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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-03-08 · 185 added, 217 removed, 344 unchanged (54% of the section changed)

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Orion Office REIT Inc.

(the “Company”, “Orion”, “we”, or “us”) makes statements in this section that are forward-looking statements within the meaning of the federal securities laws.

“Company,” “Orion,” “we,” or “us”) makes statements in this section that are forward-looking statements within the meaning of the federal securities laws.

For a complete discussion of forward-looking statements, see the section in this report entitled “ Forward-Looking Statements ”.

Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion.

For a complete discussion of such risk factors, see the section in this report entitled “ Ri sk Facto rs ”.

Orion is an internally managed REIT engaged in the ownership, acquisition, and management of a diversified portfolio of mission-critical regional and corporate headquarters office buildings located in high-quality suburban markets across the U.S.

For a complete discussion of such risk factors, see the section in this report entitled “ Risk Factors ”.

Orion is an internally managed real estate investment trust (“REIT”) engaged in the ownership, acquisition, and management of a diversified portfolio of office buildings located in high-quality suburban markets across the U.S.

and leased primarily on a single-tenant net lease basis to creditworthy tenants.

Orion Office REIT Inc.

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 our initial taxable year ended December 31, 2021.

As of December 31, 2022, the Company owned and operated 81 office properties with an aggregate of 9.5 million leasable square feet located in 29 states with an occupancy rate of 88.8% and a weighted-average remaining lease term of 4.0 years.

Including the Company’s pro rata share of square feet and annualized base rent from the Arch Street Joint Venture, the Company’s unconsolidated joint venture with an affiliate of Arch Street Capital Partners, LLC (“Arch Street Capital Partners”), we owned an aggregate of 9.7 million leasable square feet with an occupancy rate of 89.0% and a weighted-average remaining lease term of 4.1 years as of December 31, 2022.

Our portfolio is comprised of traditional office buildings, as well as government office, medical office, office/laboratory, office/research and office/flex properties.

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 has been operating as an independent publicly traded company, and the Company 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.

As of December 31, 2023, we owned and operated 75 office properties with an aggregate of 8.7 million leasable square feet located in 29 states with an occupancy rate of 80.0% and a weighted-average remaining lease term of 3.9 years.

Including our pro rata share of leasable square feet and annualized base rent from the Arch Street Joint Venture, we owned an aggregate of 8.9 million leasable square feet with an occupancy rate of 80.4%, or 87.2% adjusted for properties that are currently under agreement to be sold, and a weighted-average remaining lease term of 4.0 years, as of December 31, 2023.

Executive Summary

Despite the challenged macroeconomic environment, our real estate portfolio generally performed as expected during the year ended December 31, 2023, with no material amount of scheduled rent payments determined to be uncollectible.

Property operating expenses were generally in line with what we had budgeted for the year ended December 31, 2022.

General and administrative expenses were modestly below our 2022 budget, as the Company benefited from lower annual meeting costs and lower amortization of stock-based compensation.

General and administrative expenses are expected to increase in 2023 and beyond as subsidies provided by Realty Income at the Distribution (as defined below) expire, and as stock-based compensation cost increases and public company compliance costs increase due to additional Sarbanes-Oxley compliance costs and costs associated with the SEC’s expected climate change rules.

Property operating expenses were generally in line with what we had budgeted for the year ended December 31, 2023, while general and administrative expenses were modestly below our 2023 budget, as the Company benefited from lower professional services costs due to its continued designation as an emerging growth company.

General and administrative expenses are expected to increase in 2024 primarily as a result of an increase in stock-based compensation cost.

Our interest expense was generally in line with what we had budgeted for the year ended December 31, 2023, as increases in interest rates on our floating rate indebtedness were offset by lower amounts of debt outstanding as the Company utilized cash from operations and proceeds from real estate dispositions to repay debt on the Revolving Facility.

The Company did not acquire any new properties during year ended December 31, 2022, primarily due to the impact of rapidly rising interest rates and disruptions in the financing markets.

Our ability to resume asset acquisition activity will be highly dependent upon favorable market conditions, including attractive yields on properties and access to requisite financing.

Despite the tight credit markets, we successfully secured an amendment to our $425.0 million senior revolving credit facility (the “Revolving Facility”), which retired our $175.0 million borrowed under our senior term loan facility (the “Term Loan Facility”) ahead of schedule and provided us with continued access to liquidity and the ability to extend the Revolving Facility to May 12, 2026.

Additionally, we executed two interest rate collar agreements on a total notional amount of $60.0 million to hedge against interest rate volatility on the Revolving Facility, following the scheduled expiration of our swap agreements on the total notional amount of $175.0 million.

The Company did not acquire any new properties during the year ended December 31, 2023, primarily due to the impact of rapidly rising interest rates and disruptions in the financing markets.

Our ability to execute on asset acquisition activity will be highly dependent upon favorable market conditions, including attractive yields on properties and access to requisite financing.

We cannot provide any assurance as to whether we will be able to acquire assets on favorable terms and in a timely manner, or at all.

During year ended December 31, 2022, we completed approximately 0.8 million square feet of lease renewals, expansions and new leases, while our weighted average remaining lease term remained consistent at 4.1 years as of December 31, 2022 and 2021, and our occupancy level declined from 91.9% as of December 31, 2021 to 89.0% as of December 31, 2022.

Our efforts to address upcoming lease maturities and vacancies have been adversely impacted by economic conditions, such as rising interest rates, rising inflation and recession fears, along with persistent remote working trends as a result of the COVID-19 pandemic.

During the year ended December 31, 2023, we completed approximately 0.3 million square feet of lease renewals, expansions and new leases, while our weighted average remaining lease term decreased slightly from 4.1 years as of December 31, 2022 to 4.0 years as of December 31, 2023, and our occupancy level declined from 89.0% as of December 31, 2022 to 80.4% as of December 31, 2023, or 87.2% adjusted for properties that are currently under agreement to be sold.

Our efforts to address upcoming lease maturities and vacancies have been adversely impacted by economic conditions, such as

rising interest rates, rising inflation and recession fears, along with persistent remote and hybrid working trends as a result of the COVID-19 pandemic.

We have experienced and we expect we will continue to experience slower new leasing and there remains uncertainty over existing tenants’ long-term space requirements.

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The Company anticipates it will continue to agree to tenant improvement allowances and to pay leasing commissions, the amount of which may increase in future periods.

One of our main asset management strategies during year ended December 31, 2022 was to sell vacant and identified non-core assets that do not fit our long-term investment objectives.

One of our main asset management strategies during year ended December 31, 2023 was to continue to sell vacant and identified non-core assets that do not fit our long-term investment objectives.

The sale of these assets will allow us to both reduce carry costs and avoid the uncertainty and significant capital expenditures associated with re-tenanting.

During year ended December 31, 2022, we closed on 11 dispositions totaling 0.9 million square feet for an aggregate sale price of $33.1 million, equating to a price per square foot of approximately $36.42, and primarily used the proceeds to pay down debt and capital expenditures and leasing costs.

During year ended December 31, 2023, we closed on six fully vacant dispositions totaling 0.8 million square feet for an aggregate sale price of $25.4 million, equating to a price per square foot of approximately $29.78, and primarily used the proceeds to pay down debt and to fund capital expenditures and leasing costs.

We expect to continue this non-core asset disposition strategy in 2024.

We cannot provide any assurance as to whether we will be able to sell non-core assets on favorable terms and in a timely manner, or at all.

The Separation and the Distribution

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 the 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”).

Following the Distribution, we became an independent publicly traded company and have been operating in a manner so as to qualify and have elected to be taxed as a REIT, commencing with our initial taxable year ended December 31, 2021.

On November 12, 2021, in connection with the Distribution, Orion OP also entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), with 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.

Our common stock, par value $0.001 per share, trades on the NYSE under the symbol “ONL”.

Through November 12, 2021, we had not conducted any business as a separate company other than start-up related activities.

Emerging Growth Company Status

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We cannot predict if investors will find our common stock less attractive because we rely on the exemptions available to us as an emerging growth company.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for complying with new or revised accounting standards.

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Basis of Presentation

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

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

under common control and ownership of Realty Income during this period.

From and after the November 1, 2021, the consolidated and combined financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture, which accounts include the Realty Income Office Assets and the VEREIT Office Assets.

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

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REITs are subject to a number of other organizational and operational requirements.

Even if we maintain our qualification for taxation as a REIT, we may become subject to certain state and local taxes on our income and property, federal income taxes on certain income and excise taxes on our undistributed income.

Even if we maintain our qualification for taxation as a REIT, we may become subject to certain state and local taxes on our income and property, and federal income taxes on certain income and excise taxes on our undistributed income.

Critical Accounting Estimates

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Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition.

We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes.

We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, expectations and projections regarding future events and plans, as well as other factors, to ensure that they are reasonable for reporting purposes.

However, actual results may differ from these estimates and assumptions.

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Real Estate Operations

• During the year ended December 31, 2022, we closed on the sale of 11 non-core assets that do not fit our long-term investment objectives for an aggregate gross sales price of $33.1 million.

As of March 8, 2023, we had pending agreements to dispose of an additional seven non-core assets for an aggregate gross sales price of $36.6 million.

These pending transactions remain subject to customary conditions for real estate transactions of this nature, which may include conditions related to the buyer’s due diligence and the buyer’s right to terminate the agreement in its sole discretion.

• During the year ended December 31, 2023, we closed on the sale of six vacant properties for an aggregate gross sales price of $25.4 million.

As of February 27, 2024, we had pending agreements to dispose of an additional seven properties for an aggregate gross sales price of $46.0 million.

These pending transactions remain subject to customary conditions for real estate transactions of this nature, including conditions related to the buyer’s due diligence, and may be terminated by the buyer in its sole discretion.

There can be no assurance these pending sale transactions will be completed on their existing terms or at all.

• During the year ended December 31, 2022, we completed approximately 0.8 million square feet of lease renewals, expansions and new leases across 11 different properties.

• During the year ended December 31, 2023, we completed approximately 0.3 million square feet of lease renewals and entered into new leases across six different properties.

We also entered into a lease expansion covering 11,000 square feet with an existing tenant at one property.

During the year ended December 31, 2023, 16 leases expired or were downsized comprising a total reduction in occupied space of approximately 1.6 million leasable square feet.

As of December 31, 2022, the Company had a total of five vacant properties, two of which are being marketed for sale.

As of December 31, 2023, the Company had a total of 12 vacant properties, six of which had pending agreements for sale.

The Company’s plans with respect to vacant properties are subject to change.

• We refinanced the $355.0 million Bridge Facility on February 10, 2022 with a $355.0 million CMBS Loan at a fixed rate of 4.971%.

The CMBS Loan matures on February 11, 2027.

• During the year ended December 31, 2022, we borrowed and repaid amounts under the Revolving Facility, which amounts aggregate to net repayments of $90.0 million of borrowings under the Revolving Facility, utilizing a combination of cash flows from operations and proceeds from real estate dispositions.

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

• During December 2022, we transitioned the benchmark rate for borrowings under the Revolver/Term Loan Agreement from LIBOR to SOFR.

In connection with that transition, we terminated the interest rate swap agreements that had been entered into during the year ended December 2021 to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility, and we entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million.

• The Company’s Board of Directors declared quarterly cash dividends of $0.10 per share for each of the four quarters of 2022.

The dividends were paid on April 15, 2022, July 15, 2022, October 17, 2022 and January 17, 2023.

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

• On June 29, 2023, the Company closed an amendment of its credit agreement.

Under the terms of the amendment, the Company used borrowings from its $425.0 million-capacity Revolving Facility to repay and retire its $175.0 million Term Loan Facility which was scheduled to mature on November 12, 2023.

The amendment also provides the Company with the option to extend the Revolving Facility for an additional 18 months to May 12, 2026 from the current scheduled maturity of November 12, 2024 and to effect certain other modifications.

The extension option is subject to customary conditions including there being no default or event of default, such as the failure to satisfy a financial or other covenant, and the payment of an extension fee.

• During the year ended December 31, 2023, following the scheduled expiration of our swap agreements which effectively fixed the interest rate on the notional amount of $175.0 million at 3.92% per annum until November 12, 2023, the Company entered into interest rate collar agreements on a total notional amount of $60.0 million to hedge against interest rate volatility on the Revolving Facility.

Under the agreements, the benchmark rate for the credit facility revolver will float between 5.50% per annum and 4.20% per annum on $25.0 million, and 5.50% per annum and 4.035% per annum on $35.0 million, effective from November 13, 2023 until May 12, 2025.

• During the year ended December 31, 2023, we made net repayments of debt obligations of $59.0 million, utilizing a combination of cash flows from operations and proceeds from real estate dispositions.

As of December 31, 2023, we had $116.0 million of outstanding borrowings under our Revolving Facility and $309.0 million of borrowing capacity thereunder.

• The Company’s Board of Directors declared quarterly cash dividends of $0.10 per share for each of the four quarters of 2023, which were paid on April 17, 2023, July 17, 2023, October 16, 2023 and January 16, 2024.

On February 27,

2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first quarter of 2024, payable on April 15, 2024, to stockholders of record as of March 29, 2024.

• During the year ended December 31, 2023, the Company repurchased approximately 0.9 million shares of common stock in multiple open market transactions, at a weighted average share price of $5.46 for an aggregate purchase price of $5.0 million as part of the Share Repurchase Program, which are currently deemed to be authorized but unissued shares of common stock.

Real Estate Portfolio Metrics

Our financial performance is impacted by the timing of acquisitions and dispositions and the operating performance of our operating properties.

Our financial performance is impacted by the timing of dispositions and the operating performance of our operating properties.

The following table shows the property statistics of our operating properties as of December 31, 2023 and 2022, including our pro rata share of the applicable statistics of the properties owned by the Arch Street Joint Venture:

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(2) Occupancy rate equals the sum of leased square feet divided by rentable square feet.

The occupancy rate as of December 31, 2023 equals 87.2% adjusted for properties that are currently under agreement to be sold.

(3) Based on annualized base rent of our real estate portfolio, including the Company’s pro rata share of annualized base rent for properties owned by the Arch Street Joint Venture, as of December 31, 2023.

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Operating Performance

In addition, management uses the following financial metrics to assess our operating performance (dollar amounts in thousands, except per share amounts).

In addition, management uses the following financial metrics to assess our operating performance (in thousands, except per share amounts).

Year Ended December 31,

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Total revenues $ 195,041 $ 208,118

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

Net loss attributable to common stockholders $ (57,302) $ (97,494)

Basic and diluted net loss per share attributable to common stockholders $ (1.02) $ (1.72)

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GAAP measure.

(2) The Company has revised its definition of Core FFO beginning in 2023 and has applied this change retrospectively for comparison purposes.

See the Non-GAAP Measures section below for further discussion of the change.

Leasing Activity and Capital Expenditures

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If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants.

We also seek to lease our vacant properties to new tenants.

We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.

Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations, improvements or concessions to tenants, particularly commercial tenants, may be less favorable to us than current lease terms.

Our properties may not be as attractive to existing or new tenants as properties owned by our competitors due to age of buildings, physical condition, lack of amenities or other similar factors.

Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations, improvements or concessions to tenants, may be less favorable to us than current lease terms.

As a result, our net income and ability to pay dividends to stockholders could be materially adversely affected.

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The Company has funded and intends to continue to fund tenant improvement allowances with cash on hand, which may include proceeds from dispositions.

For assets financed on our CMBS Loan, the Company has funded reserves with the lender

for tenant improvement allowances and rent concession commitments.

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

The restricted cash included in this reserve totaled $34.7 million as of December 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.

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(1) Represents weighted average percentage increase or decrease in (i) the annualized monthly cash amount charged to the applicable tenants (including monthly base rent receivables and certain contractually obligated reimbursements by the applicable tenants, which may include estimates) as of the commencement date of the new lease term (excluding any full or partial rent abatement period) compared to (ii) the annualized monthly cash amount charged to the applicable tenants (including the monthly base rent receivables and certain contractually obligated reimbursements by the applicable tenants, which may include estimates) as of the expiration date of the prior lease term.

(1) Represents weighted average percentage increase or decrease in (i) the annualized monthly cash amount charged to the applicable tenants (including monthly base rent receivables and certain fixed contractually obligated reimbursements by the applicable tenants, which may include estimates) as of the commencement date of the new lease term (excluding any full or partial rent abatement period) compared to (ii) the annualized monthly cash amount charged to the applicable tenants (including the monthly base rent receivables and certain fixed contractually obligated reimbursements by the applicable tenants) as of the expiration date of the prior lease term.

If a space has been vacant for more than 12 months prior to the execution of a new lease, the lease will be excluded from this calculation.

(2) Excludes one new lease for approximately 41,000 square feet of space that had been vacant for more than 12 months at the time the new lease was executed.

(2) Excludes two new leases for approximately 7,000 square feet of space that had been vacant for more than 12 months at the time the new lease was executed.

(3) Includes commitments for tenant improvement allowances and base building allowances, leasing commissions and free rent (includes estimates of property operating expenses, where applicable).

During the year ended December 31, 2022, amounts capitalized by the Company for lease related costs, lease incentives and building, fixtures and improvements were as follows:

(4) Weighted average lease term does not include specified periods of the stated lease term during which a tenant has the right to terminate their space without a termination fee, or “non-firm terms.” The total weighted average lease term for new leases and renewals executed during the year ended December 31, 2023 would be 10.6 years if such non-firm terms were included.

During the year ended December 31, 2023, amounts capitalized by the Company for lease related costs, lease incentives and building, fixtures and improvements were as follows (in thousands):

December 31, 2023

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Results of Operations

The results of operations discussed in this section include the accounts of Realty Income Office Assets from January 1, 2021 to October 31, 2021 and all prior periods presented and the accounts of the Company and its consolidated subsidiaries from and after the Merger Effective Time, including Realty Income Office Assets and VEREIT Office Assets.

For the periods presented prior to the date of the Distribution, our historical consolidated and combined financial results reflect charges for certain legal, accounting and other costs related to the Distribution, which were incurred and paid by Realty Income on our behalf and are reflected as capital contributions.

Comparison of the year ended December 31, 2023 to the year ended December 31, 2022 (dollars in thousands)

The Company’s portfolio size significantly increased in the last two months of 2021 as a result of the Mergers, which contributed to an increase in revenues and expenses when comparing the year ended December 31, 2022 to the same period in 2021.

As of December 31, 2022, we had 81 office properties with an aggregate of 9.5 million leasable square feet as compared to 40 properties with approximately 3.0 million leasable square feet as of October 31, 2021, prior to the Merger Effective Time.

The results of operations discussed in this section include the accounts of the Company and its consolidated subsidiaries for the years ended December 31, 2023 and 2022.

The table below sets forth, for the periods presented, revenue information and the dollar amount change year over year (in thousands):

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Total revenues $ 195,041 $ 208,118 $ (13,077)

The increase in rental revenue of $127.9 million during the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to the increase in our overall portfolio size resulting from the closing of the Mergers, which was partially offset by our lower occupancy rate and property dispositions.

Including the rental revenue from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, rental revenue decreased by $6.8 million primarily due to our lower occupancy rate and property dispositions.

Our portfolio occupancy rate was 88.8% and 91.8% as of December 31, 2022 and 2021, respectively.

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

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

During the year ended December 31, 2021, the Company did not have any reductions to rental revenue for amounts not probable of collection.

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

The decrease in rental revenue of $13.1 million during the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to the decrease in our overall occupied square footage due to scheduled vacancies and property dispositions.

Our portfolio occupancy rate was 80.0% and we had 75 properties with an aggregate of 8.7 million leasable square feet as of December 31, 2023, as compared to a portfolio occupancy rate of 88.8% and 81 properties with an aggregate of 9.5 million leasable square feet as of December 31, 2022.

During the years ended December 31, 2023 and 2022, the Company recognized $4.3 million and $1.4 million, respectively, of lease termination income.

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Fee income from unconsolidated joint venture consists of fees earned for providing various services to the Arch Street Joint Venture.

The increase of $0.5 million during the year ended December 31, 2022 as compared to the same period in 2021 was due to a full year of fees earned from the Arch Street Joint Venture, including property and asset management fees, in 2022 as compared to two months of fees in 2021.

Including the fee income from unconsolidated joint venture from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, fee income from unconsolidated joint venture would have been consistent.

Fee income from unconsolidated joint venture remained consistent at $0.8 million during the years ended December 31, 2023 and 2022.

Operating Expenses

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Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses.

The increase in property operating expenses of $48.1 million during the year ended December 31, 2022 as compared to the same period in 2021 was primarily attributable to the increase in our portfolio size.

Including the property operating expenses from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, property operating expenses increased $11.9 million primarily due to expenses for insurance, property owners association, electricity and HVAC repairs and non-reimbursable expenses due to vacancies.

Property operating expenses decreased during the year ended December 31, 2023 as compared to the same period in 2022, primarily due to property dispositions, offset by increases from additional property vacancies which resulted in the recognition of certain operating expenses which were previously paid directly by the tenant such as property taxes.

General and administrative expenses

General and administrative expenses increased $12.1 million during the year ended December 31, 2022 as compared to the same period in 2021, which was primarily due to actual costs recorded during the year ended December 31, 2022 following the Distribution and the Company’s commencement of operations as a standalone business, as compared with an allocation of amounts for the first ten months of the year ended December 31, 2021.

Including the general and administrative expenses from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, general and administrative expenses increased $6.5 million.

General and administrative expenses for Realty Income Office Assets and VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021 are primarily an allocation from Realty Income and VEREIT general and administrative expenses, and therefore, do not reflect the full general and administrative expenses of an independent, separate public company.

General and administrative expenses increased $2.8 million during the year ended December 31, 2023 as compared to the same period in 2022, primarily due to increased stock compensation expense for additional equity award issuances during the year ended December 31, 2023 as well as merit base salary increases and higher employee headcount.

Depreciation and amortization expenses

The increase in depreciation and amortization expenses of $87.4 million during the year ended December 31, 2022 as compared to the same period in 2021 were primarily due to the increase in our portfolio size.

Including the depreciation and amortization expenses from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, depreciation and amortization expenses increased $38.5 million, primarily due to the fair valuation of the VEREIT Office Assets as a result of the Mergers.

Impairments of $66.4 million were recorded during the year ended December 31, 2022 as compared to $49.9 million impairments during the same period in 2021.

The impairment charges in the year ended December 31, 2022 include a total of 18 properties and the charges reflect management’s estimates of lease renewal probability, timing and terms of such renewals, carrying costs for vacant properties, sale probability, estimates of sale proceeds, including where applicable, the negotiated price under a definitive agreement to sell the asset.

Impairment charges totaling $12.2 million with respect to 11 properties were recorded during the three months ended December 31, 2022.

Depreciation and amortization expenses decreased $22.3 million during the year ended December 31, 2023 as compared to the same period in 2022, primarily due to the full amortization of certain intangible assets as a result of leases expiring in accordance with their terms and early terminations, as well as disposition and impairment of real estate assets.

Impairments decreased $33.2 million during the year ended December 31, 2023 as compared to the same period in 2022.

The impairment charges of $33.1 million in the year ended December 31, 2023 include a total of eight properties and the charges were incurred primarily with respect to real estate assets that were sold or expected to be sold and reflect the Company’s future cash flow assumptions for agreed-upon or estimated sale proceeds, as well as changes to assumptions with regard to management’s intent to sell or lease the real estate assets.

Impairment charges totaling $66.4 million with respect to 18 properties were recorded during the same period in 2022.

See Note 5 – Fair Value Measures for further information.

Impairments for the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021 were $28.1 million, due to four real estate assets that were deemed to be impaired.

Transaction related expenses

During the year ended December 31, 2022 the Company incurred $0.7 million of transaction related expenses which primarily consist of internal salaries allocated to acquisition-related activities as well as costs incurred for deals that were not consummated.

No such costs were incurred during the same period in 2021.

Transaction related expense remained relatively consistent during the year ended December 31, 2023 as compared to the same period in 2022.

Spin related expenses

During the year ended December 31, 2022, the Company incurred $1.0 million of spin related expenses as compared to $7.9 million of spin related expenses during the same period in 2021.

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

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

During the year ended December 31, 2023, the Company incurred no spin related expenses.

During the year ended December 31, 2022, the Company incurred $1.0 million of spin related expenses, which primarily consist of legal and accountant fees related to the Separation and the Distribution and the Company’s start-up activities.

Other (Expense) Income and Provision for Income Taxes

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Interest expense, net $ (29,669) $ (30,171) $ (502)

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

Loss on extinguishment of debt, net $ (504) $ (468) $ 36

1 unchanged sentence

Equity in loss of unconsolidated joint venture, net $ (435) $ (524) $ (89)

Gain on disposition of real estate assets $ 31 $ 2,352 $ (2,321)

Provision for income taxes $ (456) $ (212) $ 244

Interest expense, net

The increase in interest expense of $25.9 million during the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to an increase in debt outstanding from and after the Distribution.

Prior to the Distribution, the Company had no outstanding debt, as compared to $526.0 million as of December 31, 2022, as discussed in Note 6 – Debt, Net.

Including the interest expense from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, interest expense increased $19.9 million primarily due to the increase in debt outstanding in connection with the capitalization of the Company.

Gain on disposition of real estate assets

Gain on disposition of real estate assets was $2.4 million for the year ended December 31, 2022 as compared to no gain during the same period in 2021.

The gain was related to five of the Company’s 11 dispositions during the year ended December 31, 2022.

Four of these properties were subject to cumulative impairment losses of $22.2 million in prior periods.

Interest expense, net decreased $0.5 million during the year ended December 31, 2023 as compared to the same period in 2022, which was primarily due to lower outstanding debt during the year ended December 31, 2023, partially offset by higher interest rates.

The Company’s average debt outstanding for the year ended December 31, 2023 was $500.5 million, as compared to $575.0 million during the same period in 2022.

Interest expense for the year ended December 31, 2023 included offsets of $6.7 million of reclassified previous gains on interest rate derivatives from accumulated other comprehensive income (loss), compared with $1.8 million reclassified gains during the same period in 2022.

Loss on extinguishment of debt, net

Loss on extinguishment of debt, net was $0.5 million during the year ended December 31, 2022 as compared to $3.8 million loss on extinguishment of debt in the same period in 2021.

The loss in the 2022 period relates to the write off of deferred financing costs due to the early extinguishment of the Company’s Bridge Facility, as discussed in Note 6 – Debt, Net.

The loss in the 2021 period was primarily due to a prepayment penalty related to the early repayment of a mortgage completed in September 2021.

Loss on extinguishment of debt, net for the VEREIT Office Assets was $5.3 million for the period from January 1, 2021 to October 31, 2021, which primarily related to the write off of deferred financing costs due to the early extinguishment of mortgage notes payable.

Loss on extinguishment of debt, net during the year ended December 31, 2023 related to the write off of deferred financing costs due to the early extinguishment of the Company’s Term Loan Facility, as defined below and discussed in Note 6 – Debt, Net.

Loss on extinguishment of debt, net during the year ended December 31, 2022 related to the write off of deferred financing costs due to the early extinguishment of the Company’s Bridge Facility, as defined below and discussed in Note 6 – Debt, Net.

Other income, net

Other income, net increased $0.7 million during the year ended December 31, 2023 as compared to the same period in 2022, which was primarily due to interest income from money market accounts and an escrow account with the administrative agent under the Revolving Facility, as defined below.

Equity in loss of unconsolidated joint venture, net

Equity in loss of the unconsolidated joint venture, net was $0.5 million during the year ended December 31, 2022 as compared to equity in loss of the unconsolidated joint venture, net of less than $0.1 million for the same period in 2021.

These amounts relate to the Company’s investment in the Arch Street Joint Venture, which interest was transferred to the Company in connection with the Distribution.

Including the equity in income (loss) of unconsolidated joint venture from the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021, income decreased $1.2 million primarily related to amortization of the step up in basis in the Company’s investment in the Arch Street Joint Venture as a result of the Mergers.

Equity in loss of the unconsolidated joint venture remained relatively consistent during the year ended December 31, 2023 as compared to the same period in 2022.

Gain on disposition of real estate assets

Gain on disposition of real estate assets was less than $0.1 million for the year ended December 31, 2023 as compared to $2.4 million during the year ended December 31, 2022.

The gain recognized in the year ended December 31, 2023 was related to three of the Company’s dispositions.

These properties were subject to cumulative impairment losses of $16.0 million in prior periods.

Provision for income taxes

The provision for income taxes consists of certain state and local income and franchise taxes.

The provision for income taxes was $0.2 million during the year ended December 31, 2022 as compared to $0.2 million for the same period in 2021.

The provision for income taxes for the VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021 was $0.5 million.

The provision for income taxes increased $0.2 million during the year ended December 31, 2023 as compared to the same period in 2022.

Comparison of the year ended December 31, 2022 to the year ended December 31, 2021 (dollars in thousands)

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Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc.

(“Nareit”), an industry trade group, has promulgated a supplemental performance measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT.

the operating performance of a REIT.

FFO is not equivalent to our net income or loss as determined under U.S.

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Core FFO, as defined by the Company, excludes from FFO items that we believe do not reflect the ongoing operating performance of our business such as transaction related expenses, spin related expenses and gains or losses on extinguishment of swaps and/or debt, and our pro rata share of Core FFO adjustments related to the unconsolidated joint venture.

Beginning in 2023, the Company will be revising its definition of Core FFO to also exclude the following non-cash charges which management believes do not reflect the ongoing operating performance of our business:

Beginning in 2023, the Company revised its definition of Core FFO to also exclude the following non-cash charges which management believes do not reflect the ongoing operating performance of our business:

(i) amortization of deferred lease incentives, (ii) amortization of deferred financing costs, (iii) equity-based compensation, and (iv) amortization of premiums and discounts on debt, net.

If this definitional change had been made in 2022, the impact would have been an increase to Core FFO for the year ended December 31, 2022 of $6.4 million, or $0.11 per share.

This change in definition will be applied retrospectively beginning January 1, 2023.

We believe that FFO and Core FFO allow for a comparison of the performance of our operations with other publicly-traded REITs, as FFO and Core FFO, or equivalent measures, are routinely reported by publicly-traded REITs, each adjust for items that we believe do not reflect the ongoing operating performance of our business and we believe are often used by analysts and investors for comparison purposes.

This change in definition has also been applied retrospectively for comparison purposes.

We believe that FFO and Core FFO allow for a comparison of the performance of our operations with other publicly-traded REITs, as FFO and Core FFO, or an equivalent measure, are routinely reported by publicly-traded REITs, each adjust for items that we believe do not reflect the ongoing operating performance of our business and we believe are often used by analysts and investors for comparison purposes.

For all of these reasons, we believe FFO and Core FFO, in addition to net income (loss), as defined by U.S.

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Neither the SEC, Nareit, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate Core FFO and its use as a non-GAAP financial performance measure.

The table below presents a reconciliation of FFO and Core FFO to net (loss) income attributable to common stockholders, the most directly comparable U.S.

GAAP financial measure, for the year ended December 31, 2022 and 2021 (in thousands, except share and per share data):

The table below presents a reconciliation of FFO and Core FFO to net loss attributable to common stockholders, the most directly comparable U.S.

GAAP financial measure, for the years ended December 31, 2023, 2022 and 2021 (in thousands, except per share amounts):

Year Ended December 31,

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Spin related (1)

Amortization of deferred financing costs (2)

Amortization of deferred lease incentives, net (2)

Equity-based compensation (2)

Loss on extinguishment of debt, net 504 468

Proportionate share of adjustments for unconsolidated joint venture 117 178

Core FFO attributable to common stockholders $ 94,770 $ 108,178

3 unchanged sentences

____________________________________

(1) Spin related primarily consist of attorney fees and accountant fees related to the Mergers and the Distribution and the Company’s start-up activities.

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

Liquidity and Capital Resources - Orion Office REIT Inc.

(1) Spin related primarily consist of attorney fees and accountant fees related to the Separation and the Distribution and the Company’s start-up activities.

(2) The Company has revised its definition of Core FFO beginning in 2023 and has applied this change retrospectively for comparison purposes.

Liquidity and Capital Resources

Our principal liquidity needs for the next twelve months are to:

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(ii) pay interest on our debt;

(iii) repay or refinance the Term Loan Facility (as defined below) which is scheduled to mature on November 12, 2023;

(iv) pay dividends to our stockholders;

(v) fund capital expenditures and leasing costs at properties we own;

and (vi) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture.

(iii) pay dividends to our stockholders;

(iv) fund capital expenditures and leasing costs at properties we own;

and (v) fund new acquisitions, including acquisitions related to the Arch Street Joint Venture.

We believe that our principal sources of short-term liquidity, which are our cash and cash equivalents on hand, cash flows from operations, proceeds from real estate dispositions, and borrowings under the Revolving Facility, are sufficient to meet our liquidity needs for the next twelve months.

As of December 31, 2023, we had $22.5 million of cash and cash equivalents and $309.0 million of borrowing capacity under the Revolving Facility.

Our Revolving Facility is scheduled to mature in November 2024, and we have the option to extend the maturity an additional 18 months until May 12, 2026.

The extension option is subject to customary conditions, including there being no default or event of default, such as the failure to satisfy a financial or other covenant.

Our ability to satisfy these conditions and continue to comply with the terms of the Revolving Facility is partially dependent upon us having a sufficient level of unencumbered asset value as defined in the credit agreement with respect to the Revolving Facility.

The level of unencumbered asset value is partially dependent upon future leasing activity at the underlying properties and/or us acquiring additional properties to add to the unencumbered asset pool, and there is uncertainty about our ability to renew or re-lease properties and/or acquire additional properties at a sufficient level to meet the requirements to extend and continue to comply with the Revolving Facility.

Accordingly, the extension option may not be available to us.

Additionally, we do not expect to have generated sufficient cash from operations to repay the principal outstanding under the Revolving Facility, which was $116.0 million as of December 31, 2023, on its scheduled maturity date.

We have had preliminary discussions with the administrative agent of the Revolving Facility to potentially amend the facility in a manner that would result in an extension of the facility and a reduction in the amount of unencumbered asset value required under the financial covenants of the Revolving Facility.

However, there is no assurance that we will be able to reach an agreement with the lenders of the Revolving Facility on favorable terms and in a timely manner, or at all.

If we are unable to meet the conditions to extend and continue to comply with the Revolving Facility, or otherwise modify the Revolving Facility to allow us to extend and continue to comply with, or otherwise refinance, this facility, we might be forced to sell assets to generate cash, which might be on unfavorable terms, if at all, or we might not be able to make all required payments of principal and interest on our debt, which could result in a default, result in our lenders foreclosing on our assets, or otherwise have a material adverse effect on our financial condition and results of operations.

The mortgage notes associated with the Arch Street Joint Venture are also scheduled to mature in November 2024, and the Arch Street Joint Venture has two successive one-year options to extend the maturity until November 27, 2026.

The extension options are subject to satisfaction of certain conditions, including satisfaction of certain financial and operating covenants.

We believe the Arch Street Joint Venture will be able to satisfy the extension conditions or otherwise extend the loan on terms mutually acceptable to the Arch Street Joint Venture and the existing lenders, but we cannot provide any assurance it will be able to do so.

If the Arch Street Joint Venture is unable to extend or refinance the mortgage notes, our investment in the Arch Street Joint Venture could be materially adversely affected.

Our principal liquidity needs beyond the next twelve months are to:

(i) repay or refinance debt at or prior to maturity;

(i) repay, extend or refinance debt at or prior to maturity;

(ii) pay dividends to our stockholders;

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We believe we will be successful in either repaying or refinancing our debt obligations at or prior to maturity, but we cannot provide any assurance we will be able to do so.

Our ability to refinance debt, raise capital and/or sell assets will be affected by various factors existing at the relevant time, such as capital and credit market conditions, the state of the national and regional economies, commercial real estate market conditions, available interest rate levels, the lease terms for and equity in and value of any related collateral, our financial condition and the operating history of the collateral, if any.

Our ability to extend or refinance debt, raise capital and/or sell assets will be affected by various factors existing at the relevant time, such as capital and credit market conditions, the state of the national and regional economies, commercial real estate market conditions, available interest rate levels, the lease terms for and equity in and value of any related collateral, our financial condition and the operating history of the collateral, if any.

Credit Agreements

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Credit facility revolver (1) (2)

SOFR + 2.60% November 2024 $ — $ — $ — $ — $ — $ —

Credit facility term loan (1) (3)

SOFR + 2.60% November 2023 175,000 175,000 — — — —

SOFR + 3.35% May 2026 $ 116,000 $ — $ — $ 116,000 $ —

Mortgages payable (3)

3 unchanged sentences

(1) Includes interest rate margin of 3.25% plus SOFR adjustment of 0.10%.

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

(3) As of December 31, 2022, we had $175.0 million of variable rate debt on the Term Loan Facility effectively fixed through the use of interest rate swap agreements.

As of December 31, 2023, we had $60.0 million of variable rate debt outstanding under the Revolving Facility which was subject to interest rate collar agreements to hedge against interest rate volatility.

Under the agreements, the benchmark rate for the Revolving Facility will float between 5.50% per annum and 4.20% per annum on $25.0 million, and 5.50% per annum and 4.035% per annum on $35.0 million, effective from November 13, 2023 until May 12, 2025.

(2) The credit facility revolver matures on November 12, 2024 with an option to extend the maturity an additional 18 months to May 12, 2026 if customary conditions are satisfied.

This table assumes exercise of the extension option, however, as described above, we cannot provide any assurance we will be able to satisfy the extension conditions.

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

Credit Agreement Obligations

In connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425.0 million senior revolving credit facility (the “Revolving Facility”), including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “Term Loan Facility” and collectively with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355.0 million senior bridge term loan facility (the “Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.

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

We expect to extend, repay or refinance (or some combination of the foregoing) the Revolver/Term Loan Facilities on or prior to maturity, but we cannot provide any assurance we will be able to do so on favorable terms, in a timely manner, or at all.

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 general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries.

In connection with the Separation and the Distribution, on November 12, 2021, we, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “Credit Agreement”) providing for a three-year, $425.0 million senior revolving credit facility (the “Revolving Facility”), including a $25.0 million letter of credit sub-facility, and a two-year, $175.0 million senior term loan facility (the “Term Loan Facility”) 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”) providing for a six-month, $355.0 million senior bridge term loan facility (the “Bridge Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.

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

As of December 31, 2022, the Company had approximately $530.0 million of total consolidated debt outstanding, consisting of a $355.0 million CMBS Loan and $175.0 million borrowed under our Term Loan Facility.

As of December 31,

2022, we did not have any amounts outstanding under our $425.0 million Revolving Facility.

During the year ended December 31, 2022, as part of its normal cash management strategy, the Company borrowed and repaid amounts under the Revolving Facility, which amounts aggregate to net repayments of $90.0 million of borrowings under the Revolving Facility, utilizing a combination of cash flows from operations and proceeds from real estate dispositions.

In June 2023, as further described below, the Term Loan Facility was repaid and retired with borrowings under the Revolving Facility.

As of December 31, 2023, the Company had $471.0 million of total consolidated debt outstanding, consisting of a $355.0 million CMBS Loan and $116.0 million outstanding under our Revolving Facility.

During the year ended December 31, 2023, the Company made net repayments of debt obligations of $59.0 million, utilizing a combination of cash flows from operations and proceeds from real estate dispositions.

In addition, the Company’s pro rata share of the mortgage notes of the Arch Street Joint Venture was $27.3 million as of December 31, 2023.

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

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

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

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

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

As of December 31, 2022, the interest rate per annum under our Term Loan was swapped to a fixed rate of 3.17%.

We have entered into two amendments to the Credit Agreement.

The purpose of the first amendment entered into in December 2022 was to change the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York).

The purpose of the second amendment entered into in June 2023 was to repay and retire $175.0 million of outstanding borrowings under the Term Loan Facility with borrowings from the Revolving Facility (which was undrawn at the time of the second amendment), provide us with the option to extend the maturity of the Revolving Facility for an additional 18 months to May 12, 2026 from November 12, 2024 and to effect certain other modifications.

As described in greater detail above, there is uncertainty about our ability to meet the requirements to extend and continue to comply with the Revolving Facility and we cannot provide any assurance we will be able to do so.

Giving effect to the amendments described above, the interest rate applicable to the loans under the Revolving Facility 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 of 3.25% for SOFR loans and 2.25% for base rate loans.

Loans under the Revolving Facility may be prepaid and reborrowed, and unused commitments under the Revolving Facility may be reduced, at any time, in whole or in part, by Orion OP, without premium or penalty (except for SOFR breakage costs).

In December 2022, we entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, which effectively fixed the interest rate on $175.0 million of principal under the Revolving Facility at 3.92% per annum until November 12, 2023.

Upon the scheduled expiration of the interest rate swap agreements, we entered into interest rate collar agreements on a total notional amount of $60.0 million to hedge against interest rate volatility on the Revolving Facility.

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

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

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

Revolver/Term Loan Facilities Covenants

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 certain financial covenants.

The following is a summary of financial covenants for the Company’s Revolver/Term Loan Facilities and the Company’s compliance therewith, as calculated per the terms of the Revolver/Term Loan Credit Agreement.

The Revolving Facility is guaranteed pursuant to a guaranty by us and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).

The Revolving Facility is secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.

Revolving Facility Covenants

The Revolving Facility requires 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.

Pursuant to the second amendment described above, if, on any day, Orion OP has unrestricted cash and cash equivalents in excess of $25.0 million (excluding amounts that are then designated for application or use and are subsequently used for such purposes within 30 days),

Orion OP will use such excess amount to prepay loans under the Revolving Facility, without premium or penalty and without any reduction in the lenders’ commitment under the Revolving Facility.

In addition, the Revolving Facility requires that Orion OP satisfy certain financial covenants.

The following is a summary of financial covenants for the Company’s Revolving Facility and the Company’s compliance therewith as of December 31, 2023, as calculated per the terms of the Credit Agreement, giving effect to the modifications pursuant to the second amendment described above.

These calculations are presented to show the Company’s compliance with the financial covenants and are not measures of the Company’s liquidity or performance.

Revolver/Term Loan Facilities Financial Covenants Required December 31, 2022

Revolving Facility Financial Covenants Required December 31, 2023

Ratio of total indebtedness to total asset value ≤ 60% 38.3%

3 unchanged sentences

Ratio of unencumbered adjusted NOI to unsecured interest expense ≥ 2.00x 7.8x

Unencumbered asset value ≥ $600.0 million $775.2 million

____________________________________

(1) Pursuant to the second amendment described above, if the ratio of unsecured debt to unencumbered asset value exceeds 35% as of the end of two consecutive fiscal quarters, Orion OP will be required, within 90 days and subject to cure rights, to grant the administrative agent a first priority lien on all the properties included in the pool of unencumbered assets (other than properties identified for disposition by us so long as such properties are sold within one year of such identification).

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

The Revolver/Term Loan Facilities include customary representations and warranties of us 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.

The Revolver/Term Loan Facilities also include customary events of default, the occurrence of which, following any applicable

grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Revolver/Term Loan Facilities to be immediately due and payable and foreclose on the collateral securing the Revolver/Term Loan Facilities.

The Revolving Facility includes customary representations and warranties of us and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolving Facility.

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

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

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

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

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

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

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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 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.

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.

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See the section “Dividends” below for disclosure with regard to the Company’s dividend policy.

On November 12, 2021, in connection with the Distribution, Orion OP entered into the Arch Street Joint Venture with the Arch Street Partner, an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P.

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

Arch Street Warrants

On November 12, 2021, in connection with the Distribution, Orion OP entered into an amendment and restatement of the limited liability agreement (the “LLCA”) for the Arch Street Joint Venture with the Arch Street Partner, an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P.

Also on November 12, 2021, in connection with the entry into the LLCA, we granted the Arch Street Partner and Arch Street Capital Partners warrants to purchase up to 1,120,000 shares of our common stock (the “Arch Street Warrants”).

The Arch Street Warrants entitle the respective holders to purchase shares of our common stock at a price per share equal to $22.42, at any time.

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

Also in connection with the entry into the LLCA, the Arch Street Joint Venture’s lender consented to the transfer of the interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P.

to Orion OP, and, in connection therewith, Orion OP agreed to become a guarantor of certain limited customary recourse obligations and provide certain customary environmental indemnities under the Arch Street Joint Venture’s existing indebtedness.

Derivatives and Hedging Activities

During the year ended December 31, 2021, the Company entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2021 and terminating on November 12, 2023, which were designated as cash flow hedges, in order to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility.

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 interest rate swap agreements that had been entered into during the year ended December 31, 2021, 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, which were designated as cash flow hedges, to hedge interest rate volatility with respect to the Company’s borrowings under the Term Loan Facility.

Right of First Offer Agreement

In connection with the entry into the LLCA, we and the Arch Street Joint Venture entered into that certain Right of First Offer Agreement (the “ROFO Agreement”), dated November 12, 2021, pursuant to which, subject to certain limitations, we agreed not to acquire or purchase a fee simple or ground leasehold interest in any office real property, including by way of an acquisition of equity interests, within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture.

The ROFO Agreement will expire upon the earlier of (1) the third anniversary of its execution, (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million.

The ROFO Agreement will expire upon the earlier of (1) November 12, 2024 (the third anniversary of its

execution), (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million.

If the Arch Street Joint Venture decides not to acquire any such property, we may seek to acquire the property independently, subject to certain restrictions.

We do not anticipate that the ROFO Agreement will have a material impact on our ability to acquire additional real estate investments, although it could result in us acquiring future properties through the Arch Street Joint Venture rather than as sole owner.

We have been operating in a manner so as to qualify and have elected to be taxed as a REIT for U.S.

Derivatives and Hedging Activities

During the year ended December 31, 2021, we entered into interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2021 and terminating on November 12, 2023, which were designated as cash flow hedges, in order to hedge interest rate volatility.

During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR, we terminated the interest rate swap agreements that had been entered into during the year ended December 31, 2021, 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, which were designated as cash flow hedges, to hedge interest rate volatility with respect to the our borrowings under the Term Loan Facility.

These swap agreements remained in effect for the $175.0 million of borrowings under the Revolving Facility used to pay down the Term Loan Facility until November 12, 2023.

We have elected to be taxed as a REIT for U.S.

federal income tax purposes beginning with our taxable year ended December 31, 2021.

We intend to make regular distributions to our stockholders to satisfy the requirements to maintain our qualification as a REIT.

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

During the year ended December 31, 2023, the Company’s Board of Directors declared quarterly cash dividends on shares of our common stock as follows:

Declaration Date Record Date Paid Date Distributions Per Share

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November 9, 2023 December 29, 2023 January 16, 2024 $0.10

On February 27, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first quarter of 2024, payable on April 15, 2024, to stockholders of record as of March 29, 2024.

Our dividend policy is established at the discretion of the Company’s Board of Directors and future dividends may be funded from a variety of sources.

In particular, we expect that, initially, our dividends will exceed our net income under U.S.

GAAP because of non-cash expenses, mainly depreciation and amortization expense, which are included in net income.

In particular, we expect that for the years ended December 31, 2024 and 2025, our dividends will exceed our net income under U.S.

GAAP because of non-cash expenses, mainly depreciation and amortization expense and impairment charges, which are included in net income.

To the extent that our funds available for distribution are less than the amount we must distribute to our stockholders to satisfy the requirements to maintain our qualification as a REIT, we may consider various means to cover any such shortfall, including borrowing under our Revolving Facility or other loans, selling certain of our assets or using a portion of the net proceeds we receive from future offerings of equity, equity-related securities or debt securities or declaring share dividends.

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Pursuant to the Universal Shelf, the Company is able to offer and sell from time to time in multiple transactions, up to $750.0 million of the Company’s securities, including through “at the market” offering programs or firm commitment underwritten offerings.

These securities may include shares of the Company’s common stock, shares of the Company’s preferred stock, depository shares representing interests in shares of the Company’s preferred stock, debt securities, warrants to purchase shares of the Company’s common stock or shares of the Company’s preferred stock and units consisting of two or more shares of common stock, shares of preferred stock, depository shares, debt securities and warrants.

These securities

may include shares of the Company’s common stock, shares of the Company’s preferred stock, depository shares representing interests in shares of the Company’s preferred stock, debt securities, warrants to purchase shares of the Company’s common stock or shares of the Company’s preferred stock and units consisting of two or more shares of common stock, shares of preferred stock, depository shares, debt securities and warrants.

In November 2022, the Company established, as part of its Universal Shelf, an “at the market” offering program for its common stock (the “ATM Program”).

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As of December 31, 2023, we had not sold any shares of common stock pursuant to the ATM Program.

Net proceeds from the securities issued, if any, may be used for general corporate purposes, which may include funding potential acquisitions and repaying outstanding indebtedness.

Net proceeds from the securities issued, if any, may be used for general corporate purposes, which may include funding capital expenditures and leasing costs at our properties and repaying outstanding indebtedness.

The Company has no immediate plans to issue any securities for capital raising purposes pursuant to the Universal Shelf or otherwise.

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Shares of common stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to the status of authorized but unissued shares of common stock.

The Company did not repurchase any shares under

the Share Repurchase Program during the year ended December 31, 2022, and it has not repurchased any shares under the Share Repurchase Program through March 8, 2023.

During the year ended December 31, 2023, the Company repurchased approximately 0.9 million shares of common stock in multiple open market transactions, at a weighted average share price of $5.46 for an aggregate purchase price of $5.0 million as part of the Share Repurchase Program, which are currently deemed to be authorized but unissued shares of common stock.

Cash Flow Analysis for the Year Ended December 31, 2023

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Net cash provided by operating activities $ 89,088 $ 114,232 $ (25,144)

Net cash provided by (used in) investing activities $ 22,477 $ (12,261) $ 34,738

Net cash provided by investing activities $ 5,289 $ 22,477 $ (17,188)

Net cash used in financing activities $ (92,490) $ (110,716) $ 18,226

Net cash provided by operating activities increased $58.1 million during the year ended December 31, 2022, compared to the same period in 2021 primarily due to the increase in our portfolio size as a result of the Mergers.

Net cash provided by investing activities increased $34.7 million during the year ended December 31, 2022, compared to the same period in 2021.

The change was primarily due to proceeds from the disposition of real estate and distributions received from the Arch Street Joint Venture during the year ended December 31, 2022, partially offset by an increase in capital expenditures and leasing costs associated with lease renewals.

Net cash used in financing activities increased $92.3 million during the year ended December 31, 2022, compared to the same period in 2021, primarily due to net repayments on the Company’s Revolving Facility and payments of dividends to stockholders during the year ended December 31, 2022.

Financing activities during the year ended December 31, 2021, included the initial debt capitalization of the Company in connection with the Separation and the Distribution, as well as payments on and extinguishment of mortgages payable and net distributions to parent company prior to the Distribution.

Following the Distribution, Realty Income was no longer the parent of Realty Income Office Assets, and therefore, no further distributions to Realty Income occurred.

Net cash provided by operating activities decreased $25.1 million during the year ended December 31, 2023, compared to the same period in 2022 primarily due to a decrease in revenues overall as a result of dispositions and vacancies and an increase in general and administrative expenses due to merit base salary increases and higher employee headcount.

Net cash provided by investing activities decreased $17.2 million during the year ended December 31, 2023, compared to the same period in 2022, primarily due to a decrease in proceeds from the disposition of real estate of $10.8 million as a result of fewer dispositions and an increase in capital expenditures and leasing costs of $6.8 million during the year ended December 31, 2023, compared to the same period in 2022.

The Company used $18.2 million less of net cash in financing activities during the year ended December 31, 2023, compared to the same period in 2022, primarily due to lower net repayments on the Company’s Revolving Facility during the

year ended December 31, 2023 of $31.0 million, partially offset by repurchases of common stock under the Share Repurchase Program of $5.0 million, increased cash dividends to stockholders of $5.6 million and higher payments of deferred financing costs of $2.6 million during the year ended December 31, 2023, compared to the same period in 2022.

VEREIT OFFICE ASSETS

Critical Accounting Policies

Critical Accounting Policies - VEREIT Office Assets

Real Estate Investments

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

No impairments of VEREIT’s goodwill were recorded during the ten months ended October 31, 2021 and year ended December 31, 2020.

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

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

Results of Operations

Results of Operations - VEREIT Office Assets

For a comparison of the results of operations for certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”) for the period from January 1, 2021 to October 31, 2021 to the year ended December 31, 2020, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K filed on March 24, 2022.

Ten Months Ended October 31, 2021 Year Ended December 31, 2020 Increase / (Decrease)

Rental revenue $ 134,740 $ 170,304 $ (35,564)

Fee income from unconsolidated joint venture 654 596 58

Total revenues 135,394 170,900 (35,506)

Property operating 36,173 46,597 (10,424)

General and administrative 5,602 7,029 (1,427)

Depreciation and amortization 48,938 62,662 (13,724)

Impairments 28,064 9,306 18,758

Total operating expenses 118,777 125,594 (6,817)

Other (expenses) income:

Other income, net 152 158 (6)

Interest expense (5,961) (9,905) (3,944)

Gain on disposition of real estate sales, net — 9,765 (9,765)

Loss on extinguishment of debt, net (5,294) (1,686) 3,608

Equity in income of unconsolidated joint venture 697 535 162

Total other expenses, net (10,406) (1,133) 9,273

Income before taxes 6,211 44,173 (37,962)

Provision for income taxes (520) (640) (120)

Net income $ 5,691 $ 43,533 $ (37,842)

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 and 2021 Annual Reports on Form 10-K filed on March 8, 2023 and March 24, 2022, respectively.

Liquidity and Capital Resources - VEREIT Office Assets

The following table summarizes the changes in cash flows for the ten months ended October 31, 2021 compared to the year ended December 31, 2020 (dollars in millions):

Ten Months Ended October 31, Year Ended December 31

10 months 2021 to 2020

Net cash provided by operating activities $ 83.7 $ 108.5 $ (24.8)

Net cash (used in) provided by investing activities $ (9.2) $ 111.4 $ (120.6)

Net cash used in financing activities $ (77.9) $ (219.4) $ 141.5

Net cash provided by operating activities decreased $24.8 million during the ten months ended October 31, 2021 compared to the year ended December 31, 2020 primarily due to having only 304 days of activity in the 2021 period versus a full year in the 2020 period, as well as a decrease in rental income due to the disposition of three properties that were sold to the Arch Street Joint Venture during the year ended December 31, 2020.

Net cash used in investing activities was $9.2 million during the ten months ended October 31, 2021, as compared to net cash provided by investing activities of $111.4 million during the year ended December 31, 2020.

The change was primarily due to the three properties sold to the Arch Street Joint Venture during the year ended December 31, 2020 for proceeds of $116.4 million after closing costs.

Net cash used in financing activities decreased $141.5 million during the ten months ended October 31, 2021, compared to the year ended December 31, 2020, primarily due to a decrease of $337.4 million in net distributions to parent, offset by an increase of $194.8 million in the repayment of mortgage notes payable.

Contractual Obligations

VEREIT Office Assets was subject to the following contractual obligations as of October 31, 2021 (in thousands).

Payments Due by Period

Total Less than 1 Year 1 - 3 Years 4 - 5 Years More Than 5 Years

Operating lease and ground lease commitments $ 11,762 $ 55 $ 987 $ 658 $ 10,062

For a comparison of the changes in cash flows for VEREIT Office Assets for the period from January 1, 2021 to October 31, 2021 to the year ended December 31, 2020, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Liquidity and Capital Resources” in our 2022 and 2021 Annual Reports on Form 10-K filed on March 8, 2023 and March 24, 2022, respectively.

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-K

Item 7. Management’s Discussion and Analysis