What changed in this filing

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Item 9A. Controls and Procedures

2024-02-27 compared with 2023-03-08 · 382 added, 410 removed, 1162 unchanged (41% of the section changed)

17 unchanged sentences

Other Information.

Rule 10b5-1 Trading Agreements

During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(c) of Regulation S-K.

2024 Annual Bonus Program

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

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

On February 26, 2024, the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of the Company, approved a new annual incentive program for the Company’s 2024 fiscal year (the “2024 Bonus Program”).

Under the 2024 Bonus Program, each of the Company’s named executive officers, namely, Paul McDowell, Gavin Brandon, and Gary Landriau (the “executives”), are eligible to earn an annual incentive bonus based on the applicable executive’s individual performance and the Company’s achievement of performance goals relating to (1) Core FFO per share, (2) total general and administrative expenses (“G&A expenses”), and (3) Net Debt to Adjusted EBITDA.

The weighting of each component of the 2024 Bonus Program is as follows:

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Directors, Executive Officers and Corporate Governance.

The information required by this Item will be included in our Proxy Statement and is incorporated herein by reference.

The information required by this Item will be included in our Proxy Statement, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2023, and is incorporated herein by reference.

Executive Compensation.

The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.

The information required by this Item will be included in the Proxy Statement, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 2023, and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.

Principal Accounting Fees and Services.

The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.

Exhibits and Financial Statement Schedules.

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(filed as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference).

3.2 Amended and Restated Bylaws of Orion Office REIT Inc.

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

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

3.2 Second Amended and Restated Bylaws of Orion Office REIT Inc.

(filed as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on September 8, 2023 and incorporated herein by reference).

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

333-268121), filed on November 2, 2022 and incorporated herein by reference).

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

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

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

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

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

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

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

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

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

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

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

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

2021 Equity Incentive Plan (March 2023 Awards) (filed as Exhibit 10.1 4 to the Company ’ s Form 10-K filed on March 8, 2023 and incorpor ated herein by reference)

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

2021 Equity Incentive Plan (March 2024 Awards)

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

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

10.17 Second Amendment to Credit Agreement, dated as of June 29, 2023, among Orion Office REIT LP, as Borrower, Orion Office REIT Inc., as Parent, Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 29, 2023 and incorporated herein by reference).

21.1* Subsidiaries of the Company

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1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

97.1* Orion Office REIT Inc.

Policy for Recoupment of Incentive Compensation

101.SCH** Inline XBRL Taxonomy Extension Schema Document.

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Chief Financial Officer, Executive Vice President and Treasurer

March 8, 2023

February 27, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name Capacity Date

McDowell Chief Executive Officer, President and Director March 8, 2023

McDowell Chief Executive Officer, President and Director February 27, 2024

McDowell (Principal Executive Officer)

Brandon Executive Vice President, Chief Financial Officer and Treasurer March 8, 2023

Brandon Executive Vice President, Chief Financial Officer and Treasurer February 27, 2024

Brandon (Principal Financial Officer)

Schmidt Senior Vice President and Chief Accounting Officer March 8, 2023

Schmidt Senior Vice President and Chief Accounting Officer February 27, 2024

Schmidt (Principal Accounting Officer)

/s/ Reginald H.

Gilyard Director, Non-Executive Chairman March 8, 2023

Gilyard Director, Non-Executive Chairman February 27, 2024

/s/ Kathleen R.

Allen Director March 8, 2023

Allen Director February 27, 2024

/s/ Richard J.

Lieb Director March 8, 2023

Lieb Director February 27, 2024

/s/ Gregory J.

Whyte Director March 8, 2023

Whyte Director February 27, 2024

INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

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

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

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

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

VEREIT Office Assets Combined and Consolidated Statement of Operations for the Ten Months Ended October 31, 2021

VEREIT Office Assets Combined and Consolidated Statement of Equity for the Ten Months Ended October 31, 2021

VEREIT Office Assets Combined and Consolidated Statement of Cash Flows for the Ten Months Ended October 31, 2021

Notes to VEREIT Office Assets Combined and Consolidated Financial Statements

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San Diego, California

March 8, 2023

February 27, 2024

ORION OFFICE REIT INC.

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LIABILITIES AND EQUITY

Bridge facility, net $ — $ 354,357

Mortgages payable, net $ 352,856 $ 352,167

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Additional paid-in capital 1,144,636 1,147,014

Accumulated other comprehensive income 6,308 299

Accumulated other comprehensive (loss) income ( 264 ) 6,308

Accumulated deficit ( 258,805 ) ( 178,910 )

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Net loss ( 57,311 ) ( 97,474 ) ( 47,464 )

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

Net loss (income) attributable to non-controlling interest 9 ( 20 ) ( 17 )

Net loss attributable to common stockholders $ ( 57,302 ) $ ( 97,494 ) $ ( 47,481 )

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Unrealized gain on interest rate derivatives 127 7,802 209

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

Total other comprehensive income 6,009 299 —

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

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

Reclassification of previous unrealized (gain) loss on interest rate derivatives into net loss ( 6,699 ) ( 1,793 ) 90

Total other comprehensive (loss) income ( 6,572 ) 6,009 299

Total comprehensive loss ( 63,883 ) ( 91,465 ) ( 47,165 )

Comprehensive loss (income) attributable to non-controlling interest 9 ( 20 ) ( 17 )

Total comprehensive loss attributable to common stockholders $ ( 63,874 ) $ ( 91,485 ) $ ( 47,182 )

The accompanying notes are an integral part of these statements.

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of Shares Par

Value Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated

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

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

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

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

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

Balance, December 31, 2020 — — — — — 497,118 497,118 — 497,118

Net (loss) income — — — — ( 58,715 ) 11,234 ( 47,481 ) 17 ( 47,464 )

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

Net loss — — — — ( 57,302 ) — ( 57,302 ) ( 9 ) ( 57,311 )

Distributions — — — — ( 22,593 ) — ( 22,593 ) — ( 22,593 )

Repurchases of common stock under Share Repurchase Program ( 915,637 ) ( 1 ) ( 5,017 ) — — — ( 5,018 ) — ( 5,018 )

Repurchases of common stock to settle tax obligations ( 15,411 ) — ( 89 ) — — — ( 89 ) — ( 89 )

Equity-based compensation, net 75,556 — 2,728 — — — 2,728 — 2,728

Other comprehensive loss, net — — — ( 6,572 ) — — ( 6,572 ) — ( 6,572 )

Balance, December 31, 2023 55,783,548 $ 56 $ 1,144,636 $ ( 264 ) $ ( 258,805 ) $ — $ 885,623 $ 1,380 $ 887,003

The accompanying notes are an integral part of these statements.

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Capital expenditures and leasing costs ( 18,442 ) ( 11,624 ) ( 9,916 )

Proceeds from disposition of real estate 31,854 — —

Proceeds from disposition of real estate, net 21,032 31,854 —

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

Return of investment from unconsolidated joint venture 1,840 2,247 133

Deposits for real estate assets ( 2,340 ) — —

Refunds of deposits for real estate assets 2,340 — —

Proceeds from the settlement of property-related insurance claims 859 — —

Net cash provided by (used in) investing activities 5,289 22,477 ( 12,261 )

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Proceeds from credit facility term loan — — 175,000

Repayment of credit facility term loan ( 175,000 ) — —

Proceeds from credit facility revolver 175,000 70,000 90,000

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Payments of deferred financing costs ( 5,663 ) ( 3,096 ) ( 10,514 )

Repurchases of common stock under Share Repurchase Program ( 5,018 ) — —

Repurchases of common stock to settle tax obligations ( 89 ) ( 20 ) —

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Net change in cash and cash equivalents and restricted cash 1,887 25,993 25,403

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

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

ORION OFFICE REIT INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Cash and cash equivalents and restricted cash, beginning of year 55,311 29,318 3,915

Cash and cash equivalents and restricted cash, end of year $ 57,198 $ 55,311 $ 29,318

Reconciliation of Cash and Cash Equivalents and Restricted Cash

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

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

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

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

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

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

Cash and cash equivalents at beginning of year $ 20,638 $ 29,318 $ —

Restricted cash at beginning of year 34,673 — 3,915

Cash and cash equivalents and restricted cash at beginning of year $ 55,311 $ 29,318 $ 3,915

Cash and cash equivalents at end of year $ 22,473 $ 20,638 $ 29,318

Restricted cash at end of year 34,725 34,673 —

Cash and cash equivalents and restricted cash at end of year $ 57,198 $ 55,311 $ 29,318

The accompanying notes are an integral part of these statements.

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Orion Office REIT Inc.

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

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

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

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

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

Upon the Merger Effective Time, as part of the Mergers, Realty Income acquired certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”).

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

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

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

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

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

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

(the “Company”, “Orion”, “we” or “us”) 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.

Our portfolio is comprised of traditional office buildings, as well as governmental 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 became independent and publicly traded and its common stock, par value $ 0.001 per share, trades on the New York Stock Exchange (the “NYSE”) under the symbol “ONL” and has elected to be taxed as a REIT for U.S.

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

As of December 31, 2023, the Company owned and operated 75 office properties with an aggregate of 8.7 million leasable square feet located in 29 states.

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

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Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

Basis of Presentation

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

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

Principles of Consolidation and Combination and Basis of Presentation

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

GAAP”) assuming the Company will continue as a going concern.

The going concern assumption contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

Principles of Consolidation and Combination

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

From and after 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 balance sheets and consolidated and combined statements of operations, statements of comprehensive income (loss) and statements of equity.

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

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

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

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

VIEs are entities where investors lack sufficient equity at risk for the entity to finance

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

its activities without additional subordinated financial support or where equity investors, as a group, lack one or more of the following characteristics:

(a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity;

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

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

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Management makes significant estimates regarding real estate investment impairments.

Reclassification

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

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

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

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

Spin related expenses are expensed as incurred.

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

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

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Rental Revenue

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

Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

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

Such reimbursements are included in rental revenue on a gross basis.

Property operating expenses paid directly by tenants are recorded on a net basis (i.e., treated as fully offset by an identical amount of assumed reimbursement revenue) and, therefore, are not included in the Company’s consolidated and combined financial statements.

The Company continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

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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 for income not probable of collection.

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

Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

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

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

During the years ended December 31, 2023 and 2022, the Company recorded a reduction to rental revenue of less than $ 0.1 million and $ 1.5 million, respectively, for income not probable of collection.

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

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

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 4.3 million, $ 1.4 million and $ 0.3 million of lease termination income, respectively.

Fee Income from Unconsolidated Joint Venture

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

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

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

Total asset and property management fees earned in connection with this entity was $ 0.8 million for the years ended December 31, 2023 and 2022 and $ 0.3 million for the year ended December 31, 2021.

Real Estate Investments

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Depreciation is computed using a straight-line method over the estimated useful life of 35 years for buildings, five to 20 years for building fixtures and improvements and the remaining lease term for intangible lease assets.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Allocation of Purchase Price of Real Estate Acquisitions

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Assets Held for Sale

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

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

The Company records

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

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

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

5 unchanged sentences

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

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

No impairments of the Arch Street Joint Venture were identified during the years ended December 31, 2023, 2022, or 2021.

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

3 unchanged sentences

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

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

GAAP requires the use of the expected holding period of the properties when assessing recoverability.

In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the real estate assets to their respective fair values and recognize any impairment loss.

3 unchanged sentences

The Company’s impairment assessment for ROU assets is consistent with the impairment analysis for the Company’s other long-lived assets.

No impairments of ROU assets were identified during the years ended December 31, 2022, 2021, and 2020.

No impairments of ROU assets were identified during the years ended December 31, 2023, 2022, or 2021.

See Note 5 – Fair Value Measures for further discussion.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Cash and Cash Equivalents

5 unchanged sentences

Restricted Cash

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

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

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

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

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

The Company had $ 34.7 million in restricted cash as of December 31, 2023 and 2022, primarily comprised of reserves held by the lender under the CMBS Loan (as defined in Note 6 – Debt, Net) for future rent concessions and tenant improvement allowances.

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

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

1 unchanged sentence

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

than as an asset .

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

5 unchanged sentences

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

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

To accomplish this objective, the Company has used and intends to continue to use derivative financial instruments as part of its cash flow hedging strategy.

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

9 unchanged sentences

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

comprehensive income (loss).

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

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

Loss Contingencies

The Company records a liability in the consolidated and combined statements for loss contingencies when a loss is known or considered probable and the amount is reasonably estimable.

The Company records a liability in the consolidated and combined financial statements for loss contingencies when a loss is known or considered probable and the amount is reasonably estimable.

If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

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

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

The Company has elected to be taxed as a REIT for U.S.

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

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

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

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

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

3 unchanged sentences

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

During the year ended December 31, 2023, the Company recognized state and local income and franchise tax expense of $ 0.5 million.

During both the years ended December 31, 2022 and 2021, the Company recognized state and local income and franchise tax expense of $ 0.2 million.

State and local income and franchise tax expense is included in provision for income taxes in the accompanying consolidated and combined statements of operations.

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

2 unchanged sentences

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

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

For periods presented prior to November 1, 2021, Realty Income Office Assets was owned by Realty Income, which had elected to be taxed as a REIT, under the Code.

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

1 unchanged sentence

Accordingly, no provision was made for federal income taxes in the accompanying consolidated and combined financial statements of the Company for such prior periods.

The properties in the consolidated and combined financial statements which comprised Realty Income Office Assets were previously owned directly or indirectly by limited partnerships or limited liability companies of Realty Income and, as a result, the allocated share of income for periods presented prior to the Merger Effective Time are included in the consolidated income tax return of Realty Income.

The properties in the consolidated and combined financial statements which comprised Realty Income Office Assets were previously owned directly or indirectly by limited partnerships or limited liability companies of Realty Income and, as a result, the allocated share of income for periods presented prior to November 1, 2021 are included in the consolidated income tax return of Realty Income.

Segment Reporting

1 unchanged sentence

direct ownership and operation of commercial real estate.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Recent Accounting Pronouncements

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

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

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

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

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

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

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

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

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

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280, Segment Reporting).

ASU 2023-07 serves to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of the adoption of ASU 2023-07 on its consolidated and combined financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740, Income Taxes).

ASU 2023-09 serves to enhance transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and information on income taxes paid.

The update also includes certain other amendments to improve the effectiveness of income tax disclosures.

The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of the adoption of ASU 2023-09 on its consolidated and combined financial statements.

Note 3 – Real Estate Investments and Related Intangibles

1 unchanged sentence

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

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

The Company did not have any other acquisitions during the year ended December 31, 2022, and during the years ended December 31, 2023 and 2021, the Company had no acquisitions.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Property Dispositions and Real Estate Assets Held for Sale

8 unchanged sentences

Property count 3 6 —

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

As of December 31, 2023, the Company had no properties classified as held for sale.

During the years ended December 31, 2023 and 2022, the Company recorded losses of $ 4.4 million and $ 6.0 million, respectively, related to properties that were classified as held for sale and subsequently disposed, which are included in impairments in the accompanying consolidated and combined statements of operations.

Intangible Lease Assets and Liabilities

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

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

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

6 unchanged sentences

7.0 5,006 9,826

Deferred lease incentives, net of accumulated amortization of $ 116

Deferred lease incentives, net of accumulated amortization of $ 419 and $ 116 , respectively

10.5 3,822 1,694

Total intangible lease assets, net $ 126,364 $ 202,832

3 unchanged sentences

The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $ 1.2 million, $ 1.2 million and $ 1.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was $ 0.3 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively, as compared to no impact to rental revenue for the year ended December 31, 2021.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 75.0 million, $ 95.4 million and $ 23.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of December 31, 2023 (in thousands) :

13 unchanged sentences

As of December 31, 2023 and 2022, the consolidated joint venture had total assets of $ 27.6 million and $ 27.7 million, respectively, of which $ 23.5 million and $ 24.9 million, respectively, were real estate investments, net of accumulated depreciation and amortization.

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

The Company’s joint venture partner is the managing member of the joint venture.

However, in accordance with the joint venture agreement, the Company has the ability to control the operating and financing policies of the consolidated joint venture and the joint venture partner must obtain the Company’s approval for any major transactions.

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Investment in Unconsolidated Joint Venture

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

The following is a summary of the Company’s investment in the Arch Street Joint Venture, as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands):

Ownership % (1)

9 unchanged sentences

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

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

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

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

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

Therefore, the Company’s equity in loss, net reflects operations following November 1, 2021.

(3) During the years ended December 31, 2023 and 2022, the Arch Street Joint Venture did not acquire any properties.

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

(4) The total carrying value of the Company’s investment in the Arch Street Joint Venture was greater than the underlying equity in net assets by $ 0.4 million and $ 0.9 million as of December 31, 2023 and 2022, respectively.

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Note 4 – Receivables and Other Assets :

10 unchanged sentences

Investment in unconsolidated joint venture 13,549 15,824

Derivative assets 6,308 299

Deferred costs, net (2)

Notes receivable (3)

Prepaid expenses 1,318 1,305

Derivative assets — 6,308

Other assets, net 1,247 1,063

1 unchanged sentence

____________________________________

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

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

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

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

(1) Amortization expense for below market right-of-use asset was $ 0.2 million, $ 0.2 million and less than $ 0.1 million for the years ended December 31, 2023, 2022 and 2021.

Includes right-of-use finance leases of $ 9.0 million, right-of-use operating leases of $ 10.9 million, and a below-market right-of-use asset, net of $ 6.6 million, as of December 31, 2023.

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

(2) Amortization expense for deferred costs related to the Revolving Facility totaled $ 2.6 million, $ 2.2 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Accumulated amortization for deferred costs related to the Revolving Facility was $ 5.1 million and $ 2.5 million as of December 31, 2023 and 2022, respectively.

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Additional deferred costs related to the Revolving Facility of $ 5.6 million were capitalized during the year ended December 31, 2023 in connection with the second amendment to the Credit Agreement, as defined below and discussed in Note 6 – Debt, Net.

Deferred costs, net also includes outstanding deferred equity offering costs of $ 0.6 million and $ 0.5 million, which will be offset against additional paid in capital for future issuances of shares of the Company’s common stock, as of December 31, 2023 and 2022, respectively.

(3) Notes receivable includes two seller financed promissory notes for two properties sold during the year ended December 31, 2023.

These loans have been structured as first mortgage loans on the properties sold with an unsecured recourse guaranty from the buyer principal(s).

Note 5 – Fair Value Measures

3 unchanged sentences

Derivative assets $ — $ — $ — $ —

Derivative liabilities — 264 — 264

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

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

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

Derivative liabilities — — — —

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Derivative Assets and Liabilities – The Company’s derivative financial instruments comprise interest rate collar agreements and interest rate swap agreements entered into in order to hedge interest rate volatility with respect to the Company’s borrowings with an aggregate notional amount of $ 60.0 million and $ 175.0 million as of December 31, 2023 and 2022, respectively (as described in Note 6 – Debt, Net).

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

6 unchanged sentences

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

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

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

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

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

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

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

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

As part of the Company’s impairment review procedures, net real estate assets representing eight , 18 and 10 properties were deemed to be impaired during the years ended December 31, 2023, 2022 and 2021, respectively, resulting in impairment charges of $ 33.1 million, $ 66.4 million and $ 49.9 million during the years ended December 31, 2023, 2022 and 2021, respectively.

The impairment charges were incurred primarily with respect to real estate assets that were sold or expected to be sold and reflect changes in the Company’s future cash flow assumptions for agreed-upon or estimated sales proceeds, as well as changes to assumptions with regard to management’s intent to sell or lease the real estate assets.

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

7 unchanged sentences

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

(1) capitalization rate;

(1) capitalization rates;

(2) discount rates;

3 unchanged sentences

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

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

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

For the Company’s impairment tests for the real estate assets during the year ended December 31, 2023, the fair value measurement for seven properties was determined based on sales prices under definitive agreements and the remaining one impaired property was determined by a discount rate of 9.0 % and capitalization rate of 8.5 %.

During the year ended December 31, 2023, impairment charges of $ 5.9 million were recorded for held and used properties and $ 27.2 million for disposed properties.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

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

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

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

4 unchanged sentences

Assets of properties held and used $ — $ — $ 5,402 $ 5,402

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

$ — $ 41,402 $ 11,957 $ 53,359

Level 1 Level 2 (1)

4 unchanged sentences

____________________________________

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

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

Fair Value of Financial Instruments

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Level Carrying Value at December 31, 2023

2 unchanged sentences

Fair Value at December 31, 2022

Derivative assets 2 $ — $ — $ 6,308 $ 6,308

Notes receivable 2 2,500 2,500 — —

Total $ 2,500 $ 2,500 $ 6,308 $ 6,308

Liabilities (1) :

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

Mortgages payable 2 $ 355,000 $ 334,897 $ 355,000 $ 332,323

1 unchanged sentence

Credit facility revolver 2 116,000 116,000 — —

2 — — 90,000 90,000

Derivative liabilities 2 264 264 — —

Total $ 471,264 $ 451,161 $ 530,000 $ 507,323

1 unchanged sentence

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

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

Notes Receivable – The fair value of the Company’s long-term promissory note receivable was determined to be at fair value at inception based on management’s estimates of credit spreads and observable market interest rates, representing level 2 on the fair value hierarchy.

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Note 6 – Debt, Net

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

As of December 31, 2023, the Company had $ 468.9 million of debt outstanding, including net deferred financing costs, with a weighted-average years to maturity of 2.9 years and a weighted-average effective interest rate for the year ended December 31, 2023 of 4.66 %.

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

6 unchanged sentences

Mortgages payable, net 352,167 — — 689 352,856

Bridge facility:

Outstanding balance

355,000 — ( 355,000 ) — —

Deferred costs ( 643 ) — 442 201 —

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

Credit facility term loan:

3 unchanged sentences

Credit facility revolver — 175,000 ( 59,000 ) — 116,000

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

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

Total debt $ 525,982 $ 175,000 $ ( 233,496 ) $ 1,370 $ 468,856

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

2023 $ 175,000

Total $ 471,000

____________________________________

(1) As described below, the Company’s Revolving Facility is scheduled to mature on November 12, 2024 and Orion OP has an option to extend the maturity date to May 12, 2026 if customary conditions are satisfied.

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

Credit Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion OP, as borrower, entered into (i) a credit agreement (the “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, the Company refinanced the Bridge Facility in full with the $ 355.0 million CMBS Loan (defined below), and the Bridge Credit Agreement was terminated.

In June 2023, as further described below, the Term Loan Facility was repaid and retired with borrowings under the Revolving Facility and, as of December 31, 2023, $ 116.0 million of principal amount was outstanding under the Revolving Facility with $ 309.0 million available for future borrowings thereunder, including the $ 25.0 million letter of credit sub-facility.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

The Company and Orion OP 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 Orion OP 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.

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.

The Company’s ability to satisfy these conditions and continue to comply with the terms of the Revolving Facility is partially dependent upon the Company having a sufficient level of unencumbered asset value as defined in the Credit Agreement.

The level of unencumbered asset value is partially dependent upon future leasing activity at the underlying properties and/or the Company acquiring additional properties to add to the unencumbered asset pool, and there is uncertainty about the Company’s 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 the Company.

Additionally, the Company does 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.

Management has had preliminary discussions with the administrative agent of the Revolving Facility to potentially amend the Credit Agreement terms 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 the Company 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 an agreement is not reached with the lenders, management’s plans include acquiring additional properties to add to the unencumbered asset pool to meet the conditions to exercise the extension option of the Revolving Facility.

As of the date of these consolidated and combined financial statements, management believes it is probable that an agreement will be reached with the lenders, or the Company will be able to satisfy the conditions necessary to exercise the extension option of the Revolving Facility through its leasing efforts and its plan to acquire additional unencumbered properties.

Management will continue to monitor and assess the effectiveness of its plans in subsequent financial reporting periods.

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, the Company 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, 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 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.

As of December 31, 2023, the weighted average effective interest rate of the Revolving Facility was 8.66 %.

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 the Company and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including

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

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

ORION OFFICE REIT INC.

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December 31, 2023

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

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

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

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

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 giving effect to the modifications pursuant to the second amendment described above, requires that Orion OP satisfy the following financial covenants:

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

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

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

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

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 unencumbered asset value maintained by Orion OP must be at least $ 600.0 million.

Pursuant to the second amendment described above, if the ratio of unsecured debt to unencumbered asset value exceeds 0.35 to 1.00 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 the Company so long as such properties are sold within one year of such identification).

As of December 31, 2023, Orion OP was in compliance with the Revolving Facility financial covenants.

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

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

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

ORION OFFICE REIT INC.

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December 31, 2023

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

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Cash Flow Hedges of Interest Rate Risk

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

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

As of December 31, 2023 and 2022, the Company had outstanding derivative agreements with aggregate notional amounts of $ 60.0 million and $ 175.0 million, respectively, which were designated as cash flow hedges under U.S.

The interest rate derivative agreements were entered into in order to hedge interest rate volatility.

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

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

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

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, the Company terminated the initial interest rate swap agreements and entered into new interest rate swap agreements with an aggregate notional amount of $ 175.0 million, effective on December 1, 2022 and terminating on November 12, 2023.

Upon the scheduled expiration of the interest rate swap agreements, the Company entered into interest rate collar agreements on a total notional amount of $ 60.0 million.

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

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

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

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

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

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

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

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

Interest rate collars Other liabilities, net $ ( 264 ) $ —

ORION OFFICE REIT INC.

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December 31, 2023

During the years ended December 31, 2023, 2022 and 2021, the Company recorded net unrealized gains of $ 0.1 million, $ 7.8 million and $ 0.2 million, respectively, for changes in the fair value of its cash flow hedges in accumulated other comprehensive (loss) income.

During the years ended December 31, 2023, 2022 and 2021, the Company reclassified previous net gains of $ 6.7 million and $ 1.8 million, and previous losses of $ 0.1 million respectively, from accumulated other comprehensive (loss) income into interest expense as a result of the hedged transactions impacting earnings.

During the next twelve months, the Company estimates that less than $ 0.1 million will be reclassified from other comprehensive income as an increase to interest expense.

Derivatives Not Designated as Hedging Instruments

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

As of each of December 31, 2023 and 2022, the Company had no derivatives that were not designated as qualifying hedging relationships.

Tabular Disclosure of Offsetting Derivatives

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

Origination of seller financed notes receivable $ 3,700 $ — $ —

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Note 9 – Accounts Payable and Accrued Expenses

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Note 10 – Commitments and Contingencies

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

certain improvements, and leasing commissions.

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

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

The following table presents future minimum base rent payments due to the Company under the terms of its operating lease agreements, excluding expense reimbursements, over the next five years and thereafter as of December 31, 2023 (in thousands).

Future Minimum

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

Operating lease costs were $ 1.3 million, $ 1.0 million, and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

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

Declaration Date Record Date Paid Date Distributions Per Share

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

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

Declaration Date Record Date Paid Date Distributions Per Share

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

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

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

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

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.

The following table sets forth the federal income tax characterization of dividends paid on a percentage basis on the Company’s common stock for the years ended December 31, 2023 and 2022:

Year Ended December 31,

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Total 100.00 % 100.00 %

Stock Warrants

Arch Street Warrants

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

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

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

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Share Repurchase Program

On November 1, 2022, the Company’s Board of Directors authorized the repurchase of up to $ 50.0 million of the Company’s outstanding common stock until December 31, 2025, as market conditions warrant (the “Share Repurchase Program”).

Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with applicable securities laws and other legal requirements.

The Share Repurchase Program does not obligate the Company to make any repurchases at a specific time or in a specific situation.

Repurchases are subject to prevailing market conditions, the trading price of the Company’s common stock, the Company’s liquidity and anticipated liquidity needs, financial performance and other conditions.

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.

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.

Note 13 - Equity-Based Compensation

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

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

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

The Company also granted Time-Based RSUs to its non-employee directors which are scheduled to vest on the earlier of the one-year anniversary of the grant date and the next annual meeting, subject to the recipient’s continued service with the Company.

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

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

During the years ended December 31, 2023 and 2022, the Company granted Time-Based RSUs and/or Performance-Based RSUs to non-employee directors and officers and other employees of the Company.

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

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

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

As of December 31, 2023, the Company determined that the likelihood of achieving some of the performance metrics was probable and, accordingly, the Company recognized compensation expense for such Metrics-Based RSUs and determined that the likelihood of achieving the remaining performance metrics was improbable and the Company recognized no compensation expense for the remaining Metrics-Based RSUs.

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

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

Equity-based compensation expense related to Time-Based RSUs and Performance-Based RSUs for the years ended December 31, 2023, 2022 and 2021 was $ 2.5 million, $ 1.4 million and $ 0.1 million, respectively.

As of December 31, 2023 and 2022, total unrecognized compensation expense related to Time-Based RSUs and Performance-Based RSUs was approximately $ 3.7 million and $ 2.7 million, respectively, with an aggregate weighted-average remaining term of 1.7 years and 2.0 years, respectively.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

The following table details the activity of the Time-Based RSUs during the year ended December 31, 2023:

1 unchanged sentence

Unvested units, December 31, 2022

156,947 $ 17.12

Granted 363,745 $ 7.10

2 unchanged sentences

Unvested units, December 31, 2023

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2022

445,136 $ 9.09

The following table details the activity of the Performance-Based RSUs during the year ended December 31, 2023:

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Unvested units, December 31, 2022

212,154 $ 13.65

Granted 509,273 $ 5.83

1 unchanged sentence

Unvested units, December 31, 2023

721,427 $ 8.13

The Company is also required under U.S.

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

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

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

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

Equity-based compensation expense for the years ended December 31, 2023 2022 and 2021, related to such Realty Income equity-based compensation awards, was $ 0.2 million, $ 0.4 million and $ 0.1 million.

As of December 31, 2023 and 2022, total unrecognized compensation expense related to Realty Income time-based restricted stock units and stock options was less than $ 0.1 million and $ 0.2 million, respectively, with an aggregate weighted-average remaining term of 0.1 years and 1.0 year, respectively.

Note 14 - Net Income (Loss) Per Share

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

The computation of basic and diluted earnings per share is as follows for the years ended December 31, 2023, 2022 and 2021 (in thousands, except share and per share data):

Year Ended December 31,

1 unchanged sentence

Net loss $ ( 57,311 ) $ ( 97,474 ) $ ( 47,464 )

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

Income attributable to non-controlling interest 9 ( 20 ) ( 17 )

Net loss available to common stockholders used in basic and diluted net income per share ( 57,302 ) ( 97,494 ) ( 47,481 )

2 unchanged sentences

Weighted average shares of common stock - diluted 56,409,734 56,631,826 56,625,650

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

Basic and diluted net loss per share attributable to common stockholders $ ( 1.02 ) $ ( 1.72 ) $ ( 0.84 )

____________________________________

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

(1) There were no adjustments to the weighted average common shares outstanding used in the diluted calculation given there were no potentially dilutive shares for the years ended December 31, 2023, 2022 and 2021.

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

1 unchanged sentence

2023 2022 2021

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

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

____________________________________

(1) Net of assumed repurchases in accordance with the treasury stock method.

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2023

Note 15 – Subsequent Events

Distributions

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.

Leasing Activity

During January 2024, the Company entered into a 17.0 -year lease renewal, which includes a 2.0 -year period of the stated lease term during which the tenant has the right to vacate their space, or “non-firm term”, for 9,000 square feet at one of its properties in Eagle Pass, Texas and a new 15.0 -year lease, which includes an 8.0 -year non-firm term, for 86,000 square feet at one of its properties in Lincoln, Nebraska.

ORION OFFICE REIT INC.

11 unchanged sentences

Charles, MO $ — $ 3,675 $ 13,828 $ ( 12,101 ) $ 5,402 $ — 4/1/2011 1993

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

Commercial & Professional Services - Brownsville, TX — 1,740 11,571 — 13,311 ( 5,472 ) 4/1/2011 2007

Telecommunication Services - Augusta, GA — — 11,128 — 11,128 ( 5,262 ) 4/1/2011 2007

3 unchanged sentences

Louis, MO 12,041 — 38,799 88 38,887 ( 12,150 ) 1/22/2013 2009

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

Government & Public Services - Brownsville, TX 1,345 321 6,803 112 7,236 ( 2,221 ) 1/22/2013 2008

8 unchanged sentences

Government & Public Services - Knoxville, TN — 761 9,041 248 10,050 ( 2,904 ) 1/22/2013 2011

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

Health Care Equipment & Services - Bedford, TX 34,167 1,608 56,219 — 57,827 ( 17,602 ) 1/22/2013 2010

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

Government & Public Services - Eagle Pass, TX — 68 811 ( 30 ) 849 ( 259 ) 1/22/2013 2002

1 unchanged sentence

Transportation - Columbus, OH 16,014 — 19,637 — 19,637 ( 5,915 ) 6/19/2013 2012

Food & Staples Retailing - Deerfield, IL — 4,093 11,511 ( 9,362 ) 6,242 — 8/27/2013 1984

Food & Staples Retailing - Deerfield, IL — 4,262 11,988 ( 9,750 ) 6,500 — 8/27/2013 1984

Food & Staples Retailing - Deerfield, IL — 4,082 11,484 ( 9,340 ) 6,226 — 8/27/2013 1984

Food & Staples Retailing - Deerfield, IL — 4,089 11,503 ( 9,355 ) 6,237 — 8/27/2013 1984

Food & Staples Retailing - Deerfield, IL — 2,586 7,275 ( 5,917 ) 3,944 — 8/27/2013 1976

Food & Staples Retailing - Deerfield, IL — 3,181 8,947 ( 7,277 ) 4,851 — 8/27/2013 1976

Vacant - Deerfield, IL — 4,093 11,511 ( 9,362 ) 6,242 ( 164 ) 8/27/2013 1984

Vacant - Deerfield, IL — 4,262 11,988 ( 9,750 ) 6,500 ( 171 ) 8/27/2013 1984

Vacant - Deerfield, IL — 4,082 11,484 ( 9,340 ) 6,226 ( 164 ) 8/27/2013 1984

Vacant - Deerfield, IL — 4,089 11,503 ( 9,355 ) 6,237 ( 164 ) 8/27/2013 1984

Vacant - Deerfield, IL — 2,586 7,275 ( 5,917 ) 3,944 ( 104 ) 8/27/2013 1976

Vacant - Deerfield, IL — 3,181 8,947 ( 7,277 ) 4,851 ( 127 ) 8/27/2013 1976

Capital Goods - Cedar Rapids, IA 7,000 1,000 12,981 — 13,981 ( 3,786 ) 10/10/2013 2013

3 unchanged sentences

Government & Public Services - Cocoa, FL — 450 949 74 1,473 ( 68 ) 11/1/2021 2009

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

Government & Public Services - Grangeville, ID — 1,385 3,436 186 5,007 ( 313 ) 11/1/2021 2007

Government & Public Services - Fort Worth, TX — 572 3,985 32 4,589 ( 259 ) 11/1/2021 2010

Government & Public Services - Plattsburgh, NY — 1,136 2,486 99 3,721 ( 186 ) 11/1/2021 2008

Financial Institutions - Warwick, RI — 1,358 3,982 ( 567 ) 4,773 ( 29 ) 11/1/2021 1995

ORION OFFICE REIT INC.

8 unchanged sentences

Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Government & Public Services - Grangeville, ID $ — $ 1,385 $ 3,436 $ 22 $ 4,843 $ ( 165 ) 11/1/2021 2007

Government & Public Services - Fort Worth, TX — 572 3,985 — 4,557 ( 139 ) 11/1/2021 2010

Government & Public Services - Plattsburgh, NY — 1,136 2,486 — 3,622 ( 99 ) 11/1/2021 2008

Financial Institutions - Warwick, RI — 1,358 3,982 — 5,340 ( 142 ) 11/1/2021 1995

Energy - Longmont, CO — 2,106 12,543 — 14,649 ( 435 ) 11/1/2021 1993

Capital Goods - Longmont, CO $ — $ 2,106 $ 12,543 $ 396 $ 15,045 $ ( 820 ) 11/1/2021 1993

Health Care Equipment & Services - Waukegan, IL — 636 4,136 1,388 6,160 ( 266 ) 11/1/2021 1980

7 unchanged sentences

Commercial & Professional Services - Lawrence, KS — 3,576 2,996 — 6,572 ( 245 ) 11/1/2021 1997

Commercial & Professional Services - Lawrence, KS — 3,334 3,449 — 6,783 ( 149 ) 11/1/2021 2003

Vacant - Lawrence, KS — 3,334 3,449 80 6,863 ( 283 ) 11/1/2021 2003

Materials - The Woodlands, TX — 5,772 14,236 3,324 23,332 ( 1,123 ) 11/1/2021 2009

16 unchanged sentences

Capital Goods - Blair, NE — 558 1,210 — 1,768 ( 101 ) 11/1/2021 2009

Commercial & Professional Services - Schaumburg, IL — 3,313 6,532 — 9,845 ( 251 ) 11/1/2021 1986

Insurance - Oklahoma City, OK — 3,393 22,998 — 26,391 ( 817 ) 11/1/2021 2009

Vacant - Oklahoma City, OK — 3,393 22,998 — 26,391 ( 1,518 ) 11/1/2021 2009

Software & Services - Lincoln, NE — — 6,587 175 6,762 ( 505 ) 11/1/2021 2009

Insurance - Buffalo, NY — 4,710 36,740 — 41,450 ( 2,326 ) 11/1/2021 2007

Insurance - Urbana, MD 23,165 4,028 19,888 — 23,916 ( 1,317 ) 11/1/2021 2011

Health Care Equipment & Services - Nashville, TN — 1,165 11,749 106 13,020 ( 774 ) 11/1/2021 2010

Retailing - Kennesaw, GA 11,430 — 11,141 86 11,227 ( 816 ) 11/1/2021 2012

Capital Goods - Duluth, GA 14,669 3,684 14,786 — 18,470 ( 975 ) 11/1/2021 1999

ORION OFFICE REIT INC.

8 unchanged sentences

Land Buildings, Fixtures and Improvements Date Acquired Date of Construction

Insurance - Buffalo, NY $ — $ 4,710 $ 36,740 $ — $ 41,450 $ ( 1,253 ) 11/1/2021 2007

Insurance - Urbana, MD 23,165 4,028 19,888 — 23,916 ( 709 ) 11/1/2021 2011

Health Care Equipment & Services - Nashville, TN — 1,165 11,749 — 12,914 ( 415 ) 11/1/2021 2010

Retailing - Kennesaw, GA 11,430 — 11,141 — 11,141 ( 431 ) 11/1/2021 2012

Capital Goods - Duluth, GA 14,669 3,684 14,786 — 18,470 ( 525 ) 11/1/2021 1999

Pharmaceuticals, Biotechnology & Life Sciences - Parsippany, NJ — 9,537 9,174 — 18,711 ( 387 ) 11/1/2021 2009

Vacant - Parsippany, NJ $ — $ 9,537 $ 9,174 $ — $ 18,711 $ ( 719 ) 11/1/2021 2009

Software & Services - Bedford, MA — 22,381 26,029 4 48,414 ( 1,889 ) 11/1/2021 2001

19 unchanged sentences

Impairments ( 41,467 ) ( 87,834 ) ( 77,636 )

Reclassified to real estate assets held or sale, net ( 21,941 ) — —

Reclassified to real estate assets held for sale, net ( 15,065 ) ( 21,941 ) —

Other — — ( 982 )

14 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying combined and consolidated balance sheet of VEREIT Office Assets (the "Company"), as described in Note 1 to the combined and consolidated financial statements, as of October 31, 2021, the related combined and consolidated statements of operations, equity and cash flows, for the ten months ended October 31, 2021 and the year ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021, and the results of its operations and its cash flows for the ten months ended October 31, 2021 and the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying combined and consolidated statements of operations, equity and cash flows, for the ten months ended October 31, 2021, and the related notes, of VEREIT Office Assets (the "Company"), as described in Note 1 to the combined and consolidated financial statements (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the results of the Company’s operations and cash flows for the ten months ended October 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

2 unchanged sentences

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

3 unchanged sentences

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED BALANCE SHEET

(In thousands)

October 31, 2021

Real estate investments, at cost:

Land $ 163,295

Buildings, fixtures and improvements 1,303,038

Intangible lease assets 184,560

Total real estate investments, at cost 1,650,893

accumulated depreciation and amortization 528,167

Total real estate investments, net 1,122,726

Operating lease right-of-use assets 5,361

Investment in unconsolidated joint venture 14,466

Restricted cash 8

Rent and tenant receivables and other assets, net 35,035

Goodwill 159,129

Total assets $ 1,336,725

LIABILITIES AND EQUITY

Below-market lease liabilities, net $ 5,308

Accounts payable and accrued expenses 5,763

Deferred rent and other liabilities 8,001

Operating lease liabilities 5,359

Total liabilities 24,431

Commitments and contingencies (Note 4)

Net parent investment 1,311,167

Non-controlling interest 1,127

Total equity 1,312,294

Total liabilities and equity $ 1,336,725

The accompanying notes are an integral part of this statement.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands)

Ten Months Ended Year Ended December 31,

Ten Months Ended

October 31, 2021

11 unchanged sentences

Interest expense ( 5,961 )

Gain on disposition of real estate assets, net — 9,765

Loss on extinguishment of debt, net ( 5,294 )

6 unchanged sentences

Net income attributable to VEREIT Office Assets $ 5,753

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of this statement.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF EQUITY

COMBINED AND CONSOLIDATED STATEMENT OF EQUITY

(In thousands)

Balance, January 1, 2020 $ 1,310,129

Distributions, net ( 192,228 )

Net income 43,533

Balance, December 31, 2020 $ 1,161,434

2 unchanged sentences

Balance, October 31, 2021 $ 1,312,294

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of this statement.

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

COMBINED AND CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

Ten Months Ended Year Ended December 31,

Ten Months Ended

October 31, 2021

4 unchanged sentences

Impairments 28,064

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

Loss on extinguishment of debt, net 5,294

9 unchanged sentences

Real estate developments ( 259 )

Proceeds from disposition of real estate — 116,360

Investments in unconsolidated joint venture ( 2,180 )

Return of investment from unconsolidated joint venture 1,147

Principal repayments received on other investments — 5,768

Proceeds from the settlement of property-related insurance claims 70

1 unchanged sentence

Cash flows from financing activities:

Proceeds from mortgage notes payable — 1,032

Payments on mortgage notes payable ( 223,064 )

14 unchanged sentences

Non-cash investing and financing activities:

Real estate contributions to unconsolidated joint venture $ — $ 17,240

Accrued capital expenditures and real estate developments $ ( 2,033 )

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of this statement.

VEREIT OFFICE ASSETS

18 unchanged sentences

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

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

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

The results of operations for the ten months ended October 31, 2021 are not necessarily indicative of the results for the entire year.

17 unchanged sentences

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

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

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

Use of Estimates

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

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

GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

9 unchanged sentences

Investment in Unconsolidated Joint Venture

As of October 31, 2021, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned five properties with total real estate investments, at cost, of $ 196.2 million and total debt outstanding of $ 118.4 million, which was non-recourse to VEREIT Office Assets.

During the ten months ended October 31, 2021, VEREIT Office Assets owned a 20 % ownership interest in an unconsolidated joint venture, the Arch Street Joint Venture, that owned five properties.

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

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

VEREIT Office Assets recorded its proportionate share of net income (loss) from the Arch Street Joint Venture in equity in income of unconsolidated joint venture in the combined and consolidated statements of operations.

VEREIT Office Assets was required to determine whether an event or change in circumstances had occurred that may have had a significant adverse effect on the fair value of its investment in the Arch Street Joint Venture.

If an event or change in circumstance had occurred, VEREIT Office Assets’ management was required to evaluate its investment in the Arch Street Joint Venture for potential impairment and determine if the carrying value of its investment exceeded its fair value.

VEREIT OFFICE ASSETS

1 unchanged sentence

October 31, 2021

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

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

To determine whether an impairment was other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value was fully recovered.

1 unchanged sentence

The use of different judgments and assumptions could have resulted in different conclusions.

No impairments of the investment in the Arch Street Joint Venture were identified during the ten months ended October 31, 2021 or year ended December 31, 2020.

No impairments of the investment in the Arch Street Joint Venture were identified during the ten months ended October 31, 2021.

Goodwill Impairment

7 unchanged sentences

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

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

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

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

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

Cash and Cash Equivalents

3 unchanged sentences

As of October 31, 2021, restricted cash included $ 8,000 in lender reserves.

Rent and Tenant Receivables and Other Assets, Net

Rent and tenant receivables and other assets, net primarily included amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries due from tenants.

Prepaid expenses as of the balance sheet date related to future periods and will be expensed or reclassified to another account during the period to which the costs related.

Any amounts with no future economic benefit were charged to earnings when identified.

Deferred Financing Costs

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

Deferred financing costs were presented on the combined and consolidated balance sheet as a direct deduction from the carrying value of the related debt liability.

These costs were amortized to interest expense over the terms of the respective financing agreements and used the straight-line method, which approximated the effective interest method.

1 unchanged sentence

Costs incurred in connection with potential financing transactions that were not completed were expensed in the period in which it is determined the financing would not be completed.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

Leases - Lessor

8 unchanged sentences

Two separate lease components were identified as follows:

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

(i) land lease component and (ii) single property lease component

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

comprised of building, land improvements and tenant improvements.

The leases also contained provisions for tenants to reimburse VEREIT Office Assets for real estate taxes and insurance, which are considered noncomponents of the lease, and maintenance and other property operating expenses, which were considered to be non-lease components.

6 unchanged sentences

During the year ended December 31, 2020, there was a global outbreak of a new strain of coronavirus, COVID-19.

The global and domestic response to the COVID-19 outbreak continued to evolve during the ten months ended October 31, 2021 and year ended December 31, 2020.

The global and domestic response to the COVID-19 outbreak continued to evolve during the ten months ended October 31, 2021.

Federal, state, and local authorities responded in a variety of ways, including temporary closure of or imposed limitations on the operations of certain non-essential businesses.

1 unchanged sentence

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

Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the ten months ended October 31, 2021 and year ended December 31, 2020, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.

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

Leases - Lessee

8 unchanged sentences

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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

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

4 unchanged sentences

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

During the ten months ended October 31, 2021 and year ended December 31, 2020, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $ 0.5 million and $ 0.6 million, respectively.

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

VEREIT Office Assets had no unrecognized tax benefits as of or during the ten months ended October 31, 2021 and year ended December 31, 2020.

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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

During the ten months ended October 31, 2021, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $ 0.5 million.

Amounts were included in provision for income taxes in the accompanying combined and consolidated statement of operations.

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

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

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

1 unchanged sentence

Property Dispositions

During the year ended December 31, 2020, VEREIT Office Assets disposed of three properties, selling them to the Arch Street Joint Venture for an aggregate net sales price of $ 135.5 million.

The dispositions resulted in proceeds of $ 116.4 million after closing costs and VEREIT Office Assets recorded a net gain of $ 9.8 million related to the dispositions, which was included in gain on disposition of real estate assets, net in the accompanying combined and consolidated statements of operations.

There were no properties disposed by VEREIT Office Assets during the ten months ended October 31, 2021.

Intangible Lease Assets and Liabilities

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

Weighted-Average Useful Life (Years) October 31, 2021

Intangible lease assets:

In-place leases, net of accumulated amortization of $ 119,604

10.1 $ 29,091

Leasing commissions, net of accumulated amortization of $ 5,679

Above-market lease assets and deferred lease incentives, net of accumulated amortization of $ 14,793

Total intangible lease assets, net $ 44,484

Intangible lease liabilities:

Below-market leases, net of accumulated amortization of $ 18,504

The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $ 29,000 for the ten months ended October 31, 2021 and $ 67,000 for the year ended December 31, 2020.

The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $ 13.0 million for the ten months ended October 31, 2021 and $ 17.8 million for the year ended December 31, 2020.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

10 unchanged sentences

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

As of October 31, 2021, the consolidated joint venture had total assets of $ 30.7 million, of which $ 27.7 million were real estate investments, net of accumulated depreciation and amortization.

The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a net balance of $ 14.8 million as of December 31, 2020.

The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets.

During the ten months ended October 31, 2021, VEREIT, on behalf of VEREIT Office Assets, repaid the balance of the mortgage note in full and there were no amounts outstanding as of October 31, 2021.

3 unchanged sentences

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

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing four and two properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 28.1 million and $ 9.3 million during the ten months ended October 31, 2021 and year ended December 31, 2020, respectively.

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

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing four properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 28.1 million during the ten months ended October 31, 2021.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

VEREIT management believed the properties would not be leased to another tenant at a rental rate that supported the book value.

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

7 unchanged sentences

For VEREIT’s impairment tests for the real estate assets during the ten months ended October 31, 2021, VEREIT used a weighted-average discount rate of 9.0 % and a weighted-average capitalization rate of 8.5 %.

For VEREIT’s impairment tests for the real estate assets during the year ended December 31, 2020, VEREIT used a weighted-average discount rate of 8.9 % and a weighted-average capitalization rate of 8.4 %.

Note 3 – Mortgage Notes Payable, Net

As of October 31, 2021, VEREIT Office Assets had no mortgage notes payable as all amounts were repaid in conjunction with the Separation.

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

Note 3 – Commitments and Contingencies

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

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

VEREIT Office Assets did not believe that any of these outstanding claims against it were expected to have a material adverse effect upon its consolidated results of operations.

Environmental Matters

8 unchanged sentences

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

Ten Months Ended October 31, Year Ended December 31,

Ten Months Ended October 31,

Cash rent $ 109,582

1 unchanged sentence

Lease intangible amortization

( 29 ) ( 67 )

Property operating cost reimbursements

107,934 135,260

26,806 35,044

Total rental revenue $ 134,740

1 unchanged sentence

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

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

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

4 unchanged sentences

Total $ 397,334

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021

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

3 unchanged sentences

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

Operating lease costs for the ten months ended October 31, 2021 and for the year ended December 31, 2020 were $ 0.2 million and $ 0.3 million, respectively.

Operating lease costs for the ten months ended October 31, 2021 were $ 0.2 million.

No cash paid for operating lease liabilities was capitalized.

11 unchanged sentences

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 9A. Controls and Procedures