Goods - Sterling, VA — 10,515 25,393 — 35,908 ( 129 ) 11/1/2021 2011

Capital Goods - Tulsa, OK — 1,904 1,238 — 3,142 ( 7 ) 11/1/2021 1982

Consumer Services - Tulsa, OK — 6,865 34,716 — 41,581 ( 165 ) 11/1/2021 1995

Health Care Equipment & Services - Berkeley, MO — — 9,163 — 9,163 ( 54 ) 11/1/2021 2011

Retailing - Kennesaw, GA 11,430 — 11,141 — 11,141 ( 431 ) 11/1/2021 2012

Health Care Equipment & Services - Northbrook, IL — 3,529 10,909 — 14,439 ( 56 ) 11/1/2021 1980

Retailing - The Woodlands, TX — 2,550 17,481 — 20,031 ( 87 ) 11/1/2021 2014

General Service Administration - Covington, KY — 4,087 56,990 3 61,081 ( 272 ) 11/1/2021 2002

Consumer Durables & Apparel - Denver, CO — 5,707 36,047 602 42,356 ( 177 ) 11/1/2021 2001

Vacant - Englewood, CO — 2,291 2,989 16 5,296 ( 18 ) 11/1/2021 2011

Vacant - Richardson, TX — 2,047 12,733 — 14,780 ( 68 ) 11/1/2021 2008

Vacant - Ridley Park, PA — — 143 — 143 ( 2 ) 11/1/2021 1976

Vacant - Schaumburg, IL — 1,573 787 — 2,360 ( 5 ) 11/1/2021 1989

Materials - The Woodlands, TX — 5,776 14,234 225 20,233 ( 79 ) 11/1/2021 2009

Capital Goods - Duluth, GA 14,669 3,684 14,786 — 18,470 ( 525 ) 11/1/2021 1999

Pharmaceuticals, Biotechnology & Life Sciences - Parsippany, NJ — 9,537 9,174 — 18,711 ( 387 ) 11/1/2021 2009

Software & Services - Bedford, MA — 22,381 26,029 4 48,414 ( 1,017 ) 11/1/2021 2001

Financial Institutions - Hopewell, NJ 92,663 19,325 57,846 524 77,695 ( 1,977 ) 11/1/2021 2001

Health Care Equipment & Services - Phoenix, AZ 26,099 4,786 21,346 844 26,976 ( 775 ) 11/1/2021 2012

$ 355,000 $ 246,525 $ 1,206,632 $ ( 86,532 ) $ 1,366,625 $ ( 133,379 )

16 unchanged sentences

Impairments ( 87,834 ) ( 77,636 ) ( 25,760 )

Reclassified to real estate assets held or sale, net ( 21,941 ) — —

Other — ( 982 ) —

8 unchanged sentences

Impairments ( 21,757 ) ( 27,947 ) ( 7,089 )

Reclassified to real estate assets held for sale, net ( 8,659 ) — —

Other — ( 235 ) —

1 unchanged sentence

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Orion Office REIT Inc.

To the stockholders and the Board of Directors of Orion Office REIT Inc.

Opinion on the Financial Statements

We have audited the accompanying combined and consolidated balance sheets of VEREIT Office Assets (the "Company"), as described in Note 1 to the combined and consolidated financial statements, as of October 31, 2021 and December 31, 2020, the related combined and consolidated statements of operations, equity and cash flows, for the ten months ended October 31, 2021 and each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for the ten months ended October 31, 2021 and each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying combined and consolidated balance sheet of VEREIT Office Assets (the "Company"), as described in Note 1 to the combined and consolidated financial statements, as of October 31, 2021, the related combined and consolidated statements of operations, equity and cash flows, for the ten months ended October 31, 2021 and the year ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021, and the results of its operations and its cash flows for the ten months ended October 31, 2021 and the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

13 unchanged sentences

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

Tempe, Arizona

March 24, 2022

1 unchanged sentence

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED BALANCE SHEETS

COMBINED AND CONSOLIDATED BALANCE SHEET

(In thousands)

October 31, 2021 December 31, 2020

October 31, 2021

Real estate investments, at cost:

7 unchanged sentences

Investment in unconsolidated joint venture 14,466

Cash and cash equivalents — 400

Restricted cash 8

3 unchanged sentences

LIABILITIES AND EQUITY

Mortgage notes payable, net $ — $ 217,588

Below-market lease liabilities, net $ 5,308

35 unchanged sentences

Net income attributable to VEREIT Office Assets $ 5,753 $ 43,593

The accompanying notes are an integral part of this statement.

The accompanying notes are an integral part of these statements.

VEREIT OFFICE ASSETS

5 unchanged sentences

Balance, December 31, 2020 1,161,434

Distributions, net ( 192,228 )

Net income 43,533

Balance, December 31, 2020 1,161,434

Contributions, net 145,169

1 unchanged sentence

Balance, October 31, 2021 $ 1,312,294

The accompanying notes are an integral part of this statement.

The accompanying notes are an integral part of these statements.

VEREIT OFFICE ASSETS

9 unchanged sentences

Gain on disposition of real estate assets, net — ( 9,765 )

Loss on derivative instruments and other — — 59

Loss on extinguishment of debt, net 5,294 1,686

6 unchanged sentences

Net cash provided by operating activities 83,730 108,519

83,730 108,519 112,553

Cash flows from investing activities:

7 unchanged sentences

Net cash (used in) provided by investing activities ( 9,241 ) 111,433

( 9,241 ) 111,433 ( 17,072 )

Cash flows from financing activities:

1 unchanged sentence

Payments on mortgage notes payable ( 223,064 ) ( 28,233 )

Payments of deferred financing costs — — ( 96 )

Contributions from non-controlling interest holders — — 63

Net contributions from (distributions to) parent 145,169 ( 192,228 )

Net cash used in financing activities ( 77,895 ) ( 219,429 )

( 77,895 ) ( 219,429 ) ( 94,451 )

Net change in cash and cash equivalents and restricted cash ( 3,406 ) 523

2 unchanged sentences

Reconciliation of Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalent at the beginning of the period $ 400 $ 190 ( 530 )

Cash and cash equivalents at the beginning of period $ 400 $ 190

Restricted cash at the beginning of the period 3,014 2,701

Cash and cash equivalents and restricted cash at the beginning of the period $ 3,414 $ 2,891

Cash and cash equivalent at the end of the period $ — $ 400 $ 190

Cash and cash equivalents at the end of the period $ — $ 400

Restricted cash at the end of the period 8 3,014

5 unchanged sentences

Accrued capital expenditures and real estate developments $ ( 2,033 ) $ ( 288 )

Establishment of right-of-use assets and lease liabilities — — 5,520

The accompanying notes are an integral part of this statement.

The accompanying notes are an integral part of these statements.

VEREIT OFFICE ASSETS

7 unchanged sentences

Upon the Merger Effective Time, as part of the Mergers, Realty Income acquired certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”).

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

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

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

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

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

As of October 31, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, including one property owned by a consolidated joint venture, totaling approximately 7.6 million leasable square feet located in 25 states in the United States and Puerto Rico, and an investment in one unconsolidated joint venture that owns five office properties totaling approximately 0.8 million leasable square feet located within five states.

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

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

As of October 31, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, which included one property owned by a consolidated joint venture, totaling approximately 7.6 million leasable square feet located in 25 states in the United States and Puerto Rico, and an investment in one unconsolidated joint venture that owned five office properties totaling approximately 0.8 million leasable square feet located within five states.

As of October 31, 2021, VEREIT Office Assets had not conducted any business as a separate legal entity and had no other material assets or liabilities.

1 unchanged sentence

Principles of Combination and Basis of Accounting and Presentation

The accompanying combined and consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of VEREIT Office Assets on a combined and consolidated basis as the ownership interests were under common control and ownership of VEREIT, including a consolidated joint venture.

The accompanying combined and consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S.

GAAP”) and include the accounts of VEREIT Office Assets on a combined and consolidated basis as the ownership interests were under common control and ownership of VEREIT, including a consolidated joint venture.

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

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

The results of operations for the ten months ended October 31, 2021 are not necessarily indicative of the results for the entire year.

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

A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns.

VEREIT Office Assets’ evaluation includes consideration of fees paid to VEREIT Office Assets where VEREIT’s management, on behalf of VEREIT Office Assets, acts as a decision maker or service provider to the entity being evaluated.

If VEREIT Office Assets determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”).

For legal entities being evaluated for consolidation, VEREIT Office Assets must have first determined whether the interests that it held and fees it received qualified as variable interests in the entity.

A variable interest is an investment or other interest that would absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns.

VEREIT Office Assets’ evaluation included consideration of fees paid to VEREIT Office Assets where VEREIT’s management, on behalf of VEREIT Office Assets, acted as a decision maker or service provider to the entity being evaluated.

If VEREIT Office Assets determined that it held a variable interest in an entity, it evaluated whether that entity is a variable interest entity (“VIE”).

VEREIT Office Assets consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.

VEREIT Office Assets consolidated entities that are not VIEs if it had a majority voting interest or other rights that resulted in effectively controlling the entity.

VEREIT Office Assets then qualitatively assessed whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE.

Consideration of various factors included, but were not limited to, VEREIT Office Assets’ ability to direct the activities that most significantly impacted the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

VEREIT Office Assets then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE.

Consideration of various factors include, but are not limited to, VEREIT Office Assets’ ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE.

VEREIT Office Assets consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to VEREIT Office Assets’ combined and consolidated financial statements.

VEREIT Office Assets continually evaluates the need to consolidate these VIEs based on standards set forth in GAAP.

October 31, 2021

VEREIT Office Assets consolidated any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to VEREIT Office Assets’ combined and consolidated financial statements.

VEREIT Office Assets continually evaluated the need to consolidate these VIEs based on standards set forth in U.S.

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

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

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

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

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

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

Use of Estimates

The preparation of financial statements in conformity with U.S.

Actual results could differ from those estimates.

Real Estate Investments

Real estate and related assets acquired are recorded at cost and accumulated depreciation and amortization are assessed based on the period of future benefit of the asset.

Depreciation and amortization are computed using a straight-line method over the estimated useful life of 40 years for buildings and building improvements, 15 years for land improvements and the remaining lease term for tenant improvements and intangible lease assets.

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

Real estate and related assets acquired were recorded at cost and accumulated depreciation and amortization were assessed based on the period of future benefit of the asset.

Depreciation and amortization were computed using a straight-line method over the estimated useful life of 40 years for buildings and building improvements, 15 years for land improvements and the remaining lease term for tenant improvements and intangible lease assets.

VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could have indicated the carrying value of its real estate assets may not be recoverable.

Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates.

When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition.

When impairment indicators were identified or if a property was considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets would be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition.

GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability.

In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets have been adjusted to their respective fair values and an impairment loss has been recognized.

There are inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants.

In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets were adjusted to their respective fair values and an impairment loss was recognized.

There were inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants.

Investment in Unconsolidated Joint Venture

As of October 31, 2021 and December 31, 2020, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned five and four properties, respectively, with total real estate investments, at cost, of $ 196.2 million and $ 169.3 million, respectively, and total debt outstanding of $ 118.4 million and $ 102.6 million, respectively, which was non-recourse to VEREIT Office Assets.

As of October 31, 2021, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned five properties with total real estate investments, at cost, of $ 196.2 million and total debt outstanding of $ 118.4 million, which was non-recourse to VEREIT Office Assets.

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

The equity method of accounting required the investment to be initially recorded at cost and subsequently adjusted for VEREIT Office Assets’ share of equity in the joint venture’s earnings and distributions.

VEREIT Office Assets recorded its proportionate share of net income (loss) from the Arch Street Joint Venture in equity in income of unconsolidated joint venture in the combined and consolidated statements of operations.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

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

The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for VEREIT Office Assets’ share of equity in the joint venture’s earnings and distributions.

VEREIT Office Assets recorded its proportionate share of net income (loss) from the unconsolidated joint venture in equity in income of unconsolidated joint venture in the combined and consolidated statements of operations.

VEREIT Office Assets was required to determine whether an event or change in circumstances had occurred that may have had a significant adverse effect on the fair value of its investment in the unconsolidated joint venture.

If an event or change in circumstance had occurred, VEREIT Office Assets’ management was required to evaluate its investment in the unconsolidated joint venture for potential impairment and determine if the carrying value of its investment exceeded its fair value.

An impairment charge is recorded when an impairment is deemed to be other-than-temporary.

To determine whether an impairment is other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value is fully recovered.

October 31, 2021

If an event or change in circumstance had occurred, VEREIT Office Assets’ management was required to evaluate its investment in the Arch Street Joint Venture for potential impairment and determine if the carrying value of its investment exceeded its fair value.

An impairment charge was recorded when an impairment was deemed to be other-than-temporary.

To determine whether an impairment was other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value was fully recovered.

The evaluation of an investment in an unconsolidated joint venture for potential impairment required VEREIT Office Assets’ management to exercise significant judgment and to make certain assumptions.

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

No impairments were identified during the ten months ended October 31, 2021 and the year ended December 31, 2020.

The use of different judgments and assumptions could have resulted in different conclusions.

No impairments of the investment in the Arch Street Joint Venture were identified during the ten months ended October 31, 2021 or year ended December 31, 2020.

Goodwill Impairment

VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable.

To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including, but not limited to macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations;

To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations;

entity-specific events such as increasing costs, declining financial performance, or loss of key personnel;

or other events such as an expectation that a reporting unit will be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers.

If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e.

greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.

Otherwise, no quantitative testing is required.

If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount, the provisions of guidance require that the fair value be compared to the carrying value.

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

No impairments of VEREIT’s goodwill were recorded during the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019.

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

or other events such as an expectation that a reporting unit would be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers.

If VEREIT believed, as a result of its qualitative assessment, that it was more-likely-than-not (i.e., greater than 50% chance) that the fair value of a reporting unit was less than its carrying value, the quantitative impairment test was required.

Otherwise, no quantitative testing was required.

If VEREIT determined, as a result of the qualitative assessment, that it was more-likely-than-not that the fair value was less than the carrying value, the provisions of guidance required that the fair value be compared to the carrying value.

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

No impairments of VEREIT’s goodwill were recorded during the ten months ended October 31, 2021 or year ended December 31, 2020.

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

Cash and Cash Equivalents

VEREIT Office Assets considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents.

VEREIT Office Assets considers investments in highly liquid money market accounts to be cash equivalents.

VEREIT Office Assets considered all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents.

VEREIT Office Assets considered investments in highly liquid money market accounts to be cash equivalents.

Restricted Cash

As of October 31, 2021 and December 31, 2020, restricted cash included $ 8,000 and $ 3.0 million, respectively, in lender reserves.

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

As of October 31, 2021, restricted cash included $ 8,000 in lender reserves.

Rent and Tenant Receivables and Other Assets, Net

Rent and tenant receivables and other assets, net primarily includes amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries due from tenants.

Prepaid expenses as of the balance sheet date relate to future periods and will be expensed or reclassified to another account during the period to which the costs relate.

Any amounts with no future economic benefit are charged to earnings when identified.

Rent and tenant receivables and other assets, net primarily included amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries due from tenants.

Prepaid expenses as of the balance sheet date related to future periods and will be expensed or reclassified to another account during the period to which the costs related.

Any amounts with no future economic benefit were charged to earnings when identified.

Deferred Financing Costs

Deferred financing costs represented commitment fees, legal fees and other costs associated with obtaining commitments for financing.

Deferred financing costs were presented on the combined and consolidated balance sheet as a direct deduction from the carrying value of the related debt liability.

These costs were amortized to interest expense over the terms of the respective financing agreements and used the straight-line method, which approximated the effective interest method.

Unamortized deferred financing costs were written off when the associated debt was refinanced or repaid before maturity.

Costs incurred in connection with potential financing transactions that were not completed were expensed in the period in which it is determined the financing would not be completed.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing.

Deferred financing costs are presented on the combined and consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability.

These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method.

Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity.

Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed.

October 31, 2021

Leases - Lessor

At the inception of a new lease arrangement, including new leases that arise from amendments, the terms and conditions are assessed to determine the proper lease classification.

When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease.

When a lease does not effectively transfer control of the underlying asset to the lessee, but a guarantee is obtained for the value of the asset from a third party, the lease is classified as a direct financing lease.

All other leases are classified as operating leases.

As of October 31, 2021 and December 31, 2020, no leases were classified as sales-type or direct financing leases.

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

Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

At the inception of a new lease arrangement, including new leases that arise from amendments, the terms and conditions were assessed to determine the proper lease classification.

When the terms of a lease effectively transferred control of the underlying asset, the lease was classified as a sales-type lease.

When a lease did not effectively transfer control of the underlying asset to the lessee, but a guarantee was obtained for the value of the asset from a third party, the lease was classified as a direct financing lease.

All other leases were classified as operating leases.

As of October 31, 2021, VEREIT Office Assets did not classify any leases as sales-type or direct financing leases.

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

Variable lease payments were recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments were based occur.

VEREIT Office Assets adopted Accounting Standards Codification Topic 842, Leases effective as of January 1, 2019.

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(i) land lease component and (ii) single property lease component comprised of building, land improvements and tenant improvements.

The leases also contain provisions for tenants to reimburse VEREIT Office Assets for real estate taxes and insurance, which are considered noncomponents of the lease, and maintenance and other property operating expenses, which are considered to be non-lease components.

VEREIT Office Assets elected the practical expedient to combine lease and non-lease components and the non-lease components will be included with the single property lease component as the predominant component.

VEREIT Office Assets continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection.

For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term.

For leases that are deemed not probable of collection, revenue is recorded as cash is received.

All changes in the collectability assessment for an operating lease are recognized as an adjustment to rental income.

The leases also contained provisions for tenants to reimburse VEREIT Office Assets for real estate taxes and insurance, which are considered noncomponents of the lease, and maintenance and other property operating expenses, which were considered to be non-lease components.

VEREIT Office Assets elected the practical expedient to combine lease and non-lease components and the non-lease components were included with the single property lease component as the predominant component.

VEREIT Office Assets continually reviewed receivables related to rent, straight-line rent and property operating expense reimbursements and determined collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property was located.

The review included a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement were probable of collection.

For leases that were deemed probable of collection, revenue continued to be recorded on a straight-line basis over the lease term.

For leases that were deemed not probable of collection, revenue was recorded as cash was received.

All changes in the collectability assessment for an operating lease were recognized as an adjustment to rental income.

During the year ended December 31, 2020, there was a global outbreak of a new strain of coronavirus, COVID-19.

The global and domestic response to the COVID-19 outbreak continues to evolve.

Federal, state, and local authorities have responded in a variety of ways, including temporary closure of or imposed limitations on the operations of certain non-essential businesses.

Since the COVID-19 outbreak began, each of VEREIT Office Assets’ tenants has almost entirely continued to meet its payment obligations under its respective lease.

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

The global and domestic response to the COVID-19 outbreak continued to evolve during the ten months ended October 31, 2021 and year ended December 31, 2020.

Federal, state, and local authorities responded in a variety of ways, including temporary closure of or imposed limitations on the operations of certain non-essential businesses.

Since the COVID-19 outbreak began, each of VEREIT Office Assets’ tenants almost entirely continued to meet its payment obligations under its respective lease.

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

Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the ten months ended October 31, 2021 and year ended December 31, 2020, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.

Leases - Lessee

To account for leases for which VEREIT Office Assets is the lessee, contracts must have been analyzed upon inception to determine if the arrangement was, or contained, a lease.

A lease conveyed the right to control the use of an identified asset for a period of time in exchange for consideration.

Lease classification tests and measurement procedures were performed at the lease commencement date.

The lease liability was initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate was readily determinable;

otherwise, the lessee’s incremental borrowing rate was used.

The incremental borrowing rate was determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.

The lease term was the noncancelable period of the lease and included any renewal and termination options VEREIT Office Assets was reasonably certain to exercise.

The lease liability balance was amortized using the effective interest method.

The lease liability was remeasured when the contract was modified, upon the resolution of a contingency such that variable payments became fixed or if the assessment of exercising an extension, termination or purchase option changed.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

Leases - Lessee

To account for leases for which VEREIT Office Assets is the lessee, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease.

A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Lease classification tests and measurement procedures are performed at the lease commencement date.

otherwise, the lessee’s incremental borrowing rate is used.

The incremental borrowing rate is determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.

The lease term is the noncancelable period of the lease and includes any renewal and termination options VEREIT Office Assets is reasonably certain to exercise.

The lease liability balance is amortized using the effective interest method.

October 31, 2021

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

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

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

VEREIT believed it was organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ending December 31, 2021.

As a REIT, VEREIT was generally not subject to federal income tax on taxable income that it distributed to its stockholders so long as it distributed annually at least 90% of its REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains).

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

During each of the ten months ended October 31, 2021 and years ended December 31, 2020 and 2019, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $ 0.5 million and $ 0.6 million, respectively.

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

VEREIT Office Assets had no unrecognized tax benefits as of or during the ten months ended October 31, 2021 and years ended December 31, 2020 and 2019.

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

VEREIT believed it was organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ended December 31, 2021.

As a REIT, VEREIT was generally not subject to federal income tax on taxable income that it distributed to its stockholders so long as it had distributed annually at least 90% of its REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains).

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

During the ten months ended October 31, 2021 and year ended December 31, 2020, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $ 0.5 million and $ 0.6 million, respectively.

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

VEREIT Office Assets had no unrecognized tax benefits as of or during the ten months ended October 31, 2021 and year ended December 31, 2020.

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

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

Recent Accounting Pronouncements

In July 2021, the FASB issued ASU 2021-05 establishing Topic 842, Lessors - Certain Leases with Variable Lease Payments.

ASU 2021-05 further clarifies ASC 842 classification guidance as it relates to a lessor’s accounting for certain leases with variable lease payments.

This guidance is effective for reporting periods beginning after December 15, 2021, with early adoption permitted.

We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated and combined statements.

In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform.

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance is optional and is effective between March 12, 2020 and December 31, 2022.

The guidance may be elected over time as reference rate reform activities occur.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

Note 2 – Real Estate Investments and Related Intangibles

Property Dispositions

During the year ended December 31, 2020, VEREIT Office Assets disposed of three properties, selling them to the unconsolidated joint venture for an aggregate net sales price of $ 135.5 million.

The dispositions resulted in proceeds of $ 116.4 million after closing costs and VEREIT Office Assets recorded a net gain of $ 9.8 million related to the dispositions, which is included in gain on disposition of real estate assets, net in the accompanying combined and consolidated statements of operations.

Intangible Lease Assets

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

Weighted-Average Useful Life (Years) October 31, 2021 December 31, 2020

During the year ended December 31, 2020, VEREIT Office Assets disposed of three properties, selling them to the Arch Street Joint Venture for an aggregate net sales price of $ 135.5 million.

The dispositions resulted in proceeds of $ 116.4 million after closing costs and VEREIT Office Assets recorded a net gain of $ 9.8 million related to the dispositions, which was included in gain on disposition of real estate assets, net in the accompanying combined and consolidated statements of operations.

Intangible Lease Assets and Liabilities

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

Weighted-Average Useful Life (Years) October 31, 2021

Intangible lease assets:

In-place leases, net of accumulated amortization of $ 119,604 and $ 118,093 , respectively

10.1 $ 29,091 $ 40,622

Leasing commissions, net of accumulated amortization of $ 5,679 and $ 4,211 , respectively

9.1 8,744 7,974

Above-market lease assets and deferred lease incentives, net of accumulated amortization of $ 14,793 and $ 12,974 , respectively

In-place leases, net of accumulated amortization of $ 119,604

10.1 $ 29,091

Leasing commissions, net of accumulated amortization of $ 5,679

Above-market lease assets and deferred lease incentives, net of accumulated amortization of $ 14,793

Total intangible lease assets, net $ 44,484

Intangible lease liabilities:

Below-market leases, net of accumulated amortization of $ 18,504 and $ 17,553 , respectively

10.3 $ 5,308 $ 7,188

Below-market leases, net of accumulated amortization of $ 18,504

The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $ 29,000 for the ten months ended October 31, 2021 and $ 67,000 for the year ended December 31, 2020.

The aggregate amount included as a net increase to rental revenue was $ 231,000 for the year ended December 31, 2019.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 13.0 million for the ten months ended October 31, 2021, and $ 17.8 million and $ 19.2 million for the years ended December 31, 2020 and 2019, respectively.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 13.0 million for the ten months ended October 31, 2021 and $ 17.8 million for the year ended December 31, 2020.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

Remainder of 2021 2022 2023 2024 2025

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Total projected to be included in rental revenue $ 345 $ 2,003 $ 1,878 $ 854 $ 208

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

Consolidated Joint Venture

VEREIT Office Assets had an interest in one consolidated joint venture that owned one property as of October 31, 2021 and December 31, 2020.

As of October 31, 2021 and December 31, 2020, the consolidated joint venture had total assets of $ 30.7 million and $ 33.0 million, respectively, of which $ 27.7 million and $ 29.1 million, respectively, were real estate investments, net of accumulated depreciation and amortization at each of the respective dates.

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

As of October 31, 2021, the consolidated joint venture had total assets of $ 30.7 million, of which $ 27.7 million were real estate investments, net of accumulated depreciation and amortization.

The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a net balance of $ 14.8 million as of December 31, 2020.

During the ten months ended October 31, 2021, VEREIT, on behalf of VEREIT Office Assets, repaid the balance in full and there were no amounts outstanding as of October 31, 2021.

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

However, in accordance with the joint venture agreement, VEREIT Office Assets had the ability to control operating and financing policies of the consolidated joint venture and the joint venture partner must obtain VEREIT Office Assets’ approval for any major transactions.

During the ten months ended October 31, 2021, VEREIT, on behalf of VEREIT Office Assets, repaid the balance of the mortgage note in full and there were no amounts outstanding as of October 31, 2021.

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

However, in accordance with the joint venture agreement, VEREIT Office Assets had the ability to control operating and financing policies of the consolidated joint venture and the joint venture partner was required to obtain VEREIT Office Assets’ approval for any major transactions.

VEREIT Office Assets and the joint venture partner were subject to the provisions of the joint venture agreement, which included provisions for when additional contributions may be required to fund certain cash shortfalls.

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

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing four properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 28.1 million during the ten months ended October 31, 2021.

During the year ended December 31, 2020, net real estate assets related to two properties were deemed to be impaired resulting in impairment charges of $ 9.3 million.

During the year ended December 31, 2019, net real estate assets related to two properties were deemed to be impaired resulting in impairment charges of $ 3.5 million.

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

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing four and two properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 28.1 million and $ 9.3 million during the ten months ended October 31, 2021 and year ended December 31, 2020, respectively.

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

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

The evaluation of real estate assets for potential impairment required VEREIT’s management to exercise significant judgment and make certain key assumptions, including, but not limited to, the following:

The evaluation of real estate assets for potential impairment required VEREIT’s management to exercise significant judgment and make certain key assumptions, which included the following:

(1) capitalization rate;

(2) discount rates;

(3) number of years property will be held;

(3) number of years the property will be held;

(4) property operating expenses;

and (5) re-leasing assumptions, including number of months to re-lease, market rental revenue and required tenant improvements.

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

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

For VEREIT’s impairment tests for the real estate assets during the ten months ended October 31, 2021, VEREIT used a weighted-average discount rate of 9.0 % and a weighted-average capitalization rate of 8.5 %.

For VEREIT’s impairment tests for the real estate assets during the year ended December 31, 2020, VEREIT used a weighted-average discount rate of 8.9 % and a weighted-average capitalization rate of 8.4 %.

For VEREIT’s impairment tests for the real estate assets during the year ended December 31, 2019, discount rates and capitalization rates were not applicable as VEREIT determined the fair value of the real estate assets of VEREIT Office Assets based on sale scenarios and the properties had leases expiring within 12 months of the impairment analysis.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

Note 3 – Mortgage Notes Payable, Net

As of October 31, 2021, VEREIT Office Assets had no mortgage notes payable as all amounts were repaid in conjunction with the Separation.

As of December 31, 2020, VEREIT Office Assets had mortgage notes payable, net of $ 217.6 million, including net premiums of less than $ 0.1 million and net deferred financing costs of $ 0.3 million, with a weighted-average interest rate of 4.64 %.

The weighted-average interest rate for fixed rate loans was computed using the interest rate in effect until the anticipated repayment date and the weighted-average interest rate for the variable rate loan was computed using the interest rate in effect as of December 31, 2020.

As of December 31, 2020, the mortgage notes were secured by 12 properties with a net carrying value of $ 368.4 million.

As of December 31, 2020, the estimated fair value of the mortgage notes payable was $ 222.5 million and was estimated by discounting the expected cash flows based on estimated borrowing rates available as of the measurement date.

VEREIT Office Assets classified the mortgage notes payable as Level 2 under the fair value hierarchy, which includes using inputs that are observable or can be corroborated with observable market data for substantially the entire contractual term.

The mortgage loan agreements required the maintenance of certain financial ratios.

Failure to maintain such ratios could have resulted in restrictions on the use of cash associated with the establishment of certain lender reserves.

At December 31, 2020, there were no cash restrictions due to failure to maintain financial ratios.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

Note 4 – Commitments and Contingencies

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

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

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

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

Environmental Matters

In connection with the ownership and operation of real estate, VEREIT Office Assets may potentially be liable for costs and damages related to environmental matters.

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

In connection with the ownership and operation of real estate, VEREIT Office Assets may have potentially been liable for costs and damages related to environmental matters.

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

Note 5 – Leases

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

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

VEREIT Office Assets’ operating leases have non-cancelable lease terms ranging from 0.17 years to 11.59 years as of October 31, 2021.

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

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

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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

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

Lease agreements may have also contained rent increases that were based on an index or rate (e.g., the consumer price index).

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

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

Ten Months Ended Year Ended December 31,

2021 2020 2019

Ten Months Ended October 31, Year Ended December 31,

Cash rent $ 109,582 $ 132,402

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26,806 35,044

26,806 35,044 36,649

Total rental revenue $ 134,740 $ 170,304

7 unchanged sentences

Total $ 397,334

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

As of October 31, 2021, VEREIT Office Assets’ lease has a remaining lease term of 35.8 years, which includes options to extend.

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

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

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

Operating lease costs for the ten months ended October 31, 2021 was $ 246,000 .

Operating lease costs for each of the years ended December 31, 2020 and 2019 was $ 328,000 .

No cash paid for operating lease liabilities was capitalized.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 - (Continued)

October 31, 2021

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

As of October 31, 2021, VEREIT Office Assets’ lease had a remaining lease term of 35.8 years, which included options to extend.

Under the ground lease arrangement, VEREIT Office Assets paid variable costs, which included property operating expenses and common area maintenance.

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

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

Operating lease costs for the ten months ended October 31, 2021 and for the year ended December 31, 2020 were $ 0.2 million and $ 0.3 million, respectively.

No cash paid for operating lease liabilities was capitalized.

The following table reflects the maturity analysis of payments due from VEREIT Office Assets over the next five years and thereafter for ground lease obligations as of October 31, 2021 (in thousands).

10 unchanged sentences

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What changed 10-K

Item 9A. Controls and Procedures