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Item 7. Management’s Discussion and Analysis

2025-03-05 compared with 2024-02-27 · 369 added, 239 removed, 290 unchanged (68% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the accompanying consolidated and combined financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.

Orion Office REIT Inc.

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

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.

Orion Properties Inc.

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

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

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

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

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

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

Orion is an internally managed real estate investment trust (“REIT”) engaged in the ownership, acquisition, and management of a diversified portfolio of office properties located in high-quality suburban markets across the United States and leased primarily on a single-tenant net lease basis to creditworthy tenants.

Our portfolio is comprised of traditional office properties, as well as governmental, medical office, flex/laboratory and R&D and flex/industrial properties.

On March 5, 2025, we changed our name from Orion Office REIT Inc.

to Orion Properties Inc.

to better describe our broader investment strategy to shift our portfolio concentration over time away from traditional office properties, towards more dedicated use assets that have an office component.

We define dedicated use assets as those that include a substantial specialized use component such as government, medical, laboratory and research and development, and flex operations, and would therefore not be considered traditional office properties.

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

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

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

Following the Distribution, the Company has been operating as an independent publicly traded company, and the Company has elected to be taxed as a REIT for U.S.

(“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 Properties 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, we became an independent and publicly traded company, and our common stock, par value $0.001, trades on the New York Stock Exchange (the “NYSE”) under the symbol “ONL.” The Company has elected to be taxed as a REIT for U.S.

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

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

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

During the year ended December 31, 2024, we split the properties located in Amherst, New York and Denver, Colorado, each containing two buildings, into four separate properties for reporting purposes.

Also during the year ended December 31, 2024, we commenced classifying certain of our properties which are being repositioned, redeveloped, developed or held for sale as non-operating properties rather than operating properties, resulting in seven properties being removed from the presentation of the Company’s portfolio of operating properties as of December 31, 2024.

As of December 31, 2024, we owned and operated 69 operating properties with an aggregate of 7.9 million leasable square feet located in 29 states with an occupancy rate of 73.0% and a weighted-average remaining lease term of 5.2 years.

We also owned a 20% equity interest in the Arch Street Joint Venture, which as of December 31, 2024, owned a portfolio of six properties with an aggregate of 1.0 million leasable square feet located in six states with an occupancy rate of 100% and a weighted-average remaining lease term of 5.2 years.

Including our proportionate share of leasable square feet and annualized base rent from the Arch Street Joint Venture, we owned an aggregate of 8.1 million leasable square feet with an occupancy rate of 73.7%, or 73.1% adjusted for two operating properties that are currently under agreements to be sold, and a weighted-average remaining lease term of 5.2 years, as of December 31, 2024.

Executive Summary

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

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

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

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

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

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

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

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

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

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

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

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

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

Some of the anticipated leasing we expected to realize is either going to be delayed, reduced or eliminated.

Overall, this could reduce our future rental revenues.

We cannot provide any assurance as to whether we will be able to renew leases with existing tenants or re-let vacant space to new tenants on favorable terms and in a timely manner, or at all.

The Company has agreed 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.

During year ended December 31, 2023, the Company made aggregate commitments for tenant improvement allowances and base building allowances, leasing commissions and free rent of $2.9 million, or $11.23 per rentable square foot leased.

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

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

The Company is a real estate investment trust that owns and operates primarily single tenant office properties in suburban locations leased to high credit quality tenants.

Our largest tenant as measured by annualized base rent is the United States Government, representing 16.3% of our annualized base rent as of December 31, 2024.

We were formed in 2021 and spun-off as an independent publicly traded company in November 2021, by our former parent company, Realty Income Corporation.

We continue to be significantly impacted by declining demand for office space which began with the onset of the COVID-19 pandemic in 2020.

We have experienced significant lease expirations over the last few years, including 1.3 million square feet during the year ended December 31, 2024.

This has resulted in declines in both our revenues and earnings since our spin-off from Realty Income.

During the year ended December 31, 2024, our total revenues decreased $30.2 million, or 15.5%, versus the prior year, primarily driven by the impact of lease expirations.

At the same time, our property operating expenses, which include taxes, insurance, utilities and repair and maintenance costs, have been increasing, primarily due to the impact of vacant property carrying costs.

During the year ended December 31, 2024, our property operating expenses increased $4.4 million, or 7.2%, versus the prior year.

As of December 31, 2024, we owned a total of 18 fully vacant properties, including seven non-operating properties, compared to 12 fully vacant properties owned as of December 31, 2023.

During the year ended December 31, 2024, office leasing market conditions began to improve and we completed the highest volume of lease renewals and new leases since our inception with approximately 1.1 million square feet, compared to approximately 0.3 million square feet during the year ended December 31, 2023, and 0.8 million during the year ended December 31, 2022.

We have agreed to provide rent concessions to tenants and incur leasing costs with respect to our 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.

During year ended December 31, 2024, we made aggregate commitments for tenant improvement allowances and base building allowances, leasing commissions and free rent of $46.9 million, or $43.14 per rentable square foot leased.

As of December 31, 2024, we had total outstanding commitments for rent concessions and leasing costs of approximately $95.9 million, including $64.3 million of tenant improvement allowances.

The actual amount we pay for tenant improvement allowances may be lower than the amount agreed upon in the applicable lease and will depend upon the tenant’s use of the capital on the agreed upon timeline.

We anticipate that we will continue to agree to tenant improvement allowances and to pay leasing commissions, the amount of which may increase in future periods.

During the year ended December 31, 2024, we completed our first property acquisition.

We acquired the fee simple interest in one property and the improvements thereon comprised of a 97,000 square foot flex/laboratory/R&D facility in San Ramon, California for a gross purchase price of $34.6 million.

This property is fully leased to a single tenant and had a remaining lease term of 15.0 years as of the acquisition date in September 2024.

We financed this property with an $18.0 million, seven-year, 5.90% per annum fixed rate mortgage loan.

We intend to shift our portfolio concentration over time away from traditional office properties, towards more dedicated use assets that have an office component.

Our experience is that dedicated use assets have greater tenant utilization and higher renewal probability, given their generally specialized uses and general inability for the tenant’s employees to conduct business at these sites on a remote or hybrid basis.

As of December 31, 2024, approximately 31.8% of our annualized base rent was derived from properties we deemed dedicated use assets, compared to 27.7% as of December 31, 2023.

We continued our efforts to divest of vacancies by closing on the sale of two properties totaling approximately 164,000 square feet for an aggregate gross sales price of $5.3 million during the year ended December 31, 2024.

As of March 5, 2025, we had pending agreements in place to sell three additional vacant or soon to be vacant traditional office properties for an

aggregate gross sales price of $35.9 million.

We expect to continue to selectively dispose of properties in our current portfolio if we determine that they do not fit our investment strategies.

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

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

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

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

Proceeds from the sale of real estate assets are expected to be redeployed to fund capital investment into our existing portfolio to further enhance the quality of our portfolio and stability of our cash flows, selective acquisitions and other general corporate purposes.

During the year ended December 31, 2024, we took certain steps to strengthen our balance sheet.

This included rightsizing our revolving credit facility (“Revolving Facility”) to $350.0 million, through a $75.0 million capacity reduction, and exercising our option to extend the maturity date for 18 months, from November 12, 2024 to May 12, 2026.

We have also maintained prudent leverage and liquidity.

As of December 31, 2024, we had $492.0 million of consolidated debt outstanding, compared to $471.0 million as of December 31, 2023.

As of December 31, 2024, we had $15.6 million of cash and cash equivalents and $231.0 million of borrowing capacity under our Revolving Facility.

General and administrative expenses increased $1.4 million during the year ended December 31, 2024 as compared to the prior year, primarily due to increased stock compensation expense.

Beginning in 2025, we have made and intend to continue making various changes to our general and administrative costs such as restructuring the composition of the team and responsibilities to streamline operations and more efficiently managing general and administrative expenses.

One of these changes is the retirement of Gary Landriau, our Chief Investment Officer, effective June 30, 2025.

It is our intention to reallocate his responsibilities with the team already in place and we do not plan to replace the position.

In order to allow for a smooth transition, Mr.

Landriau will remain in a consulting role until January 31, 2026.

Landriau’s retirement is estimated to result in approximately $1.0 million in annualized general and administrative expense savings.

However, we cannot provide any assurance we will be successful in achieving this or any level of general and administrative expense savings.

Interest expense, net increased $3.0 million during the year ended December 31, 2024, as compared to the prior year, primarily due to higher interest rates, partially offset by lower outstanding debt.

We expect our overall debt levels to increase as we continue to re-invest in our property portfolio and execute on our shift in portfolio concentration away from traditional office properties.

We are also exposed to changes in market interest rates on our floating rate borrowings, including those under our Revolving Facility.

On March 4, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.02 per share for the first quarter of 2025, payable on April 15, 2025 to stockholders of record as of March 31, 2025, representing a new annualized dividend rate of $0.08 per share.

This change in dividend policy will enable us to retain approximately $17.9 million of cash annually.

The new policy is also consistent with our strategy shift as we seek the lowest cost of funds to maintain and grow existing tenancy, continue to shift towards more dedicated use assets and efficiently refinance our debt obligations as they come due.

Factors That May Influence Our Operating Results and Financial Condition

Rental Revenues

Our operating results depend primarily upon generating rental revenue from the properties in our portfolio.

The amount of rental revenue generated by these properties is affected by our ability to maintain or increase occupancy levels, which will depend upon our ability to re-lease expiring space at favorable rates (see “Economic Environment and Tenant Retention” below).

In addition, we have agreed to provide rent concessions to tenants and incur leasing costs with respect to our 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, and we anticipate we will continue to do so in future periods (see “Leasing Activity and Capital Expenditures” below).

Economic Environment and Tenant Retention

Our portfolio comprises primarily single-tenant leases, and tenant retention remains a significant challenge, as we have faced and will continue to face significant lease expirations the next few years.

For example, leases representing approximately 13.5% and 12.9% of our annualized base rent are scheduled to expire during 2025 and 2026, respectively, and we may be unable to renew leases or find replacement tenants.

Certain changes in office space utilization, including increased remote and hybrid work arrangements and tenants consolidating their real estate footprint, continue to impact the office leasing market.

The utilization and demand for office space continue to face headwinds and the duration and ultimate impact of current trends on the demands for office space at our properties remains uncertain and subject to change.

Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations or the long-term outlook for leasing our properties.

Higher interest rates, inflationary pressures, geopolitical hostilities and tensions, and concerns that the United States

economy may enter an economic recession have caused disruptions in the financial markets and these factors could adversely affect our and our tenants’ financial condition and the ability or willingness of our tenants to renew their leases or pay rent to us.

Our leasing and asset disposition activity since the completion of our distribution from Realty Income continues to be adversely impacted by a variety of market and property specific conditions.

Since the onset of the COVID-19 pandemic, the office leasing market has experienced significantly reduced demand for space and changes in space usage as tenants seek to attract employees back to the office, in newer, renovated properties with more amenities.

As of December 31, 2024, 63.3%, 31.6% and 5.1% of our properties by rentable square feet were classified as class A, class B and class C, respectively, as determined primarily by the most recent appraisals of the properties .

As of December 31, 2024, our class B and class C properties collectively included the following 10% or greater geographic concentrations as measured by rentable square feet:

Texas (17.6%) and California (11.5%);

and the following 10% or greater property type concentrations as measured by rentable square feet:

traditional office (64.4%) and flex/industrial (20.6%).

In the current office environment, class B and class C properties generally have been experiencing reduced demand and lea se or sell at discounts to class A properties and our tenants and prospective new tenants across our portfolio sometimes compare the cost and the value of leasing space in our property to the value of newer space with more amenities asking higher rent in other properties in the market.

The class of buildings we own may be negatively impacting our leasing velocity and pushing our leasing costs higher and may also be negatively impacting our sales price on non-core asset sales.

We have incurred significant amounts of indebtedness and, therefore, are subject to the risks normally associated with debt financing, including that we may be unable to extend, refinance or repay our debt obligations as they come due.

Deteriorating office fundamentals, high interest rates and market sentiment towards the office sector may restrict our access to, and increase our cost of, capital as we seek to extend, refinance or repay our debts.

On May 16, 2024, we exercised our option to extend the maturity date of our senior revolving credit facility (the “Revolving Facility”) for 18 months from November 12, 2024 to May 12, 2026.

Our nearest debt maturity is the non-recourse mortgage notes associated with the Arch Street Joint Venture, which are scheduled to mature on November 27, 2025.

As of December 31, 2024, our proportionate share of the non-recourse mortgage notes associated with the Arch Street Joint Venture was $26.3 million.

The Arch Street Joint Venture has one remaining one-year option to extend the maturity date until November 27, 2026, subject to satisfaction of certain conditions, including satisfaction of certain financial and operating covenants.

We cannot provide any assurance the Arch Street Joint Venture will be able to satisfy the extension conditions for the second loan extension or otherwise extend or refinance this debt obligation prior to maturity.

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

See “Item 1A.

Risk Factors – Our partner in the Arch Street Joint Venture has not had access to sufficient liquidity to contribute its share of the capital requirements that have recently arisen, thereby exposing us to liabilities in excess of our share of the joint venture and other risks” in this Annual Report on Form 10-K for additional information related to the mortgage note associated with the Arch Street Joint Venture.

Property Acquisitions and Dispositions

We intend to shift our portfolio concentration over time away from traditional office properties, towards more dedicated use assets that have an office component.

We expect to continue to selectively dispose of properties in our current portfolio if we determine that they do not fit our investment strategies.

As part of our capital recycling efforts, we are seeking opportunities to invest in properties featuring, among other uses, government, medical, laboratory and research and development, and flex operations.

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

See “Item 1A.

Risk Factors – We may be unable to successfully execute on our strategy to shift our portfolio concentration over time away from traditional office properties, towards more dedicated use assets” in this Annual Report on Form 10-K for risks related to property acquisitions and dispositions.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).

As such, we are eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved.

As such, we are eligible to take advantage of certain exemptions from various reporting requirements that apply to other public

companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved.

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

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Basis of Presentation

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

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

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

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

The historical combined and consolidated financial results for the VEREIT Office Assets include the accounts of the VEREIT Office Assets on a combined basis as the ownership interests were under common control and ownership of VEREIT.

These combined and consolidated financial results were derived from the books and records of and carved out from VEREIT.

The combined and consolidated financial statements of the VEREIT Office Assets reflect charges for certain corporate costs, and we believe such charges are reasonable.

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

The historical combined and consolidated financial information presented does not necessarily include all of the expenses that would have been incurred had VEREIT Office Assets been operating as a separate, standalone company.

Such historical combined and consolidated financial information may not be indicative of the results of operations, financial position or cash flows that would have been obtained if the VEREIT Office Assets had been an independent, standalone public company during the periods presented or of the future performance of the Company as an independent, standalone company.

The consolidated financial statements of the Company for the years ended December 31, 2024, 2023 and 2022, include the accounts of the Company and its consolidated subsidiaries, including Orion OP, and a consolidated joint venture.

All intercompany transactions have been eliminated upon consolidation.

Election as a REIT

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If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting estimates would have been applied, thus resulting in a different presentation of the financial statements.

Additionally, other companies may utilize different assumptions or estimates that may impact comparability of our results of operations to those of companies in similar businesses.

We believe the following critical accounting policy involves significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 – Summary of Significant Accounting Policies to our consolidated and combined financial statements.

Additionally, other companies may utilize different assumptions or estimates that may impact comparability of our

results of operations to those of companies in similar businesses.

We believe the critical accounting policies described below involve significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements.

Real Estate Impairment

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The risks and uncertainties involved in applying the principles related to real estate impairment include, but are not limited to, the following:

• The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the value of assets and recognize an impairment loss.

• The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the carrying value of assets and recognize an impairment loss.

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

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• Changes related to management’s intent to sell or lease the real estate assets used to develop the forecasted cash flows may have a material impact on our financial results.

Allocation of Purchase Price of Real Estate Assets

We generally account for acquisitions of properties as asset acquisitions and we measure the real estate assets acquired based on the purchase price or total consideration exchanged, inclusive of acquisition costs, and allocate the total consideration exchanged to tangible and intangible assets and liabilities based on their respective estimated fair values.

Tangible assets consist of land, buildings, fixtures and improvements.

Intangible assets and liabilities consist of any above-market and below-market leases, acquired in-place leases and other identified intangible assets and assumed liabilities (including ground leases, if applicable).

Our purchase price allocations are developed utilizing third-party appraisal reports, industry standards and management experience.

The risks and uncertainties involved in applying the principles related to purchase price allocations include, but are not limited to, the following:

• The value allocated to land, as opposed to buildings, fixtures and improvements, affects the amount and timing of depreciation expense we record.

If more value is attributed to land, depreciation expense is lower than if more value is attributed to buildings, fixtures and improvements.

• Intangible lease assets and liabilities can be significantly affected by estimates, including market rent, lease term (including renewal options at rental rates below estimated market rental rates), carrying costs of the property during a hypothetical expected lease-up period, and current market conditions and costs, including tenant improvement allowances and rent concessions.

• If any financing is assumed, we determine whether such financing is above-market or below-market based upon comparison to similar financing terms for similar investment properties.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are described in Note 2 – Summary of Significant Accounting Policies to our consolidated and combined financial statements.

Recently issued accounting pronouncements are described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements.

Significant Transactions Summary

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Real Estate Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• On September 11, 2024, we acquired fee simple interest in one real property and the improvements thereon including a 97,000 square foot flex/laboratory/R&D facility in San Ramon, California for a gross purchase price of $34.6 million.

This property is fully leased to a single tenant and had a remaining lease term of 15.0 years as of the acquisition date.

• During the year ended December 31, 2024, we closed on the sale of two vacant properties totaling approximately 164,000 square feet for an aggregate gross sales price of $5.3 million.

As of March 5, 2025, we had pending agreements in place to sell three vacant or soon to be vacant traditional office properties for an aggregate gross sales price of $35.9 million.

Our pending sale agreements are subject to a variety of conditions outside of our control, such as the buyer’s satisfactory completion of its due diligence and receipt of governmental approvals, and therefore, we cannot provide any assurance the transaction will close on the agreed upon price or other terms, or at all.

• During the year ended December 31, 2024, we completed approximately 1.1 million square feet of lease renewals and new leases across 12 different properties with a weighted average lease term of 7.9 years.

• During the year ended December 31, 2024, 11 leases expired consisting of 1.3 million square feet.

As of December 31, 2024, we had a total of 11 fully vacant operating properties.

• On May 3, 2024, we entered into an amendment to the Credit Agreement (the “Third Amendment”), pursuant to which we have rightsized the Revolving Facility to $350.0 million through a $75.0 million-capacity reduction.

• On May 16, 2024, we exercised our option to extend the maturity date of our Revolving Facility for 18 months from November 12, 2024 to May 12, 2026.

• As of December 31, 2024, we had $231.0 million of borrowing capacity under the Revolving Facility and $119.0 million of outstanding borrowings thereunder.

Our interest rate collar agreements with an aggregate notional amount of $60.0 million remain in effect until May 12, 2025.

• On November 7, 2024, we financed the San Ramon, California property with an $18.0 million, seven-year, 5.90% per annum fixed rate mortgage note.

• During the year ended December 31, 2024, the Arch Street Joint Venture elected its first option to extend the maturity date on its non-recourse mortgage notes for an additional 12 months from November 27, 2024 to November 27, 2025.

• On November 27, 2024, in connection with the extension, the Arch Street Joint Venture repaid $3.4 million of principal on its mortgage notes to satisfy the 60% maximum loan-to-value extension condition.

We provided a member loan to the Arch Street Joint Venture of $1.4 million in connection with the partial repayment of the Arch Street Joint Venture mortgage notes.

As of December 31, 2024, the outstanding principal associated with the Arch Street Joint Venture mortgage notes was $131.6 million, and our proportionate share was $26.3 million.

• During February 2025, we made an additional member loan of $8.3 million to fund leasing costs related to a lease extension that was completed for one of the properties in the Arch Street Joint Venture portfolio.

As part of the terms of the recent extension of the Arch Street Joint Venture mortgage notes, the mortgage lender is expected to re-appraise the property where the lease was extended in February 2025, and we are also committed to make an additional member loan as and if needed to repay principal on the mortgage notes to continue to satisfy the 60% loan-to-value extension condition.

Our member loan to the Arch Street Joint Venture, which had $9.2 million receivable as of March 5, 2025, earns interest at 15% per annum and is non-recourse and unsecured, and structurally subordinate to the Arch Street Joint Venture mortgage notes.

• The Company’s Board of Directors declared quarterly cash dividends of $0.10 per share for each of the four quarters of 2024, which were paid on April 15, 2024, July 15, 2024, October 15, 2024 and January 15, 2025.

On February 27,

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

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

• On March 4, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.02 per share for the first quarter of 2025, payable on April 15, 2025 to stockholders of record as of March 31, 2025, representing a new annualized dividend rate of $0.08 per share.

This change in dividend policy will enable us to retain approximately $17.9 million of cash annually.

Portfolio Overview

Real Estate Portfolio Metrics

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

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

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

The following table shows the property statistics of our operating properties as of the periods indicated below, including our proportionate share of the applicable statistics of the properties owned by the Arch Street Joint Venture:

December 31, 2024 December 31, 2023

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Rentable square feet (in thousands) (1) (2)

Annualized base rent (in thousands) $120,293 $141,293

Occupancy rate (3)

Leased rate (4)

Investment-grade tenants (5)

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____________________________________

(1) Represents leasable square feet of operating properties and the Company’s pro rata share of leasable square feet of properties owned by the Arch Street Joint Venture.

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

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

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

(1) During the year ended December 31, 2024, we split the properties located in Amherst, New York and Denver, Colorado, each containing two buildings, into four separate properties for reporting purposes.

(2) Represents leasable square feet of operating properties and the Company’s proportionate share of leasable square feet of properties owned by the Arch Street Joint Venture.

(3) Occupancy rate equals the sum of occupied square feet divided by rentable square feet of operating properties.

Adjusting for two operating properties that are currently under agreements to be sold, the occupancy rate as of December 31, 2024 equals 73.1%.

(4) Leased rate equals the sum of leased square feet divided by rentable square feet of operating properties.

(5) Based on annualized base rent of our real estate portfolio, including the Company’s proportionate share of annualized base rent for properties owned by the Arch Street Joint Venture, as of December 31, 2024.

Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc.

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Year Ended December 31,

2024 2023 2022

Financial Metrics

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GAAP measure.

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

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

Leasing Activity and Capital Expenditures

The Company remains highly focused on leasing activity, given the 4.0 year weighted-average remaining lease term and the significant lease maturities which will occur across the portfolio over the next few years.

We remain highly focused on leasing activity, given the 5.2 year weighted-average remaining lease term and the significant lease maturities which will occur across the portfolio over the next few years.

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

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In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all.

As an owner of commercial real estate, the Company is required to make capital expenditures with respect to its portfolio, which include normal building improvements to replace obsolete building components and expenditures to extend the useful life of existing assets and lease related expenditures to retain existing tenants or attract new tenants to our properties.

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

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 outstanding commitments of $42.3 million for tenant improvement allowances and $0.3 million for leasing commissions.

The actual amount we pay for tenant improvement allowances may be lower than the commitment in the applicable lease and will depend upon the tenant’s use of the capital on the agreed upon timeline.

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.

The Company estimates that the foregoing tenant improvement allowances and leasing commissions will be funded between 2024 and 2035.

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

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

The restricted cash included in this reserve totaled $34.7 million as of December 31, 2023, including $23.6 million for tenant improvement allowances and $11.1 million for rent concession commitments, and is included in other assets, net in the Company’s consolidated balance sheets.

During the year ended December 31, 2023, we entered into new and renewal leases as summarized in the following table (dollars and square feet in thousands):

As an owner of commercial real estate, we are required to make capital expenditures with respect to our portfolio, which include normal building improvements to replace obsolete building components and expenditures to extend the useful life of existing assets and lease related expenditures to retain existing tenants or attract new tenants to our properties.

We anticipate that we will continue to agree to tenant improvement allowances, the amount of which may increase in future periods.

These rent concessions and leasing costs 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 us.

As of December 31, 2024, we had the following estimated total outstanding rent concessions and leasing costs commitments (in thousands, except per square foot amounts):

Outstanding Amount Leased Square Feet (1)

Outstanding Amount Per Square Foot (1)

Rent concessions (2)

$ 17,275 971 $ 17.79

Tenant improvement allowances 64,274 1,785 $ 36.01

Reimbursable landlord work (3)

6,478 128 $ 50.61

Non-reimbursable landlord work (3)

7,577 482 $ 15.72

Leasing commissions 323 170 $ 1.90

Total $ 95,927 2,166 $ 44.29

____________________________________

(1) Certain leases may contain more than one of the above rent concessions and leasing costs.

The total leased square feet associated with our outstanding rent concessions and leasing costs excludes any duplicate square footage for the purpose of calculating the total outstanding amount per square foot.

(2) Rent concessions include free rent for future periods under our executed leases which include certain leases for which the lease term has yet to commence, and include estimates of property operating expenses, where applicable.

(3) Landlord work represents specific improvements agreed to within the lease agreement to be performed by us, as landlord, as a new non-recurring obligation and in order to induce the tenant to enter into a new lease or lease renewal or extension.

Outstanding commitments for reimbursable and non-reimbursable landlord work amounts include estimates and are subject to change.

The timing of our 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.

We estimate that the foregoing rent concessions and leasing costs will be funded between 2025 and 2039.

We have funded and intend to continue to fund our outstanding leasing costs with cash on hand, which may include proceeds from dispositions.

For assets financed on our CMBS Loan, we have funded reserves with the lender for tenant improvement allowances and rent concessions.

As of December 31, 2024, total restricted cash of $41.5 million was reserved for

outstanding leasing costs, including $30.1 million for tenant improvement allowances and $11.4 million for rent concession commitments, and is included in other assets, net in our consolidated balance sheets.

During the periods indicated below, we entered into new and renewal leases as summarized in the following tables (dollars and square feet in thousands):

Year Ended December 31, 2024

New Leases Renewals Total

Number of leases 6 9 15

Rentable square feet leased 287 799 1,086

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(9.7) % (6.6) % (7.0) %

Tenant leasing costs and concession commitments (3)

Tenant rent concessions and leasing costs (3)

$ 27,268 $ 19,607 $ 46,875

Tenant leasing costs and concession commitments per rentable square foot $ 41.89 $ 8.54 $ 11.23

Tenant rent concessions and leasing costs per rentable square foot (4)

$ 94.86 $ 24.54 $ 43.14

Weighted average lease term (by rentable square feet) (years) (5)

Tenant leasing costs and concession commitments per rentable square foot per year $ 5.15 $ 0.94 $ 1.24

Tenant rent concessions and leasing costs per rentable square foot per year $ 9.00 $ 3.55 $ 5.48

Year Ended December 31, 2023

New Leases Renewals Total

Number of leases 4 5 9

Rentable square feet leased 21 240 261

Weighted average rental rate change (cash basis) (1) (2)

(19.8) % 6.8 % 5.3 %

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

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

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

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

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

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

December 31, 2023

Tenant rent concessions and leasing costs (3)

$ 932 $ 3,211 $ 4,143

Tenant rent concessions and leasing costs per rentable square foot (4)

$ 44.30 $ 13.36 $ 15.85

Weighted average lease term (by rentable square feet) (years) (5)

Tenant rent concessions and leasing costs per rentable square foot per year $ 5.45 $ 1.47 $ 1.76

____________________________________

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

Contractually obligated reimbursements include estimated amortization of certain landlord funded improvements under our United States Government leases.

If a space has been or will be vacant for more than 12 months prior to the commencement of a new lease or was previously otherwise not generating full cash rental revenue, the lease will be excluded from the rental rate change calculation.

(2) Excludes four new leases for approximately 149,000 square feet and two new leases for approximately 7,000 square feet for the years ended December 31, 2024 and 2023, respectively, that had been or will be vacant for more than 12 months at the time the new lease commences.

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

Beginning in 2024, we have updated this calculation to also include estimates for certain reimbursable and non-reimbursable landlord funded improvements, and have applied this change retrospectively for comparison purposes.

For our multi-tenant properties, we have allocated the estimated cost of landlord funded improvements that benefit the property generally and/or the common areas and not the tenant’s premises in particular, to the applicable lease based on square footage of the related tenant.

(4) Includes reimbursable landlord funded improvements and reimbursable tenant improvement allowances per rentable square foot of $23.43 for new leases, $0.34 for renewals and $4.65 in total for the year ended December 31, 2024.

There were no reimbursable landlord funded improvements or reimbursable tenant improvement allowances for the year ended December 31, 2023.

(5) Weighted average lease term does not include specified periods of the stated lease term during which a tenant has the right to terminate their space without a termination fee, or “non-firm terms.” The total weighted average lease term for new leases and renewals executed during the years ended December 31, 2024 and 2023 would be 8.6 years and 10.6 years, respectively, if such non-firm terms were included.

During the year ended December 31, 2024, 11 leases expired consisting of approximately 1.3 million square feet across 10 properties.

We closed on the sale of two of these properties totaling approximately 164,000 square feet during the year ended December 31, 2024.

During the three months ended December 31, 2024, four leases expired consisting of approximately 215,000 square feet across four properties.

We closed on the sale of one of the properties and executed one new lease for approximately 2,000 square feet during the three months ended December 31, 2024.

We currently intend to re-let the remaining vacancies from the three months ended December 31, 2024.

The expired base rent per square foot and our market rent estimates for these vacancies are as follows (square feet in thousands):

Vacancy Location Rentable Square Feet Expired Base Rent Per Square Foot Estimated Market Rent Per Square Foot Range

Plano, Texas 54 $23.50 $18.50 - $20.50

Phoenix, Arizona 91 $25.25 $24.00 - $26.00

Our market rent estimates are based on a variety of assumptions which are subject to change and we cannot provide any assurance that we will be able to re-let vacant space to new tenants on these or any other terms, in a timely manner, or at all.

Our plans with respect to vacant properties are subject to change.

During the periods indicated below, amounts capitalized by the Company for capital expenditures were as follows (in thousands):

Year Ended December 31,

2024 2023 2022

Lease related costs (1)

$ 10,058 $ 1,405 $ 4,362

Lease incentives (2)

656 2,431 1,810

Building, fixtures and improvements (3)

13,354 17,476 8,452

Total capital expenditures $ 24,068 $ 21,312 $ 14,624

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Total revenues $ 164,862 $ 195,041 $ (30,179)

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

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

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

The decrease in rental revenue of $30.2 million during the year ended December 31, 2024 as compared to the same period in 2023 was primarily due to the decrease in our overall occupied square footage from scheduled expiration of leases totaling $26.8 million in rental revenues and the impact from property dispositions of $8.4 million during the year ended December 31, 2024.

We had 69 operating properties with an aggregate of 7.9 million leasable square feet and an occupancy rate of 73.0% as of December 31, 2024, as compared to 75 properties with an aggregate of 8.7 million leasable square feet and an occupancy rate of 80.0% as of December 31, 2023.

The decrease in revenues during the year ended December 31, 2024 was partially offset by $3.3 million of reimbursements from previous tenants for real estate taxes and $0.9 million of rental revenue from our acquired property.

Fee income from unconsolidated joint venture

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Transaction related 539 504 35

Spin related — 964 (964)

Total operating expenses $ 234,156 $ 222,230 $ 11,926

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

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

Property operating expenses increased $4.4 million during the year ended December 31, 2024 as compared to the same period in 2023.

The increase is the result of operating expenses from additional property vacancies of $4.4 million, the timing of certain operating expenses of $0.9 million and property operating expenses from our acquired property of $0.3 million, offset by decreases in property operating expenses resulting from property dispositions of $1.5 million.

General and administrative expenses

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

General and administrative expenses increased $1.4 million during the year ended December 31, 2024 as compared to the same period in 2023, primarily due to increased stock compensation expense of $1.2 million for additional equity award issuances.

One of these changes is the retirement of Gary Landriau, our Chief Investment Officer, effective June 30, 2025.

It is our intention to reallocate his responsibilities with the team already in place and we do not plan to replace the position.

In order to allow for a smooth transition, Mr.

Landriau will remain in a consulting role until January 31, 2026.

Landriau’s retirement is estimated to result in approximately $1.0 million in annualized general and administrative expense savings.

However, we cannot provide any assurance we will be successful in achieving this or any level of general and administrative expense savings.

Depreciation and amortization expenses

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

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

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

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

Depreciation and amortization expenses decreased $8.3 million during the year ended December 31, 2024 as compared to the same period in 2023, due to the $24.4 million impact of full amortization of certain intangible assets, as well as the impact from depreciation and amortization expenses from disposed properties of $1.1 million, offset by depreciation and amortization expenses from capitalized assets of $1.3 million and our acquired property of $0.5 million.

The decrease of depreciation and amortization expense during the year ended December 31, 2024 compared to the same period in 2023 was also partially offset by the full depreciation of $15.9 million during the year ended December 31, 2024 of the buildings at a six-property campus in Deerfield, Illinois.

This accelerated depreciation was the result of the adjustment to the useful life of the assets due to management’s plans to demolish the buildings.

Impairments increased $14.4 million during the year ended December 31, 2024 as compared to the same period in 2023.

The impairment charges of $47.6 million in the year ended December 31, 2024 include a total of 12 properties and the charges were incurred primarily with respect to real estate assets sold or expected to be sold and reflect management’s estimates of lease renewal probability, timing and terms of such renewals, carrying costs for vacant properties, sale probability and estimates of sale proceeds.

Impairment charges totaling $33.1 million with respect to eight properties were recorded during the year ended December 31, 2023.

See Note 5 – Fair Value Measures for further information.

Transaction related expenses

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

Spin related expenses

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

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

Transaction related expense remained relatively consistent at $0.5 million during the year ended December 31, 2024 as compared to the same period in 2023.

Other (Expense) Income and Provision for Income Taxes

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Interest expense, net $ (32,637) $ (29,669) $ 2,968

Gain on disposition of real estate assets $ — $ 31 $ (31)

Loss on extinguishment of debt, net $ (1,078) $ (504) $ 574

1 unchanged sentence

Equity in loss of unconsolidated joint venture, net $ (740) $ (435) $ 305

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

Provision for income taxes $ (214) $ (456) $ (242)

Interest expense, net

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

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

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

Interest expense, net increased $3.0 million during the year ended December 31, 2024 as compared to the same period in 2023, which was primarily due to higher interest rates, partially offset by lower outstanding debt during the year ended December 31, 2024.

The Company’s average debt outstanding was $481.5 million for the year ended December 31, 2024 compared to $500.5 million during the same period in 2023.

The Company’s weighted-average interest rate on its debt obligations was 5.85% for the year ended December 31, 2024 and 4.66% for the same period in 2023.

Interest expense for the year ended December 31, 2024 included no offsets of reclassified previous gains or losses on interest rate derivatives from accumulated other comprehensive income (loss), compared with $6.7 million of reclassified previous gains during the same period in 2023.

We expect our overall debt levels to increase as we continue to re-invest in our property portfolio and execute on our shift in portfolio concentration away from traditional office properties.

We are also exposed to changes in market interest rates on our floating rate borrowings, including those under our Revolving Facility.

Gain on disposition of real estate assets

There was no gain on disposition of real estate assets recognized during the year ended December 31, 2024 as compared to less than $0.1 million during the year ended December 31, 2023.

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

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

Loss on extinguishment of debt, net

Loss on extinguishment of debt, net during the year ended December 31, 2024 related to the proportionate write off of deferred financing costs due to the reduction of the borrowing capacity of the Revolving Facility of $75.0 million in connection with the Third Amendment to the Credit Agreement defined below and discussed in Note 6 – Debt, Net.

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

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

Other income, net

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

Other income, net increased modestly during the year ended December 31, 2024 as compared to the same period in 2023.

Equity in loss of unconsolidated joint venture, net

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

Gain on disposition of real estate assets

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

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

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

Equity in loss of the unconsolidated joint venture increased $0.3 million during the year ended December 31, 2024 as compared to the same period in 2023, primarily due to an increase in interest expense following the expiration of an interest rate swap agreement on the Arch Street Joint Venture non-recourse mortgage notes during the year ended December 31, 2024.

Provision for income taxes

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

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

The provision for income taxes decreased modestly during the year ended December 31, 2024 as compared to the same period in 2023.

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

For a comparison of the year ended December 31, 2023 to the year ended December 31, 2022, see “Item.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K filed on February 27, 2024.

Non-GAAP Measures

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

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

the operating performance of a REIT.

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

Nareit defines FFO as net income or loss computed in accordance with U.S.

GAAP adjusted for gains or losses from disposition of real estate assets, depreciation and amortization of real estate assets, impairment write-downs on real estate, and our pro rata share of FFO adjustments related to the unconsolidated joint venture.

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

Nareit defines FFO as net income (loss) computed in accordance with U.S.

GAAP adjusted for gains or losses from disposition of real estate assets, depreciation and amortization of real estate assets, impairment write-downs on real estate, and our proportionate share of FFO adjustments related to the unconsolidated joint venture.

We calculate FFO in accordance with Nareit’s definition described above.

In addition to FFO, we use Core FFO as a non-GAAP supplemental financial performance measure to evaluate the operating performance of the Company.

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

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

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

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

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

Core FFO, as defined by the Company, excludes from FFO items that we believe do not reflect the ongoing operating performance of our business such as transaction related expenses, spin related expenses, amortization of deferred financing costs, amortization of deferred lease incentives, net, equity-based compensation, amortization of premiums and discounts on debt, net and gains or losses on extinguishment of swaps and/or debt, and our proportionate share of Core FFO adjustments related to the unconsolidated joint venture.

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

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

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

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

GAAP financial measure, for the periods indicated below (in thousands, except per share amounts):

Year Ended December 31,

2024 2023 2022

Net loss attributable to common stockholders $ (103,012) $ (57,302) $ (97,494)

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Core FFO attributable to common stockholders $ 56,755 $ 94,770 $ 108,178

Weighted-average shares of common stock outstanding - basic and diluted 56,410 56,632

Weighted-average shares of common stock outstanding - basic 55,903 56,410 56,632

Effect of weighted-average dilutive securities (2)

Weighted-average shares of common stock outstanding - diluted 55,977 56,410 56,632

FFO attributable to common stockholders per diluted share $ 0.84 $ 1.54 $ 1.76

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

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

(2) Dilutive securities include unvested restricted stock units net of assumed repurchases in accordance with the treasury stock method and exclude Performance-Based RSUs for which the performance thresholds have not been met by the end of the applicable reporting period.

Such dilutive securities are not included when calculating net loss per diluted share applicable to the Company for the year ended December 31, 2024 as the effect would be antidilutive.

Liquidity and Capital Resources

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

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

(v) fund capital contributions to the Arch Street Joint Venture and (vi) fund new acquisitions.

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

As of December 31, 2024, we had $15.6 million of cash and cash equivalents and $231.0 million of borrowing capacity under the Revolving Facility.

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

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

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

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

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

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

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

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

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

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

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

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

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

During the year ended December 31, 2024, we acquired fee simple interest in one real property and the improvements thereon including a 97,000 square foot flex/laboratory and R&D facility in San Ramon, California for a gross purchase price of $34.6 million.

The property was fully leased to a single tenant and has a remaining lease term of 15.0 years as of the acquisition date.

On November 7, 2025, following the acquisition, we financed the San Ramon, California property with an $18.0 million fixed rate mortgage note (the “San Ramon Loan”).

The San Ramon Loan bears interest at a fixed rate of 5.90% per annum and matures on December 1, 2031.

The balance of the purchase price for this property was funded with a combination of cash on hand and borrowings under the Revolving Facility.

On May 3, 2024, we entered into the Third Amendment to the Credit Agreement.

Under the terms of the Third Amendment, we and the lenders agreed to reduce the borrowing capacity of the Revolving Facility to $350.0 million from $425.0 million, and to certain financial covenant changes, including a proportional reduction in the minimum unencumbered asset value that we must maintain to $500.0 million, from $600.0 million.

We do not expect the reduced commitment under the Revolving Facility to adversely impact the execution of our business plan, and the reduced commitment will modestly benefit us by lowering the unused fees we are obligated to pay to the lenders.

On May 16, 2024, we elected our option to extend the maturity of the Revolving Facility for 18 months from November 12, 2024 to May 12, 2026.

The non-recourse mortgage notes associated with the Arch Street Joint Venture are scheduled to mature on November 27, 2025, with one remaining option to extend the maturity for an additional 12 months until November 27, 2026.

On November 22, 2024, the Arch Street Joint Venture repaid $3.4 million of principal on the mortgage notes to satisfy the 60% maximum loan-to-value extension condition and effected the first 12-month loan extension option, which extended the maturity date of the mortgage notes to November 27, 2025.

As of December 31, 2024, there was $131.6 million outstanding under the mortgage notes and our proportionate share was $26.3 million.

The mortgage notes have a variable interest rate and during the 12-month extension term the spread on a SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York) loan is 2.60% per annum (increased from 1.60% per annum), and in the cased of a base rate loan, the spread is unchanged at 0.50% per annum.

The Arch Street Joint Venture has entered into an interest rate cap agreement that caps the SOFR rate at 5.50% per annum during the 12-month extension term.

We provided a member loan to the Arch Street Joint Venture of $1.4 million in connection with the partial repayment of the Arch Street Joint Venture mortgage notes to satisfy the maximum 60% loan-to-value extension condition.

During February 2025, we made an additional member loan of $8.3 million to fund leasing costs related to a lease extension that was completed for one of the properties in the Arch Street Joint Venture portfolio.

Interest and principal are payable monthly solely out of the excess cash from the joint venture after payment of property operating expenses, interest and principal on the Arch Street mortgage notes and other joint venture expenses and excess proceeds from the sale of any of the joint venture properties.

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

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

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

(ii) pay dividends to our stockholders;

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

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

and (iv) fund new acquisitions.

We generally believe we will be able to satisfy these liquidity needs by a combination of cash flows from operations, borrowings under the Revolving Facility, proceeds from real estate dispositions, new borrowings such as bank term loans or other secured or unsecured debt, and issuances of equity securities.

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

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

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

Credit Agreements

As of December 31, 2024, we had $492.0 million of total consolidated debt outstanding, consisting of a $355.0 million fixed rate mortgage note collateralized by 19 properties (the “CMBS Loan”), $119.0 million borrowed under our $350.0 million senior revolving credit facility (the “Revolving Facility”) and an $18.0 million fixed rate mortgage note on the San Ramon, California property we acquired in September 2024 (the “San Ramon Loan”).

The following is a summary of the interest rate and scheduled maturities of our consolidated debt obligations as of December 31, 2024 (in thousands):

Principal Amounts Due During the Years Ending December 31,

Interest Rate Maturity Total 2024 2025 2026 2027

Weighted-Average Interest Rate (1)

Weighted-Average Years to Maturity Principal Amounts Due During the Years Ending December 31,

Total 2025 2026 2027 Thereafter

Credit facility revolver (2)

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

7.66 % 1.4 $ 119,000 $ — $ 119,000 $ — —

Mortgages payable (3) (4)

4.971 % February 2027 355,000 — — — 355,000

5.02 % 2.3 373,000 — — 355,000 18,000

Total $ 492,000 $ — $ 119,000 $ 355,000 $ 18,000

____________________________________

(1) The weighted-average interest rate represents the interest rate in effect as of December 31, 2024.

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

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

As of December 31, 2024, a total of $60.0 million of the debt outstanding under the Revolving Facility was subject to interest rate collar agreements to hedge against interest rate volatility.

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

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

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

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

(3) Includes $355.0 million securitized mortgage note secured by 19 of our properties which bears interest at a fixed rate of 4.971% per annum and matures on February 11, 2027.

Also includes $18.0 million fixed rate mortgage note entered into on November 7, 2024 and secured by the San Ramon, California property which the Company acquired in September 2024, which bears interest at a fixed rate of 5.90% per annum and matures on December 1, 2031.

(4) Does not include non-recourse mortgage notes associated with the Arch Street Joint Venture of $131.6 million, of which our proportionate share was $26.3 million as of December 31, 2024.

Credit Agreement Obligations

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

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

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

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

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

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

We have entered into two amendments to the Credit Agreement.

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

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

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

Giving effect to the amendments described above, the interest rate applicable to the loans under the Revolving Facility may be determined, at the election of Orion OP, on the basis of Daily Simple SOFR, Term SOFR or a base rate, in the case of a SOFR loan, plus a SOFR adjustment of 0.10% per annum, and in the case of a SOFR loan or a base rate loan, plus an applicable margin of 3.25% for SOFR loans and 2.25% for base rate loans.

We have entered into three 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 (the London interbank offered rate as administered by the ICE Benchmark Administration) to SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York).

The purpose of the second amendment entered into in June 2023 was to repay and retire $175.0 million of outstanding borrowings under the Term Loan Facility with borrowings from the Revolving

Facility (which was undrawn at the time of the second amendment), provide us with the option to extend the maturity of the Revolving Facility for an additional 18 months to May 12, 2026 from November 12, 2024 and to effect certain other modifications.

On May 16, 2024, we elected our option to extend the maturity of the Revolving Facility.

As described above, on May 3, 2024, we entered into the Third Amendment, which resulted in a permanent $75.0 million reduction in the capacity of the Revolving Facility to $350.0 million, while making a proportional reduction in the minimum value of the unencumbered asset pool required under the Credit Agreement and certain other modifications to financial covenants.

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).

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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.

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.

Pursuant to the second amendment described above, if, on any day, Orion OP has unrestricted cash and cash equivalents in excess of $25.0 million (excluding amounts that are then designated for application or use and are subsequently used for such purposes within 30 days), Orion OP will use such excess amount to prepay loans under the Revolving Facility, without premium or penalty and without any reduction in the lenders’ commitment under the Revolving Facility.

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

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

The following is a summary of financial covenants for the Company’s Revolving Facility and the Company’s compliance therewith as of December 31, 2024, as calculated per the terms of the Credit Agreement, giving effect to the modifications pursuant to the second and third amendment described above.

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

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

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

On February 10, 2022, certain indirect subsidiaries of the Company (the “Mortgage Borrowers”) obtained a $355.0 million fixed rate mortgage note (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.

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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.

During the year ended December 31, 2024, the Mortgage Borrowers funded an additional $9.4 million of loan reserves for future rent concessions and tenant improvement allowances agreed to as part of the extension of one of the leases in the CMBS collateral pool.

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

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

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

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

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

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.

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, 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 arm’s length third party sale upon repayment of the Release Price (as defined in the CMBS Loan Agreement) for the applicable individual property and subject to payment of the applicable yield maintenance premium and the satisfaction of other terms and conditions set forth in the CMBS Loan Agreement.

The CMBS Loan may be prepaid in full without premium or penalty beginning in May 2026 (nine months prior to maturity).

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 test of 8.0%) which allow the Lender to retain any excess cash flow as additional collateral for the Loan, until such trigger event is cured.

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, 2024, the Company was in compliance with these financial covenants.

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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.

On November 10, 2021, we issued 56,525,650 additional shares of our common stock to Realty Income, such that Realty Income owned 56,625,650 shares of our common stock.

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

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

San Ramon Loan

On November 7, 2024, an indirect subsidiary of the Company (the “San Ramon Borrower”) obtained an $18.0 million fixed rate mortgage note (the “San Ramon Loan”) from RGA Americas Investments LLC (the “San Ramon Lender”) secured by the fee simple interest in the San Ramon, California property acquired in September 2024 (the “San Ramon Property”).

The San Ramon Loan bears interest at a fixed rate of 5.90% per annum and matures on December 1, 2031.

The San Ramon Loan requires monthly payments of interest only and all principal is due at maturity and is generally not freely prepayable by the San Ramon Borrower until December 2026, and thereafter without payment of certain prepayment premiums and costs.

In connection with the San Ramon Loan, the Company (as guarantor) delivered a customary non-recourse carveout guaranty, under which the Company guaranteed the obligations and liabilities of the San Ramon Borrower under the San Ramon Loan with respect to certain non-recourse carveout events and the circumstances under which the San Ramon Loan will be fully recourse to the San Ramon Borrower.

The San Ramon Borrower and the Company also provided a customary environmental indemnity agreement, pursuant to which the San Ramon Borrower and the Company agreed to protect, defend, indemnify and hold harmless the San Ramon Lender from and against certain environmental liabilities related to the San Ramon Property.

The loan agreement governing the San Ramon Loan (the “San Ramon Loan Agreement”) includes customary representations, warranties and covenants of the San Ramon Borrower and the Company.

The San Ramon 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 San Ramon Borrower to be immediately due and payable and foreclose on the San Ramon Property.

Arch Street Warrants

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

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

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

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

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

The ROFO Agreement expired on November 12, 2024.

Derivatives and Hedging Activities

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

During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR, we terminated the interest rate swap agreements that had been entered into during the year ended December 31, 2021, and entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2022 and terminating on November 12, 2023, which were designated as cash flow hedges, to hedge interest rate volatility with respect to the our borrowings under the Term Loan Facility.

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

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Distributions

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

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

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

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

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

During the year ended December 31, 2024, 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

February 27, 2024 March 29, 2024 April 15, 2024 $0.10

May 7, 2024 June 28, 2024 July 15, 2024 $0.10

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November 6, 2024 December 31, 2024 January 15, 2025 $0.10

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

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

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

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

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

In addition, our organizational documents permit us to issue shares of preferred equity that could have a preference on dividends, and if we do, the dividend preference on the preferred equity could limit our ability to pay dividends to the holders of our common stock.

This change in dividend policy will enable us to retain approximately $17.9 million of cash annually.

Our dividend policy is established at the discretion of the Company’s Board of Directors and the amount and timing of dividends will depend upon cash generated by operating activities, the Company’s business, financial condition, results of operations, capital requirements, annual distribution requirements under the REIT provisions of the Code, and such other factors as the Company’s Board of Directors deems relevant.

The Company’s Board of Directors may change our dividend policy at any time, and there can be no assurance as to the manner in which future dividends will be paid or that the current dividend level will be maintained in future periods.

Universal Shelf Registration Statement

On November 2, 2022, the Company filed a universal shelf registration statement on Form S-3 (the “Universal Shelf”) with the SEC, and the Universal Shelf was declared effective by the SEC on November 14, 2022.

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

These securities

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

Pursuant to the Universal Shelf,

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

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

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

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As of December 31, 2024, we had not sold any shares of common stock pursuant to the ATM Program.

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

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

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

The Company has no immediate plans to issue any securities for capital raising purposes pursuant to the Universal Shelf or otherwise, but may utilize the ATM Program to satisfy future liquidity needs.

Share Repurchase Program

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

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

Cash Flow Analysis for the Year Ended December 31, 2023

The Company did not repurchase any shares under the Share Repurchase Program during the year ended December 31, 2024.

As of December 31, 2024, the approximate dollar value of shares that remain available for repurchase under the Share Repurchase Program was $45.0 million.

Cash Flow Analysis for the Year Ended December 31, 2024 and 2023

The following table summarizes the changes in cash flows for the year ended December 31, 2024 compared to the year ended December 31, 2023 (in thousands):

Year Ended December 31, 2023 vs 2022

Year Ended December 31,

2024 2023 2024 vs 2023

Increase/(Decrease)

Net cash provided by operating activities $ 54,260 $ 89,088 $ (34,828)

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

Net cash (used in) provided by investing activities $ (51,263) $ 5,289 $ (56,552)

Net cash used in financing activities $ (3,025) $ (92,490) $ 89,465

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

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

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

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

VEREIT OFFICE ASSETS

Critical Accounting Policies - VEREIT Office Assets

Real Estate Investments

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

Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates.

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

GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability.

In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets have been adjusted to their respective fair values and an impairment loss has been recognized.

There are inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants.

Goodwill Impairment

VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable.

To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including, but not limited to macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations;

entity-specific events such as increasing costs, declining financial performance, or loss of key personnel;

or other events such as an expectation that a reporting unit will be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers.

If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e., greater than 50% chance) that the fair value of a reporting unit is less than its carrying value, the quantitative impairment test is required.

Otherwise, no quantitative testing is required.

If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying value, the provisions of guidance require that the fair value be compared to the carrying value.

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

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

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

Results of Operations - VEREIT Office Assets

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

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

Liquidity and Capital Resources - VEREIT Office Assets

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

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

Net cash provided by operating activities decreased $34.8 million during the year ended December 31, 2024, compared to the same period in 2023, primarily due to a decrease in revenues and increase in property operating expenses as a result of property dispositions and vacancies, and net changes in accounts payable, accrued expenses and other liabilities, net, offset by net changes in accounts receivable, net and other assets, net.

Net cash from investing activities decreased $56.6 million during the year ended December 31, 2024, compared to the same period in 2023, primarily due to the acquisition of one real estate asset for $34.7 million, a decrease in proceeds from the sale of real estate assets of $16.0 million, an increase in capital expenditures and leasing costs of $4.1 million and origination of a member loan to the Arch Street Joint Venture of $1.4 million, offset by the payments received on notes receivable of $1.2 million.

Net cash used in financing activities decreased $89.5 million during the year ended December 31, 2024, compared to the same period in 2023, primarily due to proceeds from the San Ramon Loan of $18.0 million, net draws on the Revolving Facility of $3.0 million and payments of deferred financing costs of $1.3 million during the year ended December 31, 2024, compared to net repayments on the Revolving Facility of $59.0 million, payments of deferred financing costs of $5.7 million, and repurchases of common stock under the Share Repurchase Program of $5.0 million during the year ended December 31, 2023.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis