Orion Properties Inc. 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of December 31, 2023, were effective at a reasonable assurance level. Management’s Report on Internal Controls Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on its assessment, our management concluded that, as of December 31, 2023, our internal control over financial reporting was effective. This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, due to an exemption established by the rules of the SEC for “emerging growth companies.” Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934) during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 50 Table of Contents Item 9B. 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 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: Bonus Component Weighting Individual Performance 33% Core FFO per share 30% G&A expenses 13% Net Debt to Adjusted EBITDA 24% Under the 2024 Bonus Program, 50% of each target bonus component will be earned for performance at the threshold level, 100% of each target bonus component will be earned for performance at the target level and 150% of each target bonus component will be earned for performance at the maximum level (or above). Performance between threshold and target and between target and maximum performance levels will be interpolated on a straight-line basis. Pursuant to their respective employment agreements, in 2024 each of the executives will be eligible to earn an annual cash bonus targeted at a percentage of the executive’s base salary as follows: 100% for Mr. McDowell, 100% for Mr. Brandon and 92% for Mr. Landriau. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance. 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. Item 11. Executive Compensation. 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. Item 12. 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, 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. Item 13. Certain Relationships and Related Transactions, and Director Independence. 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. 51 Table of Contents Item 14. Principal Accounting Fees and Services. 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. 52 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules. Financial Statements The Financial Statements are included herein beginning on page F- 1 . Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation is included herein beginning on page F- 32 . All other schedules have been omitted as the required information is either presented in the consolidated and combined financial statements or is not applicable. Exhibits The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the period ended December 31, 2023 (and are numbered in accordance with Item 601 of Regulation S-K): Exhibit No. Description 2.1 Separation and Distribution Agreement, by and among Realty Income Corporation, Orion Office REIT Inc., and Orion Office REIT LP (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference). 2.2 Transition Services Agreement by and among Realty Income Corporation and Orion Office REIT Inc. (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference). 2.3 Tax Matters Agreement by and among Realty Income Corporation and Orion Office REIT Inc. (filed as Exhibit 2.3 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference). 2.4 Employee Matters Agreement by and among Realty Income Corporation, VEREIT, Inc., Orion Office REIT Inc. and Orion Office REIT LP (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference). 3.1 Articles of Amendment and Restatement of Orion Office REIT Inc. (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 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). 4.2 Description of Securities (filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K, filed on March 24, 2022 and incorporated herein by reference). 10.1 Agreement of Limited Partnership of Orion Office REIT LP (filed as Exhibit 2.2 to the Company’s Registration Statement on Form 10, filed on October 4, 2021 and incorporated herein by reference). 10.2 Credit Agreement, dated November 12, 2021, by and among Orion Office REIT Inc., Orion Office REIT LP, the financial institutions party thereto, and Wells Fargo Bank, National Association, as administrative agent (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 (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). 10.5 Right of First Offer Agreement, dated November 12, 2021, by and between Orion Office REIT Inc. and OAP/VER Venture, LLC (filed as Exhibit 10.6 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference). 53 Table of Contents 10.6† Orion Office REIT Inc. 2021 Equity Incentive Plan (filed as Exhibit 10.7 to the Company's Current Report on Form 8-K, filed on November 15, 2021 and incorporated herein by reference). 10.7† Form of Employment Agreement, by and among Orion Services, LLC, Orion Office REIT Inc. and each named executive officer of Orion Office REIT Inc. (filed as Exhibit 10.1 to the Company's Registration Statement on Form 10, filed on October 4, 2021 and incorporated herein by reference). 10.8† Form of Indemnification Agreement entered into between Orion Office REIT Inc. and each of its directors and executive officers (filed as Exhibit 10.3 to the Company's Registration Statement on Form 10, filed on October 4, 2021 and incorporated herein by reference). 10.9† Form of Restricted Stock Unit Award for Non-Employee Directors under the Orion Office REIT Inc. 2021 Equity Incentive Plan (filed as Exhibit 10.11 to the Company’s Form 10-Q, filed on December 2, 2021 and incorporated herein by reference). 10.10† Form of Restricted Stock Unit Award for Employees under the Orion Office REIT Inc. 2021 Equity Incentive Plan (filed as Exhibit 10.12 to the Company’s Form 10-Q, filed on December 2, 2021 and incorporated herein by reference). 10.11 Loan Agreement, dated February 10, 2022, by and between the entities identified on Schedule I thereto, as Borrower, and Wells Fargo Bank, National Association, as Lender (filed as Exhibit 10.1 to the Company's Form 8-K, filed on February 14, 2022 and incorporated herein by reference). 10.12 Guaranty of Recourse Obligations, dated February 10, 2022, made by Orion Office REIT Inc. in favor of Wells Fargo Bank, National Association, as Lender (filed as Exhibit 10.2 to the Company’s Form 8-K filed on February 14, 2022 and incorporated herein by reference). 10.13† Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Orion Office REIT Inc. 2021 Equity Incentive Plan (March 2022 Awards) (filed as Exhibit 10.15 to the Company’s Form 10-K filed on March 24, 2022 and incorporated herein by reference). 10.14† Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Orion Office REIT Inc. 2021 Equity Incentive Plan (March 2023 Awards) (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) 10.16 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 23.1* Consent of KPMG LLP 23.2* Consent of Deloitte & Touche LLP 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. 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. 101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document. 54 Table of Contents 101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104** Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). ____________________________________ * Filed herewith ** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. † Management contract or compensatory plan or arrangement. Item 16. Form 10-K Summary. Not Applicable. 55 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized. Orion Office REIT Inc. By: /s/ Gavin B. Brandon Gavin B. Brandon Chief Financial Officer, Executive Vice President and Treasurer Dated: 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 /s/ Paul H. McDowell Chief Executive Officer, President and Director February 27, 2024 Paul H. McDowell (Principal Executive Officer) /s/ Gavin B. Brandon Executive Vice President, Chief Financial Officer and Treasurer February 27, 2024 Gavin B. Brandon (Principal Financial Officer) /s/ Revea L. Schmidt Senior Vice President and Chief Accounting Officer February 27, 2024 Revea L. Schmidt (Principal Accounting Officer) /s/ Reginald H. Gilyard Director, Non-Executive Chairman February 27, 2024 Reginald H. Gilyard /s/ Kathleen R. Allen Director February 27, 2024 Kathleen R. Allen /s/ Richard J. Lieb Director February 27, 2024 Richard J. Lieb /s/ Gregory J. Whyte Director February 27, 2024 Gregory J. Whyte 56 Table of Contents INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Page Financial Statements Report of Independent Registered Public Accounting Firm ( KPMG LLP , San Diego, CA , Firm ID 185 ) F- 2 Orion Office REIT Inc. Consolidated Balance Sheets as of December 31, 202 3 and 202 2 F- 3 Orion Office REIT Inc. Consolidated and Combined Statements of Operations for the Years Ended December 31, 2023, 2022, and 2021 F- 4 Orion Office REIT Inc. Consolidated and Combined Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023, 2022, and 2021 F- 5 Orion Office REIT Inc. Consolidated and Combined Statements of Equity for the Years Ended December 31, 2023, 2022, and 2021 F- 6 Orion Office REIT Inc. Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021 F- 7 Notes to Orion Office REIT Inc. Consolidated and Combined Financial Statements F- 9 Schedule III – Real Estate and Accumulated Depreciation F- 32 Report of Independent Registered Public Accounting Firm ( Deloitte & Touche LLP , Tempe, AZ , Firm ID 34 ) F- 36 VEREIT Office Assets Combined and Consolidated Statement of Operations for the Ten Months Ended October 31, 2021 F- 37 VEREIT Office Assets Combined and Consolidated Statement of Equity for the Ten Months Ended October 31, 2021 F- 38 VEREIT Office Assets Combined and Consolidated Statement of Cash Flows for the Ten Months Ended October 31, 2021 F- 39 Notes to VEREIT Office Assets Combined and Consolidated Financial Statements F- 40 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Orion Office REIT Inc.: Opinion on the Consolidated and Combined Financial Statements We have audited the accompanying consolidated balance sheets of Orion Office REIT Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated and combined statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule III (collectively, the consolidated and combined financial statements). In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated and combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated and combined financial statements based on our audits. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated and combined 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. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated and combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated and combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated and combined financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2021. San Diego, California February 27, 2024 F-2 Table of Contents ORION OFFICE REIT INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) December 31, 2023 December 31, 2022 ASSETS Real estate investments, at cost: Land $ 223,264 $ 238,225 Buildings, fixtures and improvements 1,097,132 1,128,400 Total real estate investments, at cost 1,320,396 1,366,625 Less: accumulated depreciation 158,791 133,379 Total real estate investments, net 1,161,605 1,233,246 Accounts receivable, net 24,663 21,641 Intangible lease assets, net 126,364 202,832 Cash and cash equivalents 22,473 20,638 Real estate assets held for sale, net — 2,502 Other assets, net 88,828 90,214 Total assets $ 1,423,933 $ 1,571,073 LIABILITIES AND EQUITY Mortgages payable, net $ 352,856 $ 352,167 Credit facility term loan, net — 173,815 Credit facility revolver 116,000 — Accounts payable and accrued expenses 30,479 26,161 Below-market lease liabilities, net 8,074 14,068 Distributions payable 5,578 5,664 Other liabilities, net 23,943 23,340 Total liabilities 536,930 595,215 Common stock, $ 0.001 par value, 100,000,000 shares authorized 55,783,548 and 56,639,040 shares issued and outstanding as of each of December 31, 2023 and December 31, 2022, respectively 56 57 Additional paid-in capital 1,144,636 1,147,014 Accumulated other comprehensive (loss) income ( 264 ) 6,308 Accumulated deficit ( 258,805 ) ( 178,910 ) Total stockholders’ equity 885,623 974,469 Non-controlling interest 1,380 1,389 Total equity 887,003 975,858 Total liabilities and equity $ 1,423,933 $ 1,571,073 The accompanying notes are an integral part of these statements. F-3 Table of Contents ORION OFFICE REIT INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (In thousands, except for per share data) Year Ended December 31, 2023 2022 2021 Rental $ 194,241 $ 207,353 $ 79,460 Fee income from unconsolidated joint venture 800 765 271 Total revenues 195,041 208,118 79,731 Operating expenses: Property operating 60,783 61,519 13,411 General and administrative 18,720 15,908 3,832 Depreciation and amortization 109,111 131,367 43,922 Impairments 33,112 66,359 49,859 Transaction related 504 675 — Spin related — 964 7,909 Total operating expenses 222,230 276,792 118,933 Other (expenses) income: Interest expense, net ( 29,669 ) ( 30,171 ) ( 4,267 ) Gain on disposition of real estate assets 31 2,352 — Loss on extinguishment of debt, net ( 504 ) ( 468 ) ( 3,782 ) Other income, net 911 223 — Equity in loss of unconsolidated joint venture, net ( 435 ) ( 524 ) ( 56 ) Total other (expenses) income, net ( 29,666 ) ( 28,588 ) ( 8,105 ) Loss before taxes ( 56,855 ) ( 97,262 ) ( 47,307 ) Provision for income taxes ( 456 ) ( 212 ) ( 157 ) Net loss ( 57,311 ) ( 97,474 ) ( 47,464 ) Net loss (income) attributable to non-controlling interest 9 ( 20 ) ( 17 ) Net loss attributable to common stockholders $ ( 57,302 ) $ ( 97,494 ) $ ( 47,481 ) Weighted-average shares outstanding - basic and diluted 56,410 56,632 $ 56,626 Basic and diluted net loss per share attributable to common stockholders $ ( 1.02 ) $ ( 1.72 ) $ ( 0.84 ) The accompanying notes are an integral part of these statements. F-4 Table of Contents ORION OFFICE REIT INC. CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2023 2022 2021 Net loss $ ( 57,311 ) $ ( 97,474 ) $ ( 47,464 ) Total other comprehensive income (loss): Unrealized gain on interest rate derivatives 127 7,802 209 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. F-5 Table of Contents ORION OFFICE REIT INC. CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY (In thousands, except for share data) Common Stock Number of Shares Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Net Parent Investment Total Stockholders’ and Parent Company Equity Non-Controlling Interest Total Equity Balance, January 1, 2021 — $ — $ — $ — $ — $ 497,118 497,118 $ — 497,118 Net (loss) income — — — — ( 58,715 ) 11,234 ( 47,481 ) 17 ( 47,464 ) Contributions from parent company, net — — — — — 633,650 633,650 1,352 635,002 Issuance of common stock, net 56,625,650 57 1,141,945 — — ( 1,142,002 ) — — — Grant of stock warrants — — 3,269 — — — 3,269 — 3,269 Equity-based compensation, net — — 64 — — — 64 — 64 Other comprehensive income — — — 299 — — 299 — 299 Balance, December 31, 2021 56,625,650 57 1,145,278 299 ( 58,715 ) — 1,086,919 1,369 1,088,288 Net (loss) income — — — — ( 97,494 ) — ( 97,494 ) 20 ( 97,474 ) Distributions — — — — ( 22,701 ) — ( 22,701 ) — ( 22,701 ) Repurchases of common stock to settle tax obligations ( 2,177 ) — ( 20 ) — — — ( 20 ) — ( 20 ) Equity-based compensation, net 15,567 — 1,756 — — — 1,756 — 1,756 Other comprehensive income, net — — — 6,009 — — 6,009 — 6,009 Balance, December 31, 2022 56,639,040 57 1,147,014 6,308 ( 178,910 ) — 974,469 1,389 975,858 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. F-6 Table of Contents ORION OFFICE REIT INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net loss $ ( 57,311 ) $ ( 97,474 ) $ ( 47,464 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 109,111 131,367 43,922 Non-cash revenue adjustments, net ( 5,977 ) 171 ( 1,315 ) Amortization of net premiums on mortgages payable — — ( 60 ) Impairments 33,112 66,359 49,859 Gain on disposition of real estate assets ( 31 ) ( 2,352 ) — Loss on extinguishment of debt, net 504 468 3,782 Amortization of deferred financing costs 3,974 4,364 728 Equity-based compensation 2,728 1,756 65 Equity in loss of unconsolidated joint venture, net 435 524 56 Changes in assets and liabilities: Accounts receivable, net and other assets, net 1,340 2,247 ( 5,017 ) Accounts payable, accrued expenses and other liabilities, net 1,203 6,802 11,552 Net cash provided by operating activities 89,088 114,232 56,108 Cash flows from investing activities: Capital expenditures and leasing costs ( 18,442 ) ( 11,624 ) ( 9,916 ) 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 ) Cash flows from financing activities: Proceeds from bridge facility — — 355,000 Repayment of bridge facility, including debt extinguishment costs — ( 355,026 ) — Proceeds from mortgages payable — 355,000 — Payments on mortgages payable — — ( 36,476 ) 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 Repayments of credit facility revolver ( 59,000 ) ( 160,000 ) — 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 ) — Payments of deferred equity offering costs ( 41 ) ( 535 ) — Distributions paid ( 22,578 ) ( 16,991 ) — Distributions to parent company, net — — ( 587,156 ) Other financing activities ( 101 ) ( 48 ) — Payments upon extinguishment of mortgages payable — — ( 4,298 ) Net cash used in financing activities ( 92,490 ) ( 110,716 ) ( 18,444 ) Net change in cash and cash equivalents and restricted cash 1,887 25,993 25,403 F-7 Table of Contents 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 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. F-8 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Note 1 – Organization Organization Orion Office REIT Inc. (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”). As of December 31, 2023, the Arch Street Joint Venture owned a portfolio consisting of six office properties totaling approximately 1.0 million leasable square feet located within six states. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The consolidated and combined statements of the Company presented herein include the accounts of the Company and its consolidated subsidiaries. All intercompany transactions have been eliminated upon consolidation. The financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States (“U.S. 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. For legal entities being evaluated for consolidation, the Company must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. The Company’s evaluation includes consideration of fees paid to the Company where the Company acts as a decision maker or service provider to the entity being evaluated. 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 F-9 Table of Contents 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. The Company then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. The Company continually evaluates the need to consolidate VIEs based on standards set forth in U.S. GAAP. Per Share Data Income (loss) per basic share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted income (loss) per share of common stock considers the effect of potentially dilutive shares of common stock outstanding during the period. 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. Actual results could differ from those estimates. Management makes significant estimates regarding real estate investment impairments. Spin Related Spin related expenses are expensed as incurred. Such expenses are primarily comprised of the legal and professional fees associated with the formation and organization of the Company, the Mergers and the Distribution. Such costs also include expenses related to the fair value of the warrants issued to the Arch Street Partner and one of its affiliates during the year ended December 31, 2021. Leases Lessor 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. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease. When a lease does not effectively transfer control of the underlying asset to the lessee, but the Company obtains a guarantee for the value of the asset from a third party, the Company classifies the lease as a direct financing lease. All other leases are classified as operating leases. As of December 31, 2023, none of the Company’s leases were classified as sales-type leases or direct financing leases. Lessee To account for leases for which the Company is the lessee, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures are performed at the lease commencement date. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as finance lease, otherwise it is classified as an operating lease. The lease liability is initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the lessee’s incremental borrowing rate is used. The incremental borrowing rate is determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The lease term is the noncancelable period of the lease and includes any renewal and termination options the Company is reasonably certain to exercise. The lease liability balance is amortized using the effective interest method. 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. F-10 Table of Contents 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. Revenue Recognition 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. The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received and the Company reduces rental revenue for any straight-line rent receivables. The Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue. During the 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 for the years ended December 31, 2023 and 2022 and $ 0.3 million for the year ended December 31, 2021. Real Estate Investments The Company records acquired real estate at cost when such acquisitions qualify as asset acquisitions and makes assessments as to the useful lives of depreciable assets. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. 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. F-11 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Allocation of Purchase Price of Real Estate Acquisitions For acquisitions that qualify as asset acquisitions, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets and liabilities acquired based on their relative fair values. Tangible assets include land, buildings, fixtures and improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Identifiable intangible assets and liabilities include amounts allocated to acquired leases for above-market and below-market lease rates and the value of in-place leases. In estimating fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed. The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place leases include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. The Company also estimates costs to execute similar leases, including leasing commissions, legal and other related expenses. The value of in-place leases is amortized over the remaining non-cancelable term of the respective leases at acquisition. If a tenant terminates its lease, then the unamortized portion of the in-place lease value is charged to expense. Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including any bargain renewal periods. A bargain renewal period is provision in a lease which allows a lessee, at its option, to renew a lease at a rate that is sufficiently lower than fair market lease rates at the date such option is exercisable such that exercise of the option appears, at the inception of the lease, to be reasonably certain. Above-market leases are amortized as a reduction to rental revenue over the remaining terms of the respective leases. Below-market leases are amortized as an increase to rental revenue over the remaining terms of the respective leases, including any bargain renewal periods. The determination of the fair values of the real estate assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. 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. Assets Held for Sale The Company classifies a real estate investment as held for sale when certain criteria are met in accordance with U.S. GAAP. Upon classifying a real estate investment as held for sale, the Company will no longer recognize depreciation or amortization expense related to the depreciable assets of the property. Assets held for sale are recorded at the lower of carrying value or estimated fair value, less the estimated cost to dispose of the assets. See Note 3 – Real Estate Investments and Related Intangibles for further discussion regarding properties held for sale. If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the Company will reclassify the property as held and used. The Company measures and records a property that is classified as held and used at the lower of (i) its carrying value before the property was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell. Investment in Unconsolidated Joint Venture The Company accounts for its investment in the Arch Street Joint Venture arrangement using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over the operating and financing policies of the investment. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint venture’s earnings and distributions. The Company records F-12 Table of Contents 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. The Company is required to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of its investment in the Arch Street Joint Venture. If an event or change in circumstance has occurred, the Company is required to evaluate its investment in the Arch Street Joint Venture for potential impairment and determine if the carrying value of its investment exceeds its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, the Company considers whether it has the intent and ability to hold the investment until the carrying value is fully recovered. The evaluation of an investment in an unconsolidated joint venture for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No impairments of 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. Impairments Real Estate Assets The Company performs impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, decrease in a property’s net operating cash flows, bankruptcy or other credit concerns of a property’s major tenant or tenants, such as history of late payments, rental concessions and other factors, as well as significant decreases in a property’s revenues due to lease terminations, vacancies or reduced lease rates. When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed, 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. U.S. 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. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales or leasing transactions. The assumptions and uncertainties utilized in the evaluation of the impairment of real estate assets are discussed in Note 5 – Fair Value Measures. Right of Use Assets 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, 2023, 2022, or 2021. See Note 5 – Fair Value Measures for further discussion. Cash and Cash Equivalents Cash and cash equivalents include cash in bank accounts, as well as investments in highly-liquid funds with original maturities of three months or less. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed federally insured levels. Although the Company bears risk on amounts in excess of those insured by the FDIC, it has not experienced and does not anticipate any losses due to the high quality of the institutions where the deposits are held. Restricted Cash 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. Deferred Financing Costs Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. D eferred financing costs, other than those associated with the Revolving Facility (as defined in Note 6 – Debt, Net ), are presented on the consolidated balance sheets as a direct deduction from the carrying value of the related debt liability rather F-13 Table of Contents 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. Deferred financing costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed. Derivative Instruments The Company may use derivative financial instruments, including interest rate swaps, caps, collars, treasury locks, options and forwards to hedge all or a portion of the interest rate risk associated with its borrowings. 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 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. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations. The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary under U.S. GAAP to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in other income, net in the consolidated and combined statements of operations and consolidated and combined statements of comprehensive income (loss). If the derivative is designated and qualifies for cash flow hedge accounting treatment, the change in fair value of the derivative is recorded in other 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 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. Income Taxes 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, 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. The Company provides for income taxes in accordance with current authoritative accounting and tax guidance. The tax provision or benefit related to significant or unusual items is recognized in the quarter in which those items occur. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the quarter in which the change occurs. 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. F-14 Table of Contents 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. The Company believes that its material income tax positions would more likely than not be sustained upon examination by the relevant taxing authorities. Therefore, no provisions related to material uncertain income tax positions have been recognized in the accompanying consolidated and combined financial statements during the years ended December 31, 2023, 2022, and 2021. Any interest and penalties related to unrecognized tax benefits would be recognized in provision for income taxes in the accompanying consolidated and combined statements of operations. For periods presented prior to 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. Assuming Realty Income’s dividends equaled or exceeded its taxable net income, it was generally not required to pay federal corporate income taxes on such income. 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 November 1, 2021 are included in the consolidated income tax return of Realty Income. Segment Reporting The Company operates in one business segment: direct ownership and operation of commercial real estate. Recent Accounting Pronouncements 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 Property Acquisitions 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 sheet 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. F-15 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Property Dispositions and Real Estate Assets Held for Sale The following table summarizes the Company’s property dispositions for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands) : Year Ended December 31, 2023 2022 2021 Total dispositions 6 11 — Aggregate gross sales price $ 25,425 $ 33,098 $ — Gain on disposition of real estate assets $ 31 $ 2,352 $ — Property count 3 5 — Impairments on disposition of real estate assets $ 575 $ 5,089 $ — Property count 3 6 — 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 and liabilities consisted of the following (in thousands, except weighted-average useful life): Weighted-Average Useful Life (Years) December 31, 2023 December 31, 2022 Intangible lease assets: In-place leases, net of accumulated amortization of $ 193,470 and $ 144,798 , respectively 6.4 $ 103,997 $ 177,698 Leasing commissions, net of accumulated amortization of $ 3,033 and $ 1,553 , respectively 12.4 13,539 13,614 Above-market lease assets, net of accumulated amortization of $ 10,372 and $ 11,391 , respectively 7.0 5,006 9,826 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 Intangible lease liabilities: Below-market leases, net of accumulated amortization of $ 23,176 and $ 17,249 , respectively 10.8 $ 8,074 $ 14,068 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 $ 0.3 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. F-16 Table of Contents 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) : 2024 2025 2026 2027 2028 In-place leases: Total projected to be included in amortization expense $ 49,028 $ 21,608 $ 15,499 $ 7,441 $ 4,592 Leasing commissions: Total projected to be included in amortization expense $ 1,497 $ 1,430 $ 1,426 $ 1,399 $ 1,251 Above-market lease assets: Total projected to be deducted from rental revenue $ 2,960 $ 850 $ 682 $ 237 $ 115 Deferred lease incentives: Total projected to be deducted from rental revenue $ 489 $ 473 $ 375 $ 351 $ 338 Below-market lease liabilities: Total projected to be added to rental revenue $ 3,786 $ 1,036 $ 817 $ 655 $ 571 Consolidated Joint Venture The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2023 and 2022. 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 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. 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, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands): Ownership % (1) Number of Properties Carrying Value of Investment Equity in Loss, Net Year Ended (2) Investment December 31, 2023 December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 December 31, 2021 Arch Street Joint Venture (3) (4) 20 % 6 $ 13,549 $ 15,824 $ ( 435 ) $ ( 524 ) $ ( 56 ) ____________________________________ (1) The Company’s ownership interest reflects its legal ownership interest. The Company’s legal ownership interest may, at times, not equal the Company’s economic interest because of various provisions in the joint venture agreement regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interest. (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 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. F-17 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Note 4 – Receivables and Other Assets : Accounts receivable, net consisted of the following as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Accounts receivable, net $ 9,008 $ 10,461 Straight-line rent receivable, net 15,655 11,180 Total $ 24,663 $ 21,641 Other assets, net consisted of the following as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Restricted cash $ 34,725 $ 34,673 Right-of-use assets, net (1) 26,596 26,422 Investment in unconsolidated joint venture 13,549 15,824 Deferred costs, net (2) 7,693 4,619 Notes receivable (3) 3,700 — Prepaid expenses 1,318 1,305 Derivative assets — 6,308 Other assets, net 1,247 1,063 Total $ 88,828 $ 90,214 ____________________________________ (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. 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 Items Measured at Fair Value on a Recurring Basis The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands): Level 1 Level 2 Level 3 Balance as of December 31, 2023 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 liabilities — — — — F-18 Table of Contents 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. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2023 and 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. Items Measured at Fair Value on a Non-Recurring Basis 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, 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): Year Ended December 31, 2023 2022 2021 Number of properties 8 18 10 Carrying value of impaired properties $ 68,215 $ 142,748 $ 109,197 Provisions for impairment ( 33,112 ) ( 66,359 ) ( 49,859 ) Estimated fair value $ 35,103 $ 76,389 $ 59,338 The Company estimates fair values using Level 2 and Level 3 inputs and uses a combined income and market approach, specifically using discounted cash flow analysis and/or recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and make certain key assumptions, including the following: (1) capitalization rates; (2) discount rates; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions including number of months to re-lease, market rental revenue and required tenant improvements. There 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, 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. F-19 Table of Contents 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. During the year ended December 31, 2021, impairment charges of $ 49.9 million were recorded for held and used properties, and no impairment charges were recorded for held for sale properties or disposed properties. The following tables present certain of the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2023 and 2022, aggregated by the level in the fair value hierarchy within which those assets fall (in thousands): Level 1 Level 2 (1) Level 3 (1) Balance as of December 31, 2023 Assets of properties held and used $ — $ — $ 5,402 $ 5,402 Level 1 Level 2 (1) Level 3 (1) Balance as of December 31, 2022 Assets of properties held and used $ — $ 38,900 $ 11,957 $ 50,857 Assets of properties held for sale — 2,502 — 2,502 $ — $ 41,402 $ 11,957 $ 53,359 ____________________________________ (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, 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): Level Carrying Value at December 31, 2023 Fair Value at December 31, 2023 Carrying Value at December 31, 2022 Fair Value at December 31, 2022 Assets: 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) : Mortgages payable 2 $ 355,000 $ 334,897 $ 355,000 $ 332,323 Credit facility term loan 2 — — 175,000 175,000 Credit facility revolver 2 116,000 116,000 — — Derivative liabilities 2 264 264 — — Total $ 471,264 $ 451,161 $ 530,000 $ 507,323 ____________________________________ (1) Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs. 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. F-20 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Note 6 – Debt, Net 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): Year Ended December 31, 2023 Balance as of December 31, 2022 Debt Issuances Repayments, Extinguishment and Assumptions Accretion and Amortization Balance as of December 31, 2023 Mortgages payable: Outstanding balance $ 355,000 $ — $ — $ — $ 355,000 Deferred costs ( 2,833 ) — — 689 ( 2,144 ) Mortgages payable, net 352,167 — — 689 352,856 Credit facility term loan: Outstanding balance 175,000 — ( 175,000 ) — — Deferred costs ( 1,185 ) — 504 681 — Credit facility term loan, net 173,815 — ( 174,496 ) 681 — Credit facility revolver — 175,000 ( 59,000 ) — 116,000 Total debt $ 525,982 $ 175,000 $ ( 233,496 ) $ 1,370 $ 468,856 The following table summarizes the scheduled aggregate principal repayments due on the Company’s debt outstanding as of December 31, 2023 (in thousands): Total 2024 $ — 2025 — 2026 (1) 116,000 2027 355,000 2028 — 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 “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. F-21 Table of Contents 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 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. F-22 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 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; • ratio of adjusted EBITDA to fixed charges of not less than 1.50 to 1.00; • ratio of secured debt to total asset value of not more than 0.40 to 1.00; • ratio of unsecured debt to unencumbered asset value of not more than 0.60 to 1.00; • ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00; and • 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. CMBS Loan On February 10, 2022, certain indirect subsidiaries of the Company (the “Mortgage Borrowers”) obtained a $ 355.0 million fixed rate mortgage loan (the “CMBS Loan”) from Wells Fargo Bank, National Association (together with its successor, the “Lender”), which is secured by the Mortgage Borrowers’ fee simple or ground lease interests in 19 properties owned indirectly by the Company (collectively, the “Mortgaged Properties”). During March 2022, Wells Fargo effected a securitization of the CMBS Loan. The CMBS Loan bears interest at a fixed rate of 4.971 % per annum and matures on February 11, 2027. The CMBS Loan requires monthly payments of interest only and all principal is due at maturity. The proceeds of the CMBS Loan were used to repay the Bridge Facility. Upon closing of the CMBS Loan, the Mortgage Borrowers funded $ 35.5 million of loan reserves primarily for future rent concessions and tenant improvement allowances under the leases with respect to the 19 Mortgaged Properties. These amounts, as well as the transaction expenses incurred in connection with the CMBS Loan, were funded with cash on hand and borrowings under the Company’s Revolving Facility. The CMBS Loan is secured by, among other things, first priority mortgages and deeds of trust granted by the Mortgage Borrowers and encumbering the Mortgaged Properties. The CMBS Loan is generally not freely prepayable by the Mortgage Borrowers without payment of certain prepayment premiums and costs. The CMBS Loan may be prepaid in whole, but not in part, except as provided in the loan agreement governing the CMBS Loan (the “CMBS Loan Agreement”), at any time following the Prepayment Lockout Release Date (as defined in the CMBS Loan Agreement) (generally in March 2024, two years after the CMBS Loan has been fully securitized), subject to the payment of a yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement. Further, releases of individual properties are permitted in connection with an arms’ length third party sale upon repayment of the Release Price (as defined in the CMBS Loan Agreement) for the applicable individual property and subject to payment of the applicable yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement. F-23 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 The CMBS Loan Agreement also contains customary cash management provisions, including certain trigger events (such as failure of the Mortgage Borrowers to satisfy a minimum debt yield) which allow the Lender to retain any excess cash flow as additional collateral for the Loan, until such trigger event is cured. In connection with the CMBS Loan Agreement, the Company (as the guarantor) delivered a customary non-recourse carveout guaranty to the Lender (the “Guaranty”), under which the Company guaranteed the obligations and liabilities of the Mortgage Borrowers to the Lender with respect to certain non-recourse carveout events and the circumstances under which the CMBS Loan will be fully recourse to the Mortgage Borrowers, and which includes requirements for the Company to maintain a net worth of no less than $ 355.0 million and liquid assets of no less than $ 10.0 million, in each case, exclusive of the values of the collateral for the CMBS Loan. As of December 31, 2023, the Company was in compliance with these financial covenants. The Mortgage Borrowers and the Company also provided a customary environmental indemnity agreement, pursuant to which the Mortgage Borrowers and the Company agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities relating to the Mortgaged Properties. The CMBS Loan Agreement includes customary representations, warranties and covenants of the Mortgage Borrowers and the Company. The CMBS Loan Agreement also includes customary events of default, the occurrence of which, following any applicable grace period, would permit the Lender to, among other things, declare the principal, accrued interest and other obligations of the Mortgage Borrowers to be immediately due and payable and foreclose on the Mortgaged Properties. The Company’s mortgages payable consisted of the following as of December 31, 2023 (dollars in thousands): Encumbered Properties Net Carrying Value of Collateralized Properties (1) Outstanding Balance Weighted-Average Interest Rate Weighted-Average Years to Maturity Fixed-rate debt 19 $ 434,164 $ 355,000 4.97 % 3.1 ____________________________________ (1) Net carrying value is real estate assets, including right-of-use assets, net of real estate liabilities. The table above does not include mortgage notes associated with the Arch Street Joint Venture of $ 136.7 million as of December 31, 2023. Note 7 – Derivatives and Hedging Activities Cash Flow Hedges of Interest Rate Risk 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. GAAP. 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 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. 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. 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 Interest rate collars Other liabilities, net $ ( 264 ) $ — F-24 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 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, 2023 and 2022, the Company had no derivatives that were not designated as qualifying hedging relationships. Tabular Disclosure of Offsetting Derivatives The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of December 31, 2023 and 2022 (in thousands). The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. Offsetting of Derivative Assets and Liabilities Gross Amounts of Recognized Assets Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets Presented in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Net Amount December 31, 2023 $ — $ ( 264 ) $ — $ — $ ( 264 ) $ — $ — $ ( 264 ) December 31, 2022 $ 6,308 $ — $ — $ 6,308 $ — $ — $ — $ 6,308 Note 8 – Supplemental Cash Flow Disclosures Supplemental cash flow information was as follows during the periods indicated below (in thousands): Year Ended December 31, 2023 2022 2021 Supplemental disclosures: Cash paid for interest $ 25,283 $ 25,108 $ 2,412 Cash paid for income taxes $ 463 $ 634 $ 98 Non-cash investing and financing activities: Accrued capital expenditures and leasing costs $ 6,484 $ 3,243 $ 286 Accrued deferred financing costs $ — $ 25 $ — Non-cash assets and liabilities contributed by parent company $ — $ — $ 1,142,002 Establishment of right-of-use assets and lease liabilities $ 1,232 $ 1,193 $ 989 Distributions declared and unpaid $ 5,578 $ 5,664 $ — Land acquired upon finance lease termination $ — $ 4,707 $ — Origination of seller financed notes receivable $ 3,700 $ — $ — F-25 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Note 9 – Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Accrued real estate and other taxes $ 11,794 $ 10,191 Accrued operating and other 8,673 10,034 Accrued capital expenditures and leasing costs 6,284 2,333 Accrued interest 2,122 1,810 Accounts payable 1,606 1,793 Total $ 30,479 $ 26,161 Note 10 – Commitments and Contingencies Leasing As part of its ordinary re-leasing activities, the Company has agreed and anticipates that it will continue to agree to provide rent concessions to tenants and incur leasing costs with respect to its properties, including amounts paid directly to tenants to improve their space and/or building systems, or tenant improvement allowances, landlord agreements to perform and pay for certain improvements, and leasing commissions. These rent concession and leasing cost commitments could be significant and are expected to vary due to factors such as competitive market conditions for leasing of commercial office space and the volume of square footage subject to re-leasing by the Company. As of December 31, 2023, the Company had total commitments of $ 42.3 million outstanding for tenant improvement allowances and $ 0.3 million for leasing commissions. The timing of the Company’s cash outlay for tenant improvement allowances is significantly uncertain and will depend upon the applicable tenant’s schedule for the improvements and corresponding use of capital, if any. For assets financed on the CMBS Loan, the Company has funded reserves with the lender for tenant improvement allowances and rent concession commitments. The restricted cash included in the reserve totaled $ 34.7 million as of December 31, 2023, including $ 23.6 million for tenant improvement allowances and $ 11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets. Litigation From time to time, the Company may be party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business. The Company does not believe that any such legal proceedings will have a material adverse effect upon its consolidated and combined position or results of operations. Environmental Matters In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect upon its consolidated and combined position or results of operations. Note 11 – Leases Lessor As of December 31, 2023, the Company’s operating leases have non-cancelable lease terms ranging from 0.1 years to 15.3 years. Certain leases with tenants include tenant options to extend or terminate the lease agreements or to purchase the underlying assets. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index). F-26 Table of Contents 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 Base Rent Payments 2024 $ 112,322 2025 77,722 2026 74,532 2027 54,061 2028 42,353 Thereafter 170,646 Total $ 531,636 Lessee The Company is the lessee under ground lease arrangements and corporate office leases, which meet the criteria under U.S. GAAP for an operating lease. As of December 31, 2023, the Company’s operating leases had remaining lease terms ranging from 1.9 years to 61.0 years, which includes options to extend. Under the operating leases, the Company pays rent and may also pay variable costs, including property operating expenses and common area maintenance. The weighted-average discount rate used to measure the lease liability for the Company’s operating leases was 3.85 % as of December 31, 2023. As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the lease commencement date, lease guidance adoption date or the Merger Effective Time, as applicable, in determining the present value of lease payments. 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. No cash paid for operating lease liabilities was capitalized. The following table reflects the maturity analysis of payments due from the Company over the next five years and thereafter for ground and corporate office lease obligations as of December 31, 2023 (in thousands). Future Minimum Lease Payments 2024 $ 1,135 2025 1,184 2026 778 2027 752 2028 761 Thereafter 12,517 Total 17,127 Less: imputed interest 5,977 Total $ 11,150 Note 12 – Stockholders’ Equity Common Stock The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock to Realty Income for a total of $ 1,000 . On November 10, 2021, the Company issued 56,525,650 additional shares of common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Company’s common stock. On November 12, 2021, Realty Income effected the Distribution. F-27 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Dividends 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 March 7, 2023 March 31, 2023 April 17, 2023 $ 0.10 May 8, 2023 June 30, 2023 July 17, 2023 $ 0.10 August 8, 2023 September 29, 2023 October 16, 2023 $ 0.10 November 9, 2023 December 29, 2023 January 16, 2024 $ 0.10 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, 2023 2022 Ordinary dividends — % — % Capital gain distributions — % — % Nondividend distributions 100.00 % 100.00 % Total 100.00 % 100.00 % 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. to Orion OP. 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”). The Arch Street Warrants entitle the respective holders to purchase shares of the Company’s common stock at a price per share equal to $ 22.42 , at any time. The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Company common stock determined according to the formula set forth in the Arch Street Warrants. The Arch Street Warrants expire on the earlier of (a) 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. F-28 Table of Contents 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 The Company has an equity-based incentive award plan (the “Equity Plan”) for officers, other employees, non-employee directors and consultants who provide services to the Company. Awards under the Equity Plan are accounted for under U.S. GAAP as share-based payments. The expense for such awards is recognized over the 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 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 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. The fair value of the TSR-Based RSUs is determined using a Monte Carlo simulation which takes into account multiple input variables that determine the probability of satisfying the required total shareholder return, and such fair value is expensed over the performance period. The fair value of the Metrics-Based RSUs is determined using the closing stock price on the grant date and is expensed over the requisite service period to the extent that the likelihood of achieving the performance metrics is probable. As of December 31, 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 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. F-29 Table of Contents 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: Time-Based RSUs Weighted-Average Grant Date Fair Value Unvested units, December 31, 2022 156,947 $ 17.12 Granted 363,745 $ 7.10 Vested ( 75,556 ) $ ( 16.17 ) Forfeited — $ — Unvested units, December 31, 2023 445,136 $ 9.09 The following table details the activity of the Performance-Based RSUs during the year ended December 31, 2023: Performance-Based RSUs Weighted-Average Grant Date Fair Value Unvested units, December 31, 2022 212,154 $ 13.65 Granted 509,273 $ 5.83 Vested — $ — Forfeited — $ — 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 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 years ended December 31, 2023, 2022 and 2021 (in thousands, except share and per share data): Year Ended December 31, 2023 2022 2021 Net loss $ ( 57,311 ) $ ( 97,474 ) $ ( 47,464 ) 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 ) Weighted average shares of common stock outstanding - basic 56,409,734 56,631,826 56,625,650 Effect of dilutive securities (1) — — — Weighted average shares of common stock - diluted 56,409,734 56,631,826 56,625,650 Basic and diluted net loss per share attributable to common stockholders $ ( 1.02 ) $ ( 1.72 ) $ ( 0.84 ) ____________________________________ (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: Year Ended December 31, 2023 2022 2021 Weighted average stock warrants 1,120,000 1,120,000 1,120,000 F-30 Table of Contents ORION OFFICE REIT INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 2023 Note 15 – Subsequent Events Distributions 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. 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. F-31 Table of Contents ORION OFFICE REIT INC. SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2023 (in thousands) Schedule III – Real Estate and Accumulated Depreciation Initial Costs (1) Adjustments Subsequent to Acquisition (2) Gross Amount Carried at December 31, 2023 (3) (4) Accumulated Depreciation (3) (5) Property Encumbrances at December 31, 2023 Land Buildings, Fixtures and Improvements Date Acquired Date of Construction Food, Beverage & Tobacco - St. Charles, MO $ — $ 3,675 $ 13,828 $ ( 12,101 ) $ 5,402 $ — 4/1/2011 1993 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 Telecommunication Services - Salem, OR — 1,722 10,074 676 12,472 ( 4,600 ) 6/22/2011 2000 Financial Institutions - Mount Pleasant, SC — 10,803 25,511 — 36,314 ( 7,988 ) 1/22/2013 2003 Health Care Equipment & Services - St. Louis, MO 12,041 — 38,799 88 38,887 ( 12,150 ) 1/22/2013 2009 Government & Public Services - Brownsville, TX 1,345 321 6,803 112 7,236 ( 2,221 ) 1/22/2013 2008 Government & Public Services - Parkersburg, WV — 494 12,902 145 13,541 ( 4,053 ) 1/22/2013 2009 Government & Public Services - Paris, TX 2,292 274 5,392 246 5,912 ( 1,703 ) 1/22/2013 2010 Government & Public Services - Eagle Pass, TX — 146 2,086 15 2,247 ( 699 ) 1/22/2013 2002 Government & Public Services - Dallas, TX — 399 9,748 52 10,199 ( 3,109 ) 1/22/2013 2011 Government & Public Services - Redding, CA — 676 20,553 ( 159 ) 21,070 ( 6,464 ) 1/22/2013 2003 Government & Public Services - Minneapolis, MN — 1,046 8,588 — 9,634 ( 2,689 ) 1/22/2013 2005 Government & Public Services - Malone, NY 5,134 824 9,485 83 10,392 ( 3,075 ) 1/22/2013 2011 Government & Public Services - Sioux City, IA — 77 4,761 130 4,968 ( 1,530 ) 1/22/2013 2011 Government & Public Services - Knoxville, TN — 761 9,041 248 10,050 ( 2,904 ) 1/22/2013 2011 Health Care Equipment & Services - Bedford, TX 34,167 1,608 56,219 — 57,827 ( 17,602 ) 1/22/2013 2010 Government & Public Services - Eagle Pass, TX — 68 811 ( 30 ) 849 ( 259 ) 1/22/2013 2002 Transportation - Memphis, TN 17,114 3,570 16,601 276 20,447 ( 5,305 ) 2/27/2013 1999 Transportation - Columbus, OH 16,014 — 19,637 — 19,637 ( 5,915 ) 6/19/2013 2012 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 Consumer Durables & Apparel - Providence, RI — 2,550 21,779 — 24,329 ( 6,204 ) 1/31/2014 1985 Materials - East Windsor, NJ 10,391 240 13,446 67 13,753 ( 3,733 ) 4/30/2014 2008 Media & Entertainment - East Syracuse, NY 11,002 880 15,817 — 16,697 ( 4,387 ) 4/30/2014 2000 Government & Public Services - Cocoa, FL — 450 949 74 1,473 ( 68 ) 11/1/2021 2009 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 F-32 Table of Contents ORION OFFICE REIT INC. SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2023 (in thousands) Initial Costs (1) Adjustments Subsequent to Acquisition (2) Gross Amount Carried at December 31, 2023 (3) (4) Accumulated Depreciation (3) (5) Property Encumbrances at December 31, 2023 Land Buildings, Fixtures and Improvements Date Acquired Date of Construction 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 Health Care Equipment & Services - Fresno, CA — 4,454 17,292 388 22,134 ( 1,113 ) 11/1/2021 1984 Telecommunication Services - Richardson, TX — 1,187 21,037 549 22,773 ( 1,310 ) 11/1/2021 1986 Health Care Equipment & Services - San Antonio, TX — 2,125 15,425 445 17,995 ( 1,027 ) 11/1/2021 2008 Energy - Tulsa, OK — 6,865 34,716 60 41,641 ( 2,152 ) 11/1/2021 1995 Vacant - Englewood, CO — 2,291 2,989 1,133 6,413 ( 273 ) 11/1/2021 2011 Consumer Durables & Apparel - Denver, CO — 5,707 36,047 2,307 44,061 ( 2,351 ) 11/1/2021 2001 Vacant - Richardson, TX — 2,047 12,733 7 14,787 ( 888 ) 11/1/2021 2008 Commercial & Professional Services - Lawrence, KS — 3,576 2,996 — 6,572 ( 245 ) 11/1/2021 1997 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 Consumer Durables & Apparel - Englewood, CO 20,537 3,354 14,714 510 18,578 ( 1,022 ) 11/1/2021 2009 Vacant - Malvern, PA — 3,853 25,296 593 29,742 ( 1,664 ) 11/1/2021 1999 Media & Entertainment - Milwaukee, WI — 2,727 18,083 — 20,810 ( 1,127 ) 11/1/2021 2001 Telecommunication Services - Nashville, TN 9,291 2,588 9,587 1,030 13,205 ( 660 ) 11/1/2021 2002 Commercial & Professional Services - The Woodlands, TX — 2,550 17,481 826 20,857 ( 1,165 ) 11/1/2021 2014 Retailing - Santee, CA — — 9,859 734 10,593 ( 680 ) 11/1/2021 2003 Materials - Glen Burnie, MD — 3,095 11,466 1,356 15,917 ( 827 ) 11/1/2021 1984 Health Care Equipment & Services - Irving, TX — 9,267 19,853 196 29,316 ( 1,270 ) 11/1/2021 1997 Capital Goods - Tulsa, OK — 1,904 1,238 — 3,142 ( 97 ) 11/1/2021 1982 Government & Public Services - Covington, KY — 4,087 56,991 3,974 65,052 ( 3,635 ) 11/1/2021 2002 Software & Services - Amherst, NY — 3,561 3,186 — 6,747 ( 306 ) 11/1/2021 1986 Commercial & Professional Services - Dublin, OH — 1,287 4,688 18 5,993 ( 314 ) 11/1/2021 1997 Capital Goods - Sterling, VA 29,094 10,515 25,393 — 35,908 ( 1,673 ) 11/1/2021 2011 Capital Goods - Malvern, PA 11,552 2,607 10,844 — 13,451 ( 769 ) 11/1/2021 2014 Health Care Equipment & Services - Indianapolis, IN — 1,430 4,386 271 6,087 ( 313 ) 11/1/2021 1993 Health Care Equipment & Services - Plano, TX — 9,834 35,893 1,476 47,203 ( 2,403 ) 11/1/2021 2009 Capital Goods - Blair, NE — 558 1,210 — 1,768 ( 101 ) 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 F-33 Table of Contents ORION OFFICE REIT INC. SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2023 (in thousands) Initial Costs (1) Adjustments Subsequent to Acquisition (2) Gross Amount Carried at December 31, 2023 (3) (4) Accumulated Depreciation (3) (5) Property Encumbrances at December 31, 2023 Land Buildings, Fixtures and Improvements Date Acquired Date of Construction 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 Financial Institutions - Hopewell, NJ 92,663 19,325 57,846 1,897 79,068 ( 3,726 ) 11/1/2021 2001 Health Care Equipment & Services - Phoenix, AZ 26,099 4,786 21,346 844 26,976 ( 1,490 ) 11/1/2021 2012 $ 355,000 $ 236,394 $ 1,121,158 $ ( 37,156 ) $ 1,320,396 $ ( 158,791 ) ____________________________________ (1) Initial costs exclude subsequent impairment charges. (2) Consists of capital expenditures and real estate development costs, net of condemnations, easements, impairment charges and other adjustments. (3) Gross intangible lease assets of $ 333.7 million and the associated accumulated amortization of $ 207.3 million are not reflected in the table above. (4) The aggregate cost for Federal income tax purposes of land, buildings, fixtures and improvements as of December 31, 2023 was approximately $ 1.9 billion. (5) Depreciation is computed using the straight-line method over the estimated useful lives of up to 35 years for buildings and five to 20 years for building fixtures and improvements. F-34 Table of Contents ORION OFFICE REIT INC. SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2023 (in thousands) The following is a reconciliation of the gross real estate activity for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Balance, beginning of year $ 1,366,625 $ 1,481,745 $ 634,019 Additions: Acquisitions/improvements 17,476 13,203 927,001 Deductions/Other Sold or disposed of ( 7,173 ) ( 18,548 ) ( 657 ) Impairments ( 41,467 ) ( 87,834 ) ( 77,636 ) Reclassified to real estate assets held for sale, net ( 15,065 ) ( 21,941 ) — Other — — ( 982 ) Balance, end of year $ 1,320,396 $ 1,366,625 $ 1,481,745 The following is a reconciliation of the accumulated depreciation for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Balance, beginning of year $ 133,379 $ 128,109 $ 136,143 Additions: Depreciation expense 34,037 35,855 20,805 Deductions/Other Sold or disposed of — ( 169 ) ( 657 ) Impairments ( 8,625 ) ( 21,757 ) ( 27,947 ) Reclassified to real estate assets held for sale, net — ( 8,659 ) — Other — — ( 235 ) Balance, end of year $ 158,791 $ 133,379 $ 128,109 F-35 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Orion Office REIT Inc. Opinion on the Financial Statements We have audited the accompanying combined and consolidated 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 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 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 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Tempe, Arizona March 24, 2022 We have served as the Company’s auditor since 2021. F-36 Table of Contents VEREIT OFFICE ASSETS COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS (In thousands) Ten Months Ended October 31, 2021 Rental revenue (including reimbursable) $ 134,740 Fee income from unconsolidated joint venture 654 Total revenues 135,394 Operating expenses: Property operating (including reimbursable) 36,173 General and administrative 5,602 Depreciation and amortization 48,938 Impairments 28,064 Total operating expenses 118,777 Other (expenses) income: Other income, net 152 Interest expense ( 5,961 ) Loss on extinguishment of debt, net ( 5,294 ) Equity in income of unconsolidated joint venture 697 Total other expenses, net ( 10,406 ) Income before taxes 6,211 Provision for income taxes ( 520 ) Net income 5,691 Net loss attributable to non-controlling interest 62 Net income attributable to VEREIT Office Assets $ 5,753 The accompanying notes are an integral part of this statement. F-37 Table of Contents VEREIT OFFICE ASSETS COMBINED AND CONSOLIDATED STATEMENT OF EQUITY (In thousands) Total Equity Balance, December 31, 2020 $ 1,161,434 Contributions, net 145,169 Net income 5,691 Balance, October 31, 2021 $ 1,312,294 The accompanying notes are an integral part of this statement. F-38 Table of Contents VEREIT OFFICE ASSETS COMBINED AND CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Ten Months Ended October 31, 2021 Cash flows from operating activities: Net income $ 5,691 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 48,894 Impairments 28,064 Loss on extinguishment of debt, net 5,294 Equity in income of unconsolidated joint venture ( 697 ) Distributions from unconsolidated joint venture 697 Changes in assets and liabilities: Rents and tenant receivables, operating lease right-of-use and other assets, net 803 Accounts payable and accrued expenses ( 4,860 ) Deferred rent, operating lease and other liabilities ( 156 ) Net cash provided by operating activities 83,730 Cash flows from investing activities: Capital expenditures and leasing costs ( 8,019 ) Real estate developments ( 259 ) Investments in unconsolidated joint venture ( 2,180 ) Return of investment from unconsolidated joint venture 1,147 Proceeds from the settlement of property-related insurance claims 70 Net cash (used in) provided by investing activities ( 9,241 ) Cash flows from financing activities: Payments on mortgage notes payable ( 223,064 ) Net contributions from (distributions to) parent 145,169 Net cash used in financing activities ( 77,895 ) Net change in cash and cash equivalents and restricted cash ( 3,406 ) Cash and cash equivalents and restricted cash, beginning of period 3,414 Cash and cash equivalents and restricted cash, end of period $ 8 Reconciliation of Cash and Cash Equivalents and Restricted Cash Cash and cash equivalents at the beginning of period $ 400 Restricted cash at the beginning of the period 3,014 Cash and cash equivalents and restricted cash at the beginning of the period $ 3,414 Cash and cash equivalents at the end of the period $ — Restricted cash at the end of the period 8 Cash and cash equivalents and restricted cash at the end of the period $ 8 Supplemental disclosures: Cash paid for interest $ 6,521 Non-cash investing and financing activities: Accrued capital expenditures and real estate developments $ ( 2,033 ) The accompanying notes are an integral part of this statement. F-39 Table of Contents VEREIT OFFICE ASSETS NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS October 31, 2021 Note 1 - Organization and Summary of Significant Accounting Policies Organization 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 which comprised certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and the VEREIT Office Assets (the “Separation”) to Orion Office REIT Inc. (the “Company”) and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement dated as of November 11, 2021, by and among Realty Income, the Company and Orion OP, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). VEREIT Office Assets included the combined accounts related to certain of the office properties of VEREIT, historically operated through subsidiaries of VEREIT, and contained certain corporate costs. As of October 31, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, which included one property owned by a consolidated joint venture, totaling approximately 7.6 million leasable square feet located in 25 states in the United States and Puerto Rico, and an investment in one unconsolidated joint venture that owned five office properties totaling approximately 0.8 million leasable square feet located within five states. As of October 31, 2021, VEREIT Office Assets had not conducted any business as a separate legal entity and had no other material assets or liabilities. Summary of Significant Accounting Policies Principles of Combination and Basis of Accounting and Presentation The accompanying combined and consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the accounts of VEREIT Office Assets on a combined and consolidated basis as the ownership interests were under common control and ownership of VEREIT, including a consolidated joint venture. Any applicable intercompany accounts and transactions have been eliminated in consolidation and combination. The portion of the consolidated joint venture not previously owned by VEREIT, is presented as non-controlling interest in VEREIT Office Assets’ combined and consolidated 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. For legal entities being evaluated for consolidation, VEREIT Office Assets must have first determined whether the interests that it held and fees it received qualified as variable interests in the entity. A variable interest is an investment or other interest that would absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. VEREIT Office Assets’ evaluation included consideration of fees paid to VEREIT Office Assets where VEREIT’s management, on behalf of VEREIT Office Assets, acted as a decision maker or service provider to the entity being evaluated. If VEREIT Office Assets determined that it held a variable interest in an entity, it evaluated whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. VEREIT Office Assets consolidated entities that are not VIEs if it had a majority voting interest or other rights that resulted in effectively controlling the entity. VEREIT Office Assets then qualitatively assessed whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors included, but were not limited to, VEREIT Office Assets’ ability to direct the activities that most significantly impacted the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant F-40 Table of Contents VEREIT OFFICE ASSETS NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS October 31, 2021 to the VIE. VEREIT Office Assets consolidated any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to VEREIT Office Assets’ combined and consolidated financial statements. VEREIT Office Assets continually evaluated the need to consolidate these VIEs based on standards set forth in U.S. GAAP. These combined and consolidated financial statements were derived from the books and records of VEREIT and were carved out from VEREIT at a carrying value reflective of historical cost in such VEREIT records. VEREIT Office Assets’ historical financial results reflect charges for certain corporate costs and we believe such charges are reasonable. Costs of the services that were charged to VEREIT Office Assets were based on either actual costs incurred or a proportion of costs estimated to be applicable to this entity, based on VEREIT Office Assets’ pro rata share of VEREIT’s annualized rental income. Annualized rental income is rental revenue on a straight-line basis, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any adjustments to rental income due to changes in the collectability assessment, contingent rent, such as percentage rent, and operating expense reimbursements. The historical combined and consolidated financial information presented may therefore not be indicative of the results of operations 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments Real estate and related assets acquired were recorded at cost and accumulated depreciation and amortization were assessed based on the period of future benefit of the asset. Depreciation and amortization were computed using a straight-line method over the estimated useful life of 40 years for buildings and building improvements, 15 years for land improvements and the remaining lease term for tenant improvements and intangible lease assets. VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could have indicated the carrying value of its real estate assets may not be recoverable. Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates. When impairment indicators were identified or if a property was considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets would be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. U.S. GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability. In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets were adjusted to their respective fair values and an impairment loss was recognized. There were inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants. Investment in Unconsolidated Joint Venture 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. 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 statement 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. An F-41 Table of Contents VEREIT OFFICE ASSETS NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS October 31, 2021 impairment charge was recorded when an impairment was deemed to be other-than-temporary. To determine whether an impairment was other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value was fully recovered. The evaluation of an investment in an unconsolidated joint venture for potential impairment required VEREIT Office Assets’ management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could 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. Goodwill Impairment VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable. To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit would be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers. If VEREIT believed, as a result of its qualitative assessment, that it was more-likely-than-not (i.e., greater than 50% chance) that the fair value of a reporting unit was less than its carrying value, the quantitative impairment test was required. Otherwise, no quantitative testing was required. If VEREIT determined, as a result of the qualitative assessment, that it was more-likely-than-not that the fair value was less than the carrying value, the provisions of guidance required that the fair value be compared to the carrying value. Goodwill was considered impaired if the carrying value exceeds the fair value. No impairments of VEREIT’s goodwill were recorded during the ten months ended October 31, 2021. 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 VEREIT Office Assets considered all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. VEREIT Office Assets considered investments in highly liquid money market accounts to be cash equivalents. Restricted Cash As of October 31, 2021, restricted cash included $ 8,000 in lender reserves. Deferred Financing Costs Deferred financing costs represented commitment fees, legal fees and other costs associated with obtaining commitments for financing. These costs were amortized to interest expense over the terms of the respective financing agreements and used the straight-line method, which approximated the effective interest method. Unamortized deferred financing costs were written off when the associated debt was refinanced or repaid before maturity. Costs incurred in connection with potential financing transactions that were not completed were expensed in the period in which it is determined the financing would not be completed. Leases - Lessor At the inception of a new lease arrangement, including new leases that arise from amendments, the terms and conditions were assessed to determine the proper lease classification. When the terms of a lease effectively transferred control of the underlying asset, the lease was classified as a sales-type lease. When a lease did not effectively transfer control of the underlying asset to the lessee, but a guarantee was obtained for the value of the asset from a third party, the lease was classified as a direct financing lease. All other leases were classified as operating leases. As of October 31, 2021, VEREIT Office Assets did not classify any leases as sales-type or direct financing leases. For operating leases with minimum scheduled rent increases, rental revenue was recognized on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments was probable. Variable lease payments were recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments were based occur. VEREIT Office Assets adopted Accounting Standards Codification Topic 842, Leases effective as of January 1, 2019. Two separate lease components were identified as follows: (i) land lease component and (ii) single property lease component F-42 Table of Contents 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. VEREIT Office Assets elected the practical expedient to combine lease and non-lease components and the non-lease components were included with the single property lease component as the predominant component. VEREIT Office Assets continually reviewed receivables related to rent, straight-line rent and property operating expense reimbursements and determined collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property was located. The review included a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement were probable of collection. For leases that were deemed probable of collection, revenue continued to be recorded on a straight-line basis over the lease term. For leases that were deemed not probable of collection, revenue was recorded as cash was received. All changes in the collectability assessment for an operating lease were recognized as an adjustment to rental income. During the year ended December 31, 2020, there was a global outbreak of a new strain of coronavirus, COVID-19. The global and domestic response to the COVID-19 outbreak continued to evolve during the 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. Since the COVID-19 outbreak began, each of VEREIT Office Assets’ tenants almost entirely continued to meet its payment obligations under its respective lease. In consideration of each tenant’s payment history, among other factors, there were no changes in the collectability assessment for any of VEREIT Office Assets’ operating leases. Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the ten months ended October 31, 2021, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition. Leases - Lessee To account for leases for which VEREIT Office Assets is the lessee, contracts must have been analyzed upon inception to determine if the arrangement was, or contained, a lease. A lease conveyed the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures were performed at the lease commencement date. The lease liability was initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate was readily determinable; otherwise, the lessee’s incremental borrowing rate was used. The incremental borrowing rate was determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The lease term was the noncancelable period of the lease and included any renewal and termination options VEREIT Office Assets was reasonably certain to exercise. The lease liability balance was amortized using the effective interest method. The lease liability was remeasured when the contract was modified, upon the resolution of a contingency such that variable payments became fixed or if the assessment of exercising an extension, termination or purchase option changed. 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. Income Taxes As of October 31, 2021, VEREIT Office Assets was owned by VEREIT, which had elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2011. VEREIT believed it was organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ended December 31, 2021. As a REIT, VEREIT was generally not subject to federal income tax on taxable income that it distributed to its stockholders so long as it had distributed annually at least 90% of its REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). Accordingly, no provision was made for federal income taxes in the accompanying combined and consolidated financial statements of VEREIT Office Assets. F-43 Table of Contents 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. Note 2 – Real Estate Investments and Related Intangibles Property Dispositions There were no properties disposed by VEREIT Office Assets during the ten months ended October 31, 2021. Intangible Lease Assets and Liabilities 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. 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. 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 October 31, 2021 (in thousands) : Remainder of 2021 2022 2023 2024 2025 In-place leases: Total projected to be included in amortization expense $ 2,191 $ 10,475 $ 9,142 $ 5,512 $ 1,156 Leasing commissions: Total projected to be included in amortization expense $ 288 $ 1,692 $ 1,290 $ 1,201 $ 1,020 Above-market lease assets and deferred lease incentives: Total projected to be deducted from rental revenue $ 373 $ 2,223 $ 2,186 $ 1,104 $ 354 Below-market lease liabilities: Total projected to be included in rental revenue $ 345 $ 2,003 $ 1,878 $ 854 $ 208 Consolidated Joint Venture VEREIT Office Assets had an interest in one consolidated joint venture that owned one property as of October 31, 2021. 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. The joint venture partner was the managing member of the joint venture. However, in accordance with the joint venture agreement, VEREIT Office Assets had the ability to control operating and financing policies of the consolidated joint venture and the joint venture partner was required to obtain VEREIT Office Assets’ approval for any major transactions. VEREIT Office Assets and the joint venture partner were subject to the provisions of the joint venture agreement, which included provisions for when additional contributions may be required to fund certain cash shortfalls. Impairments VEREIT management performed quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment and right of use assets, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing four properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $ 28.1 million during the ten months ended October 31, 2021. 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 F-44 Table of Contents 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. The evaluation of real estate assets for potential impairment required VEREIT’s management to exercise significant judgment and make certain key assumptions, which included the following: (1) capitalization rate; (2) discount rates; (3) number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions, including number of months to re-lease, market rental revenue and required tenant improvements. There were inherent uncertainties in making these estimates such as market conditions and performance and sustainability of VEREIT Office Assets’ tenants. For VEREIT’s impairment tests for the real estate assets during the 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 %. Note 3 – Commitments and Contingencies Litigation 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 results of operations. Environmental Matters In connection with the ownership and operation of real estate, VEREIT Office Assets may have potentially been liable for costs and damages related to environmental matters. VEREIT Office Assets was not notified by any governmental authority of any non-compliance, liability or other claim, and was not aware of any other environmental condition, in each case, that it believed would have a material adverse effect upon its results of operations. Note 4 – Leases Lessor As of October 31, 2021, VEREIT Office Assets was the lessor for its 52 office properties. VEREIT Office Assets’ operating leases have non-cancelable lease terms ranging from 0.17 years to 11.59 years as of October 31, 2021. Certain leases with tenants included tenant options to extend or terminate the lease agreements or to purchase the underlying assets. Lease agreements may have also contained rent increases that were based on an index or rate (e.g., the consumer price index). VEREIT Office Assets believed the residual value risk was not a primary risk because of the long-lived nature of the assets. The components of rental revenue from VEREIT Office Assets’ operating leases were as follows (in thousands): Ten Months Ended October 31, 2021 Fixed: Cash rent $ 109,582 Straight-line rent ( 4,889 ) Lease intangible amortization ( 29 ) Property operating cost reimbursements 3,270 Total fixed 107,934 Variable (1) 26,806 Total rental revenue $ 134,740 ____________________________________ (1) Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent. F-45 Table of Contents 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). Future Minimum Operating Lease Payments November 1, 2021 - December 31, 2021 $ 15,683 2022 110,872 2023 95,130 2024 72,361 2025 38,980 2026 29,951 Thereafter 34,357 Total $ 397,334 Lessee VEREIT Office Assets was the lessee under one ground lease arrangement, which met the criteria of an operating lease. As of October 31, 2021, VEREIT Office Assets’ lease had a remaining lease term of 35.8 years, which included options to extend. Under the ground lease arrangement, VEREIT Office Assets paid variable costs, which included property operating expenses and common area maintenance. The discount rate for VEREIT Office Assets’ operating lease was 5.17 % as of October 31, 2021. As VEREIT Office Assets’ lease did not provide an implicit rate, VEREIT Office Assets used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. Operating lease costs for the ten months ended October 31, 2021 were $ 0.2 million. No cash paid for operating lease liabilities was capitalized. The following table reflects the maturity analysis of payments due from VEREIT Office Assets over the next five years and thereafter for ground lease obligations as of October 31, 2021 (in thousands). Future Minimum Lease Payments November 1, 2021 - December 31, 2021 $ 55 2022 329 2023 329 2024 329 2025 329 2026 329 Thereafter 10,062 Total 11,762 Less: imputed interest 6,403 Total $ 5,359 Note 5 – Subsequent Events VEREIT Office Assets evaluated subsequent events and no items have come to the attention of management that require recognition or disclosure, except as set forth below. On November 1, 2021, the Mergers were completed. Following the Merger Effective Time, the Separation was completed. On November 12, 2021, following the Separation, the Distribution was completed. F-46