What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2022-11-02 · 264 added, 598 removed, 349 unchanged (71% of the section changed)

3 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Real estate investments, at cost:

11 unchanged sentences

LIABILITIES AND EQUITY

Bridge facility, net $ — $ 354,357

Mortgages payable, net $ 352,337 $ 352,167

Credit facility term loan, net 174,153 173,815

Credit facility revolver 31,000 90,000

Accounts payable and accrued expenses 19,957 26,161

3 unchanged sentences

Total liabilities 586,925 595,215

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

Common stock, $ 0.001 par value, 100,000,000 shares authorized 56,663,927 and 56,639,040 shares issued and outstanding as of each of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,147,466 1,147,014

7 unchanged sentences

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Rental $ 49,990 $ 53,017

11 unchanged sentences

Interest expense, net ( 7,139 ) ( 6,847 )

Gain on disposition of real estate assets 1,059 — 1,059 —

Loss on extinguishment of debt, net — ( 468 )

Other income, net 36 39

Equity in loss of unconsolidated joint venture ( 157 ) — ( 252 ) —

Equity in loss of unconsolidated joint venture, net ( 123 ) ( 41 )

Total other (expenses) income, net ( 7,226 ) ( 7,317 )

(Loss) income before taxes ( 52,865 ) ( 1,423 ) ( 77,987 ) 7,423

Loss before taxes ( 8,714 ) ( 9,716 )

Provision for income taxes ( 160 ) ( 166 )

Net (loss) income ( 53,029 ) ( 1,423 ) ( 78,481 ) 7,423

Net loss ( 8,874 ) ( 9,882 )

Net income attributable to non-controlling interest ( 11 ) ( 24 )

Net (loss) income attributable to common stockholders $ ( 53,047 ) $ ( 1,423 ) $ ( 78,524 ) $ 7,423

Net loss attributable to common stockholders $ ( 8,885 ) $ ( 9,906 )

Weighted-average shares outstanding - basic and diluted 56,642 56,626

Basic and diluted net (loss) income per share attributable to common stockholders $ ( 0.94 ) $ ( 0.03 ) $ ( 1.39 ) $ 0.13

Basic and diluted net loss per share attributable to common stockholders $ ( 0.16 ) $ ( 0.17 )

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Net (loss) income $ ( 53,029 ) $ ( 1,423 ) $ ( 78,481 ) $ 7,423

Three Months Ended March 31,

Net loss $ ( 8,874 ) $ ( 9,882 )

Total other comprehensive income (loss):

Unrealized gain on interest rate derivatives 1,885 — 7,229 —

Reclassification of previous unrealized (gain) loss on interest rate derivatives into net (loss) income ( 679 ) — ( 471 ) —

Unrealized (loss) gain on interest rate derivatives ( 72 ) 3,818

Reclassification of previous unrealized (gain) loss on interest rate derivatives into net loss ( 1,696 ) 239

Total other comprehensive income (loss) ( 1,768 ) 4,057

Total comprehensive (loss) income ( 51,823 ) ( 1,423 ) ( 71,723 ) 7,423

Total comprehensive loss ( 10,642 ) ( 5,825 )

Comprehensive income attributable to non-controlling interest ( 11 ) ( 24 )

( 18 ) — ( 43 ) —

Total comprehensive (loss) income $ ( 51,841 ) $ ( 1,423 ) $ ( 71,766 ) $ 7,423

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

Total comprehensive loss $ ( 10,653 ) $ ( 5,849 )

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

CONSOLIDATED STATEMENTS OF EQUITY

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

1 unchanged sentence

Value Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated

Deficit Total Stockholders’ Equity Non-Controlling Interests Total Equity

Deficit Total Stockholders’ Equity Non-Controlling Interest Total Equity

Balance, January 1, 2023 56,639,040 $ 57 $ 1,147,014 $ 6,308 $ ( 178,910 ) $ 974,469 $ 1,389 $ 975,858

1 unchanged sentence

Distributions — — — — ( 5,721 ) ( 5,721 ) — ( 5,721 )

Repurchases of Common Stock to settle tax obligations ( 12,728 ) — ( 74 ) — — ( 74 ) — ( 74 )

Equity-based compensation, net 37,615 — 526 — — 526 — 526

1 unchanged sentence

Balance, March 31, 2023 56,663,927 $ 57 $ 1,147,466 $ 4,540 $ ( 193,516 ) $ 958,547 $ 1,400 $ 959,947

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

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

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

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

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

of Shares Par

Value Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated

Deficit Total Stockholders’ Equity Non-Controlling Interest Total Equity

Balance, January 1, 2022 56,625,650 $ 57 $ 1,145,278 $ 299 $ ( 58,715 ) $ 1,086,919 $ 1,369 $ 1,088,288

Net (loss) income — — — — ( 9,906 ) ( 9,906 ) 24 ( 9,882 )

2 unchanged sentences

Other comprehensive income, net — — — 4,057 — 4,057 — 4,057

Balance, September 30, 2022 56,635,038 $ 57 $ 1,146,431 $ 7,057 $ ( 154,273 ) $ 999,272 $ 1,412 $ 1,000,684

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

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

of Shares Par

Value Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated

Deficit Net Parent Investment Total Parent Company Equity Non-Controlling Interests Total Equity

Balance, January 1, 2021 — $ — $ — $ — $ — $ 497,118 $ 497,118 $ — $ 497,118

Net income — — — — — 4,551 4,551 — 4,551

Distributions to parent company, net — — — — — ( 14,122 ) ( 14,122 ) — ( 14,122 )

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

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

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

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

Net income — — — — — ( 1,423 ) ( 1,423 ) — ( 1,423 )

Contributions from parent company, net — — — — — 8,488 8,488 — 8,488

Issuance of common stock, net 100,000 — 1 — — — 1 — 1

Balance, September 30, 2021 100,000 $ — $ 1 $ — $ — $ 502,654 $ 502,655 $ — $ 502,655

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net (loss) income $ ( 78,481 ) $ 7,423

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

Net loss $ ( 8,874 ) $ ( 9,882 )

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

Depreciation and amortization 28,166 34,353

Non-cash revenue adjustments ( 2,683 ) ( 583 )

Amortization of net premiums on mortgages payable — ( 60 )

Non-cash revenue adjustments, net ( 2,656 ) ( 1,092 )

Impairments 3,754 1,602

Gain on disposition of real estate assets ( 1,059 ) —

Loss on extinguishment of debt, net — 468

1 unchanged sentence

Equity-based compensation 526 270

Equity in loss of unconsolidated joint venture 252 —

Equity in loss of unconsolidated joint venture, net 123 41

Changes in assets and liabilities:

4 unchanged sentences

Capital expenditures and leasing costs ( 3,138 ) ( 1,836 )

Proceeds from disposition of real estate 22,281 —

Return of investment from unconsolidated joint venture 421 601

Net cash provided by (used in) investing activities 16,687 ( 160 )

Proceeds from the settlement of property-related insurance claims 250 —

Net cash used in investing activities ( 2,467 ) ( 1,235 )

Cash flows from financing activities:

1 unchanged sentence

Proceeds from mortgages payable — 355,000

Payments on mortgages payable — ( 26,851 )

Proceeds from credit facility revolver — 70,000

Repayments of credit facility revolver — ( 69,000 )

Distributions paid ( 11,327 ) —

Distributions to parent company, net — ( 1,887 )

Payments of deferred financing costs ( 40 ) ( 3,096 )

Repurchases of common stock to settle tax obligations ( 74 ) —

Payments of deferred equity offering costs ( 10 ) —

Distributions paid ( 5,664 ) —

Other financing activities ( 56 ) ( 46 )

Payments upon extinguishment of mortgage notes payable — ( 3,984 )

Net cash used in financing activities ( 5,844 ) ( 2,168 )

5 unchanged sentences

Restricted cash at beginning of period 34,673 —

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

Cash and cash equivalents and restricted cash at beginning of period $ 55,311 $ 29,318

Cash and cash equivalents at end of period $ 23,755 $ 18,585

Restricted cash at the end of the period 35,145 531

Cash and cash equivalents and restricted cash at the end of the period $ 58,427 $ 531

Restricted cash at end of period 34,686 35,483

Cash and cash equivalents and restricted cash at end of period $ 58,441 $ 54,068

The accompanying notes are an integral part of these statements.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Note 1 – Organization

Orion Office REIT Inc.

(the “Company”, “Orion”, “we” or “us”) was incorporated in the state of Maryland on July 1, 2021 and was capitalized on July 15, 2021.

On April 29, 2021, Realty Income Corporation (“Realty Income”) entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc.

(“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P.

(“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”).

On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”).

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 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 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.

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 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 September 30, 2022, the Company owned and operated 87 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.0 million leasable square feet located within 29 states.

(the “Company”, “Orion”, “we” or “us”) was incorporated in the state of Maryland on July 1, 2021 and has been operating in a manner so as to qualify and has elected to be taxed as a REIT for U.S.

federal income tax purposes, commencing with its initial taxable year ended December 31, 2021.

The Company was initially formed as a wholly-owned subsidiary of Realty Income Corporation (“Realty Income”).

Following completion of the merger transaction involving Realty Income and VEREIT, Inc.

(“VEREIT”) on November 1, 2021, Realty Income contributed the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income, and certain office real properties and related assets previously owned by subsidiaries of VEREIT (the “Separation”), to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”), and on November 12, 2021, effected a special distribution to its stockholders of all the outstanding shares of common stock of the Company (the “Distribution”).

Following the Distribution, the Company became independent and publicly traded and its common stock, par value $ 0.001 per share, trades on the New York Stock Exchange (the “NYSE”) under the symbol “ONL”.

As of March 31, 2023, 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 September 30, 2022, the Arch Street Joint Venture owned a portfolio consisting of six office properties totaling approximately 1.0 million leasable square feet located within six states.

As of March 31, 2023, 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

Basis of Accounting

The consolidated and combined statements of the Company presented herein include the accounts of the Company and its consolidated subsidiaries.

The consolidated statements of the Company presented herein include the accounts of the Company and its consolidated subsidiaries.

All intercompany transactions have been eliminated upon consolidation.

The financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States (“U.S.

The consolidated and combined financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

These adjustments are considered to be of a normal, recurring nature.

The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

These financial statements should be read in conjunction with the Company’s audited consolidated and combined financial statements and notes thereto as of and for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2022.

These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2023.

Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC and U.S.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

Principles of Consolidation and Combination and Basis of Presentation

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

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

Principles of Consolidation and Basis of Presentation

The consolidated 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 equity.

3 unchanged sentences

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.

The Company consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.

(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.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Company consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.

The Company 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.

2 unchanged sentences

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.

1 unchanged sentence

Reclassification

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

Revenue Recognition

5 unchanged sentences

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

During the three and nine months ended September 30, 2022, the Company recorded a reduction to rental revenue of $ 0.5 million for property operating expense reimbursements not probable of collection.

During the three and nine months ended September 30, 2021, the Company did not record any reductions to rental revenue for amounts not probable of collection.

During the three months ended March 31, 2023, the Company recorded a reduction to rental revenue of less than $ 0.1 million for income not probable of collection.

During the three months ended March 31, 2022, 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.

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.

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.

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 financial statements).

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 and lease incentives.

During the nine months ended September 30, 2022, the Company recognized $ 0.9 million of lease termination income.

During the three months ended September 30, 2022 and the three and nine months ended September 30, 2021, the Company did not recognize any lease termination income.

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

During the three months ended March 31, 2023, the Company recognized $ 1.6 million of lease termination income.

During the three months ended March 31, 2022, the Company did not recognize any lease termination income.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Fee Income from Unconsolidated Joint Venture

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

Total asset and property management fees earned in connection with this entity was $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2022, respectively.

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

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 $ 0.2 million for the three months ended March 31, 2023 and 2022.

Cash and Cash Equivalents

5 unchanged sentences

Restricted Cash

The Company had $ 35.1 million in restricted cash as of September 30, 2022, primarily comprised of reserves held by the lender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances.

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

The Company had $ 34.7 million in restricted cash as of March 31, 2023 and 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.

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

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 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.

The adoption of ASU 2021-05 did not have a material impact 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.

We have evaluated 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 and do not expect it to have a material impact on our consolidated and combined statements.

There are no recent account pronouncements that the Company has yet to adopt as of March 31, 2023, that are expected to have a significant impact on its consolidated financial statements.

Note 3 – Real Estate Investments and Related Intangibles

Property Acquisitions

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

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

As a result of the transaction, $ 4.7 million that was previously classified as a finance lease right-of-use asset with respect to such land parcel previously subject to the ground lease was reclassified from other assets, net to real estate investments in the Company’s consolidated balance sheet as of September 30, 2022.

During the three and nine months ended September 30, 2021, the Company had no acquisitions.

During the three months ended March 31, 2023, the Company had no acquisitions.

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

The Company did not have any other acquisitions during the three months ended March 31, 2022.

Property Dispositions and Real Estate Assets Held for Sale

During the nine months ended September 30, 2022, the Company disposed of five properties for an aggregate gross sales price of $ 23.1 million.

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

Additionally, the Company recorded a gain of $ 1.1 million related to the remaining three dispositions, which is included in gain on disposition of real estate assets in the accompanying consolidated and combined statements of operations.

During the nine months ended September 30, 2021, the Company had no dispositions.

As of September 30, 2022, there were three properties classified as held for sale with a carrying value of $ 6.4 million, included in real estate assets held for sale, net, primarily comprised of land of $ 1.2 million and building, fixtures and improvements, net of $ 5.2 million, in the accompanying consolidated balance sheets, and which are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy.

During the nine months ended September 30, 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.

During the three months ended March 31, 2023 and 2022, the Company had no dispositions.

As of March 31, 2023, 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 balance sheets.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

Intangible Lease Assets

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Intangible Lease Assets and Liabilities

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

Weighted-Average Useful Life (Years) March 31, 2023 December 31, 2022

Intangible lease assets:

5 unchanged sentences

5.8 8,498 9,826

Deferred lease incentives, net of accumulated amortization of $ 36

Deferred lease incentives, net of accumulated amortization of $ 217 and $ 116 , respectively

4.7 1,593 1,694

Total intangible lease assets, net $ 182,629 $ 202,832

2 unchanged sentences

8.8 $ 12,526 $ 14,068

The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2022, respectively, and $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2021, respectively.

The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was less than $ 0.1 million for the three and nine months ended September 30, 2022, as compared to no impact to rental revenue for the three and nine months ended September 30, 2021.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 23.7 million and $ 73.5 million for the three and nine months ended September 30, 2022, respectively, and $ 1.6 million and $ 4.8 million for the three and nine months ended September 30, 2021, respectively.

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of September 30, 2022 (amounts in thousands) :

The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $ 0.2 million and $ 0.3 million for the three months ended March 31, 2023 and 2022, respectively.

The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was $ 0.1 million for the three months ended March 31, 2023, as compared to no impact to rental revenue for the three months ended March 31, 2022.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 19.7 million and $ 25.2 million for the three months ended March 31, 2023 and 2022, respectively.

Remainder of 2023 2024 2025 2026 2027 2028

10 unchanged sentences

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Investment in Unconsolidated Joint Venture

The following is a summary of the Company’s investment in one unconsolidated entity, the Arch Street Joint Venture, as of September 30, 2022 and December 31, 2021 and for the nine months ended September 30, 2022 and 2021 (dollar amounts in thousands):

The following is a summary of the Company’s investment in the Arch Street Joint Venture, as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and 2022 (dollars in thousands):

Ownership % (1)

Number of Properties Carrying Amount of

Investment Equity in Loss

Nine Months Ended (2)

Investment September 30, 2022 September 30, 2022 December 31, 2021 September 30, 2022 September 30, 2021

Number of Properties Carrying Value of

Investment Equity in Loss, Net

Three Months Ended

Investment March 31, 2023 March 31, 2023 December 31, 2022 March 31, 2023 March 31, 2022

Arch Street Joint Venture (2) (3)

3 unchanged sentences

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

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

(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 loss reflects operations following the Merger Effective Time.

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

(4) The total carrying amount of the Company’s investment in the unconsolidated joint venture was greater than the underlying equity in net assets by $ 1.2 million as of September 30, 2022.

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

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

(2) During the three months ended March 31, 2023 and 2022, the Arch Street Joint Venture did not acquire any properties.

(3) 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 $ 0.8 million and $ 0.9 million as of March 31, 2023 and December 31, 2022, 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 Separation and the Distribution.

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 :

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

September 30, 2022 December 31, 2021

Accounts receivable, net consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Accounts receivable, net $ 12,060 $ 10,461

1 unchanged sentence

Total $ 24,697 $ 21,641

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

September 30, 2022 December 31, 2021

Other assets, net consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Restricted cash $ 34,686 $ 34,673

1 unchanged sentence

26,168 26,422

Investment in unconsolidated entity 16,544 18,631

Investment in unconsolidated joint venture 15,279 15,824

Derivative assets 4,540 6,308

4 unchanged sentences

____________________________________

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

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

Includes right-of-use finance leases of $ 9.0 million, right-of-use operating leases of $ 9.6 million, and a below-market right-of-use asset of $ 7.1 million, net of $ 0.2 million in accumulated amortization as of September 30, 2022.

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

(2) Amortization expense for deferred costs related to the revolving credit facility totaled $ 0.5 million and $ 1.6 million for the three and nine months ended September 30, 2022, respectively, as compared to no amortization expense for deferred costs for the three and nine months ended September 30, 2021.

Accumulated amortization for deferred costs related to the revolving credit facility was $ 1.9 million and $ 0.3 million as of September 30, 2022 and December 31, 2021, respectively.

(1) Amortization expense for below market right-of-use asset was less than $ 0.1 million for the three months ended March 31, 2023 and 2022.

Includes right-of-use finance leases of $ 9.0 million and a below-market right-of-use asset, net of $ 6.8 million as of March 31, 2023 and December 31, 2022, and right-of-use operating leases of $ 10.4 million and $ 10.6 million, as of March 31, 2023 and December 31, 2022, respectively.

(2) Amortization expense for deferred costs related to the Revolving Facility totaled $ 0.5 million for the three months ended March 31, 2023 and 2022.

Accumulated amortization for deferred costs related to the Revolving Facility was $ 3.0 million and $ 2.5 million as of March 31, 2023 and December 31, 2022, 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 both March 31, 2023 and December 31, 2022.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Note 5 – Fair Value Measures

Items Measured at Fair Value on a Recurring Basis

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

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

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):

Level 1 Level 2 Level 3 Balance as of March 31, 2023

Derivative assets $ — $ 4,540 $ — $ 4,540

6 unchanged sentences

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

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

However, as of March 31, 2023 and December 31, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives.

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

1 unchanged sentence

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

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 $ 54.2 million during the nine months ended September 30, 2022, that 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.

There were no impairment charges recorded during the nine months ended September 30, 2021.

Real Estate and Other Investments – The Company performs quarterly impairment review procedures for real estate investments, 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 three and two properties were deemed to be impaired during the three months ended March 31, 2023 and 2022, respectively, resulting in impairment charges of $ 3.8 million and $ 1.6 million during the three months ended March 31, 2023 and 2022, 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, as well as changes related to management’s intent to sell or lease the real estate assets.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Number of properties 3 2

3 unchanged sentences

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

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

6 unchanged sentences

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

For the Company’s impairment tests for the real estate assets during the nine months ended September 30, 2022, the fair value measurement for eight impaired properties was determined by applying an estimated sales price based on market data and two impaired properties by applying a discount rate of 8.5 % and capitalization rate of 8.0 %.

During the nine months ended September 30, 2022, impairment charges of $ 44.0 million were recorded for held and used properties, $ 1.6 million for held for sale properties, and $ 8.6 million for disposed properties.

The following table presents certain of the Company’s assets measured at fair value on a non-recurring basis as of September 30, 2022, aggregated by the level in the fair value hierarchy within which those assets fall (in thousands):

For the Company’s impairment tests for the real estate assets during the three months ended March 31, 2023, the fair value measurement for all three impaired properties was determined by applying an estimated sales price based on market data.

During the three months ended March 31, 2023, impairment charges of $ 3.8 million were recorded for held and used properties, and no impairment charges were recorded for held for sale properties.

For the Company’s impairment tests for the real estate assets during the three months ended March 31, 2022, the fair value measurement for each of the two impaired properties was determined by applying an estimated sales price based on market data.

During the three months ended March 31, 2022, impairment charges of $ 1.6 million were recorded for held and used properties, and no impairment charges were recorded for held for sale properties.

The following table presents certain of the Company’s assets measured at fair value on a non-recurring basis as of March 31, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those assets fall (in thousands):

Level 1 Level 2 (1)

Balance as of September 30, 2022

Balance as of March 31, 2023

Assets of properties held and used $ — $ 4,400 $ 20,203 $ 24,603

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

— 4,782 — 4,782

$ — $ 5,782 $ 22,339 $ 28,121

Total $ — $ 41,402 $ 11,957 $ 53,359

____________________________________

(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.

(2) An additional property is included in real estate assets held for sale, net on the balance sheets at a carrying value of $ 1.6 million.

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.

(1) The fair value of the level 2 category was derived using negotiated sales prices with third parties 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 financial instruments are reported below (dollar amounts in thousands):

Level Carrying Amount at September 30, 2022

Fair Value at September 30, 2022

Carrying Amount at December 31, 2021

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

Level Carrying Value at March 31, 2023

Fair Value at March 31, 2023

Carrying Value at December 31, 2022

Fair Value at December 31, 2022

Liabilities (1) :

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

Mortgages payable 2 355,000 338,371 355,000 332,323

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

Credit facility revolver 2 31,000 31,000 90,000 90,000

Total $ 530,000 $ 513,371 $ 530,000 $ 507,323

3 unchanged sentences

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Note 6 – Debt, Net

As of September 30, 2022, the Company had $ 556.5 million of debt outstanding, including net deferred financing costs, with a weighted-average years to maturity of 3.2 years and a weighted-average interest rate of 4.45 %.

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

Nine Months Ended September 30, 2022

As of March 31, 2023, the Company had $ 526.5 million of debt outstanding, including net deferred financing costs, with a weighted-average years to maturity of 2.8 years and a weighted-average interest rate of 4.38 %.

The following table summarizes the carrying value of debt as of March 31, 2023 and December 31, 2022, and the debt activity for the three months ended March 31, 2023 (in thousands):

Three Months Ended March 31, 2023

Balance as of December 31, 2022

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

Debt Issuances Repayments, Extinguishment and Assumptions Accretion and Amortization Balance as of March 31, 2023

Mortgages payable:

2 unchanged sentences

Mortgages payable, net 352,167 — — 170 352,337

Bridge facility:

Outstanding balance

355,000 — ( 355,000 ) — —

Deferred costs ( 643 ) — 442 201 —

Bridge facility, net 354,357 — ( 354,558 ) 201 —

Credit facility term loan:

2 unchanged sentences

Credit facility term loan, net 173,815 — — 338 174,153

Credit facility revolver:

Outstanding balance 90,000 70,000 ( 129,000 ) — 31,000

Credit facility revolver, net 90,000 70,000 ( 129,000 ) — 31,000

Total debt $ 525,982 $ — $ — $ 508 $ 526,490

The following table summarizes the scheduled aggregate principal repayments due on the Company’s debt outstanding as of March 31, 2023 (in thousands):

April 1, 2023 to December 31, 2023

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.

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 (defined below), and the Bridge Credit Agreement was terminated.

As of September 30, 2022, the Company had borrowed and outstanding $ 31.0 million under the Revolving Facility and had $ 394.0 million of availability under the Revolving Facility.

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

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

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.

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 March 31, 2023, 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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

(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).

2 unchanged sentences

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;

3 unchanged sentences

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

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

As of March 31, 2023, Orion OP was in compliance with these financial covenants.

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

7 unchanged sentences

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.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

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 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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

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 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.

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 September 30, 2022, the Company was in compliance with these financial covenants.

As of March 31, 2023, 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.

1 unchanged sentence

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 September 30, 2022 (dollar amounts in thousands):

The Company’s mortgages payable consisted of the following as of March 31, 2023 (dollars in thousands):

Encumbered Properties Net Carrying Value of Collateralized Properties (1)

4 unchanged sentences

(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 unconsolidated joint venture of $ 136.7 million.

The table above does not include mortgage notes associated with the Arch Street Joint Venture of $ 136.7 million as of March 31, 2023 .

Note 7 – Derivatives and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

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

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

As of each of March 31, 2023 and December 31, 2022, 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 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 September 30, 2022 and December 31, 2021 (in thousands):

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

Interest rate swaps Other assets, net $ 7,057 $ 299

During the three and nine months ended September 30, 2022, the Company recorded unrealized gains of $ 1.9 million and $ 7.2 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 three and nine months ended September 30, 2021, as the interest rate swap agreement did not exist during such periods.

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.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

During the three and nine months ended September 30, 2022, the Company reclassified previous gains of $ 0.7 million and $ 0.5 million, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

The table below presents the fair value of the Company’s derivative financial instrument designated as a cash flow hedge as well as its classification in the Company’s consolidated balance sheets as of March 31, 2023 and December 31, 2022 (in thousands):

Derivatives Designated as Hedging Instruments Balance Sheet Location March 31, 2023 December 31, 2022

Interest rate swaps Other assets, net $ 4,540 $ 6,308

During the three months ended March 31, 2023, the Company recorded unrealized losses of less than $ 0.1 million for changes in the fair value of its cash flow hedge in accumulated other comprehensive income.

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

During the three months ended March 31, 2023, the Company reclassified previous gains of $ 1.7 million from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

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

During the next twelve months, the Company estimates that an additional $ 4.5 million will be reclassified from other comprehensive income as a decrease to interest expense.

Derivatives Not Designated as Hedging Instruments

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

As of each of March 31, 2023 and December 31, 2022, 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 September 30, 2022 and December 31, 2021 (in thousands).

The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of March 31, 2023 and December 31, 2022 (in thousands).

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

1 unchanged sentence

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

September 30, 2022 $ 7,057 $ — $ — $ 7,057 $ — $ — $ — $ 7,057

March 31, 2023 $ 4,540 $ — $ — $ 4,540 $ — $ — $ — $ 4,540

December 31, 2022 $ 6,308 $ — $ — $ 6,308 $ — $ — $ — $ 6,308

1 unchanged sentence

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

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental disclosures:

5 unchanged sentences

Distributions declared and unpaid

$ 5,666 $ 5,663

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

Note 9 – Accounts Payable and Accrued Expenses

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

September 30, 2022 December 31, 2021

Accounts payable and accrued expenses consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Accrued real estate and other taxes $ 9,148 $ 10,191

Accrued other 6,871 4,159

Accrued operating and other 4,219 10,034

Accrued capital expenditures and leasing costs 3,749 2,333

Accrued interest 1,769 1,810

Accounts payable 1,072 1,793

$ 22,038 $ 17,379

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

Total $ 19,957 $ 26,161

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.

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 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 March 31, 2023, the Company had total commitments of $ 50.0 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 March 31, 2023, 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.

4 unchanged sentences

Note 11 – Leases

As of September 30, 2022, the Company’s operating leases have non-cancelable lease terms ranging from 0.1 years to 15.5 years.

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

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

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

As of March 31, 2023, the Company’s operating leases have non-cancelable lease terms ranging from 0.1 years to 15.0 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).

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

The following table presents future minimum base rent payments due to the Company over the next five years and thereafter as of March 31, 2023 (in thousands).

Future Minimum

Base Rent Payments

October 1, 2022 - December 31, 2022 $ 35,475

April 1, 2023 - December 31, 2023 $ 101,914

Thereafter 158,714

2 unchanged sentences

GAAP for an operating lease.

As of September 30, 2022, the Company’s operating leases had remaining lease terms ranging from 0.1 years to 62.3 years, which includes options to extend.

As of March 31, 2023, the Company’s operating leases had remaining lease terms ranging from 0.7 years to 61.8 years, which includes options to extend.

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

The weighted-average discount rate used to measure the lease liability for the Company’s operating leases was 3.21 % as of September 30, 2022.

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

Operating lease costs were $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2022, respectively, and less than $ 0.1 million for each of the three and nine months ended September 30, 2021.

No cash paid for operating lease liabilities was capitalized for the three and nine months ended September 30, 2022 and 2021.

The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for ground and corporate office lease obligations as of September 30, 2022 (in thousands).

The weighted-average discount rate used to measure the lease liability for the Company’s operating leases was 3.50 % as of March 31, 2023.

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 or the lease guidance adoption date, as applicable, in determining the present value of lease payments.

Operating lease costs were $ 0.3 million for the three months ended March 31, 2023 and 2022.

No cash paid for operating lease liabilities was capitalized for the three months ended March 31, 2023 and 2022.

Future Minimum Lease Payments

October 1, 2022 - December 31, 2022 229

April 1, 2023 - December 31, 2023 $ 891

Thereafter 12,491

2 unchanged sentences

Note 12 – Stockholders’ 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 .

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.

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

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

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

Stock Warrants

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

During the three months ended March 31, 2023 and 2022, the Company’s Board of Directors declared quarterly cash dividends on shares of the Company’s common stock as follows:

Declaration Date Record Date Paid Date Distributions Per Share

March 7, 2023 March 31, 2023 April 17, 2023 $ 0.10

Declaration Date Record Date Paid Date Distributions Per Share

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

On May 8, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.10 per share for the second quarter of 2023, payable on July 17, 2023, to stockholders of record as of June 30, 2023.

Arch Street 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 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.

3 unchanged sentences

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.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

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.

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

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

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

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

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

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

Equity-based compensation expense related to Orion Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units for the three and nine months ended September 30, 2022, was $ 0.4 million and $ 0.8 million, respectively.

As of September 30, 2022, total unrecognized compensation expense related to Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units was approximately $ 2.6 million, with an aggregate weighted-average remaining term of 2.2 years.

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

Equity-based compensation expense for the three and nine months ended September 30, 2022, related to such Realty Income equity-based compensation awards, was $ 0.1 million and $ 0.3 million, respectively.

As of September 30, 2022, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was approximately $ 0.3 million, with an aggregate weighted-average remaining term of 1.2 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 three months ended March 31, 2023 and 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 March 31, 2023, the Company determined that the likelihood of achieving some of the performance metrics was probable and, accordingly, the Company recognized 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 three months ended March 31, 2023 and 2022, was $ 0.5 million and $ 0.1 million, respectively.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 (Unaudited)

March 31, 2023, total unrecognized compensation expense related to Time-Based RSUs and Performance-Based RSUs was approximately $ 4.9 million, with an aggregate weighted-average remaining term of 2.4 years.

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 Separation and the Distribution.

Equity-based compensation expense for both the three months ended March 31, 2023 and 2022, related to such Realty Income equity-based compensation awards, was less than $ 0.1 million.

As of March 31, 2023, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was approximately $ 0.2 million with an aggregate weighted-average remaining term of 0.8 years .

Note 14 - Net Income (Loss) Per Share

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Net (loss) income $ ( 53,029 ) $ ( 1,423 ) $ ( 78,481 ) $ 7,423

(Income) loss attributable to non-controlling interests ( 18 ) — ( 43 ) —

Net (loss) income available to common stockholders used in basic and diluted net income per share ( 53,047 ) ( 1,423 ) ( 78,524 ) 7,423

Weighted average number of Common Stock outstanding - basic 56,635,038 56,625,650 56,630,086 56,625,650

The computation of basic and diluted earnings per share is as follows for the three months ended March 31, 2023 and 2022 (in thousands, except share and per share data):

Three Months Ended March 31,

Net loss $ ( 8,874 ) $ ( 9,882 )

Income attributable to non-controlling interest ( 11 ) ( 24 )

Net loss available to common stockholders used in basic and diluted net income per share ( 8,885 ) ( 9,906 )

Weighted average shares of common stock outstanding - basic 56,641,805 56,625,650

Effect of dilutive securities (1)

Weighted average number of common shares - diluted 56,635,038 56,625,650 56,630,086 56,625,650

Basic and diluted net (loss) income per share attributable to common stockholders $ ( 0.94 ) $ ( 0.03 ) $ ( 1.39 ) $ 0.13

Weighted average shares of common stock - diluted 56,641,805 56,625,650

Basic and diluted net loss per share attributable to common stockholders $ ( 0.16 ) $ ( 0.17 )

____________________________________

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

September 30, 2022 (Unaudited)

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

Nine Months Ended September 30,

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

(1) As of March 31, 2023 and 2022, 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 per share attributable to common stockholders, as the effect would have been antidilutive:

Three Months Ended March 31,

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

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

3 unchanged sentences

Distributions

On November 1, 2022, the Company’s Board of Directors declared a quarterly dividend of $ 0.10 per share for the fourth quarter of 2022, payable on January 17, 2023, to stockholders of record as of December 30, 2022.

Through November 1, 2022, the Company closed on the sale of two additional non-core office properties for an aggregate gross sales price of approximately $ 5.3 million.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands) (Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,

Rental $ 40,494 $ 121,389

Fee income from unconsolidated joint venture 161 601

Total revenues 40,655 121,990

Operating expenses:

Property operating 9,997 30,811

General and administrative 1,483 5,058

Depreciation and amortization 14,790 44,234

Impairments 6,440 28,064

Total operating expenses 32,710 108,167

Other (expenses) income:

Other income, net 95 146

Interest expense ( 1,706 ) ( 5,522 )

Loss on extinguishment of debt, net ( 5 ) ( 85 )

Equity in income of unconsolidated joint venture 211 621

Total other expenses, net ( 1,405 ) ( 4,840 )

Income before taxes 6,540 8,983

Provision for income taxes ( 156 ) ( 469 )

Net income 6,384 8,514

Net loss attributable to non-controlling interest 10 41

Net income attributable to VEREIT Office Assets $ 6,394 $ 8,555

The accompanying notes are an integral part of these statements.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF EQUITY

(In thousands) (Unaudited)

Balance, January 1, 2021 $ 1,161,434

Contributions, net 18,927

Net loss ( 9,866 )

Balance, March 31, 2021 1,170,495

Distributions, net ( 4,395 )

Net income 11,996

Balance, June 30, 2021 1,178,096

Distributions, net ( 13,544 )

Net income 6,384

Balance, September 30, 2021 $ 1,170,936

The accompanying notes are an integral part of these statements.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands) (Unaudited)

Nine Months Ended September 30,

Cash flows from operating activities:

Net income $ 8,514

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

Depreciation and amortization 44,167

Impairments 28,064

Loss on extinguishment of debt, net 85

Equity in income of unconsolidated joint venture ( 621 )

Distributions from unconsolidated joint venture 621

Changes in assets and liabilities:

Rents and tenant receivables, operating lease right-of-use and other assets, net 1,214

Accounts payable and accrued expenses ( 3,276 )

Deferred rent, operating lease and other liabilities 550

Net cash provided by operating activities 79,318

Cash flows from investing activities:

Capital expenditures and leasing costs ( 4,531 )

Real estate developments ( 240 )

Investments in unconsolidated joint venture ( 2,180 )

Return of investment from unconsolidated joint venture 1,026

Proceeds from the settlement of property-related insurance claims 70

Net cash used in investing activities ( 5,855 )

Cash flows from financing activities:

Payments on mortgage notes payable ( 74,600 )

Refunds of deferred financing costs 280

Net contributions from parent 989

Net cash used in financing activities ( 73,331 )

Net change in cash and cash equivalents and restricted cash 132

Cash and cash equivalents and restricted cash, beginning of period 3,414

Cash and cash equivalents and restricted cash, end of period $ 3,546

Supplemental disclosures:

Cash paid for interest $ 5,886

Non-cash investing and financing activities:

Accrued capital expenditures and real estate developments $ 926

The accompanying notes are an integral part of this statement.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Summary of Significant Accounting Policies

On April 29, 2021, Realty Income Corporation (“Realty Income”) entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc.

(“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P.

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”).

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

Following the Distribution, the Company operates as a separate, publicly-traded company 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.

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 September 30, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, which included one property owned by a consolidated joint venture, totaling approximately 7.5 million leasable square feet located in 25 states in the United States and Puerto Rico, and an investment in one unconsolidated joint venture that owned five office properties totaling approximately 0.8 million leasable square feet located within five states.

Summary of Significant Accounting Policies

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.

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 statements of operations.

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

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

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

filed on March 24, 2022.

Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC and GAAP .

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 received 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”).

VIEs were entities where investors lacked 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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

expected losses of the entity, or (c) the right to receive the expected returns of 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 was generally defined as the party who had 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 to the VIE.

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 GAAP.

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 financial results reflect charges for certain corporate costs and, we believe such charges are reasonable.

Costs of the services that were charged to VEREIT Office Assets were based on either actual costs incurred or a proportion of costs estimated to be applicable to this entity, based on VEREIT Office Assets’ pro rata share of VEREIT’s annualized rental income.

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 the Company’s future performance as an independent, stand-alone company .

Use of Estimates

Actual results could differ from those estimates.

Real Estate Investments

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 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 had been 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 September 30, 2021, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned five properties with total real estate investments, at cost, of $ 196.1 million and total debt outstanding of $ 118.4 million, which was non-recourse to VEREIT Office Assets.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

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 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 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 was recorded when an impairment is 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 have resulted in different conclusions.

No impairments were identified during the three and nine months ended September 30, 2021 .

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 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 would be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers.

If an entity 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 amount, the quantitative impairment test was required.

Otherwise, no quantitative testing was required.

If it was determined, as a result of the qualitative assessment, that it was more-likely-than-not that the fair value was less than the carrying amount, 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 three and nine months ended September 30, 2021.

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 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 September 30, 2021, restricted cash included $ 3.4 million in lender reserves.

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

Rent and Tenant Receivables and Other Assets, Net

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.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

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 amount 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.

Leases - Lessor

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 transfer control of the underlying asset, the lease was classified as a sales-type lease.

When a lease does 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 September 30, 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, and included 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.

Two separate lease components were identified as follows:

(i) land lease component and (ii) single property lease component comprised of building, land improvements and tenant improvements.

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 continued to evolve during the three and nine months ended September 30, 2021.

Federal, state, and local authorities had 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 had almost entirely continued to meet its payment obligations under its respective lease.

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

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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

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 had 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 had been made for federal income taxes in the accompanying combined and consolidated financial statements of VEREIT Office Assets .

During the three and nine months ended September 30, 2021, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $ 0.2 million and $ 0.5 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 three and nine months ended September 30, 2021.

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

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

Note 2 – Real Estate Investments and Related Intangibles

Property Acquisitions/Dispositions

There were no property acquisitions or dispositions during the nine months ended September 30, 2021.

Consolidated Joint Venture

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

As of September 30, 2021, the consolidated joint venture had total assets of $ 30.7 million, of which $ 27.8 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 nine months ended September 30, 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 September 30, 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 must have obtained 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.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing three and four properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 6.4 million and $ 28.1 million during the three and nine months ended September 30, 2021, respectively.

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

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

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 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 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 three months ended September 30, 2021, VEREIT used a weighted-average discount rate of 9.7 % and a weighted-average capitalization rate of 9.2 %.

For VEREIT’s impairment tests for the real estate assets during the nine months ended September 30, 2021, VEREIT used a weighted-average discount rate of 9.0 % and a weighted-average capitalization rate of 8.5 %.

Note 3 – Commitments and Contingencies

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 have potentially been liable for costs and damages related to environmental matters.

VEREIT Office Assets was not been 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 4 – Leases

As of September 30, 2021, VEREIT Office Assets was the lessor for its 52 office properties.

VEREIT Office Assets’ operating leases have non-cancelable lease terms ranging from 0.08 years to 11.67 years as of September 30, 2021.

Certain leases with tenants included 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 or LIBOR).

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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended September 30, Nine Months Ended September 30,

Cash rent $ 32,431 $ 96,855

Straight-line rent ( 165 ) ( 1,624 )

Lease intangible amortization

Property operating cost reimbursements

33,340 98,144

Total rental revenue $ 40,494 $ 121,389

____________________________________

(1) Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent .

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

As of September 30, 2021, VEREIT Office Assets’ lease had a remaining lease term of 35.9 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 September 30, 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 three and nine months ended September 30, 2021 were $ 0.1 million and $ 0.2 million, respectively.

No cash paid for operating lease liabilities was capitalized.

Note 5 – Subsequent Events

VEREIT Office Assets evaluated subsequent events through December 1, 2021 and no items have come to the attention of management that require recognition or disclosure, except as set forth below.

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

Mergers, Separation and Distribution

On November 1, 2021, the Mergers were completed.

Following the Merger Effective Time, the Separation was completed.

On November 12, 2021, following the Separation, the Distribution was completed.

On May 8, 2023, the Company’s Board of Directors declared a quarterly dividend of $ 0.10 per share for the second quarter of 2023, payable on July 17, 2023, to stockholders of record as of June 30, 2023.

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

What changed 10-Q

Item 1. Financial Statements