Orion Office REIT (NYSE:ONL) raised its 2026 core funds from operations outlook after reporting higher third-quarter occupancy and leasing activity, while executives said the company’s strategic options review remains ongoing amid a rise in Treasury rates.
Chief Executive Officer Paul McDowell said Orion continues to engage with outside parties in a “meaningful way” but cautioned that the review may not result in a transaction. The company will announce either a strategic transaction or the conclusion of the process once it determines whether the specific options under consideration will work, he said.
Core FFO Guidance Raised
Orion now expects 2026 core FFO of $0.75 to $0.78 per diluted share, up from its previous forecast of $0.72 to $0.77. Chief Financial Officer Gavin Brandon attributed the improved outlook primarily to strong leasing activity.
The company also lowered its expected year-end net debt to adjusted EBITDA range to 5.8 to 6.4 times, from 6 to 6.8 times. Its general and administrative expense forecast remained unchanged at $19.8 million to $20.8 million.
For the third quarter, core FFO rose to $11.4 million, or $0.20 per share, from $11 million, or $0.19 per share, a year earlier. Revenue fell to $35.4 million from $37.1 million, while adjusted EBITDA declined to $16.5 million from $17.4 million, primarily because the company owned fewer assets, Brandon said.
Orion reported a net loss attributable to common stockholders of $3.3 million, or $0.06 per share, compared with a loss of $69 million, or $1.23 per share, in the prior-year quarter.
Asked about the implied fourth-quarter slowdown in the annual guidance, McDowell said results in the first three quarters benefited from items such as one-time tax savings and lease termination income. He said the company does not expect a significant contribution from those items in the fourth quarter. Orion expects to grow core FFO over time, although the pace will depend on leasing, he added.
Leasing and Occupancy Improve
Orion completed approximately 143,000 square feet of leasing in the third quarter and another 222,000 square feet after quarter-end, bringing its year-to-date total to approximately 922,000 square feet. McDowell said the company remains on track to lease more than 1 million square feet for a third consecutive year. Its leasing pipeline stood at about 1 million square feet at quarter-end.
Consolidated portfolio occupancy rose to 78.3% at September 30 from 72.1% a year earlier. The portfolio’s weighted average lease term increased to 6.1 years from 5.8 years.
Among the leases completed after quarter-end were two deals totaling 74,000 square feet at a Plano, Texas, property, bringing the building to 85% leased. Orion also completed a 65,000-square-foot extension in Milwaukee and a two-year full-building renewal in Indianapolis.
In Buffalo, New York, Orion expects to finalize a 93,000-square-foot, 15-year lease in the fourth quarter at a renovated office property. The deal would bring the building to 64% leased, up from zero just over a year ago, McDowell said. He cautioned that the lease had not yet been signed.
McDowell said Orion likes the Buffalo property but would consider selling it once leased if it received a strong price, potentially recycling proceeds into Dedicated Use Assets.
Dispositions and Debt
Orion generated nearly $84 million in gross proceeds year to date from selling four properties and a 37-acre campus in Deerfield, Illinois. Two additional properties were under contract for a combined gross sale price of $9.5 million.
Dedicated Use Assets represented 40.6% of consolidated annualized base rent at quarter-end, up from 33.9% a year earlier. McDowell said Orion’s longer-term goal is for those assets to represent a majority of the portfolio, with the pace depending in part on access to cost-effective outside capital.
Chief Operating Officer Chris Day said Orion is marketing two adjacent Richardson, Texas, properties for sale and expects a disposition in the first half of 2027. AT&T will vacate one of the properties, he said. Prospective buyers include parties interested in office use and others considering redevelopment.
At quarter-end, Orion had $436.5 million in outstanding debt, excluding its proportionate share of unconsolidated joint venture debt, down from $483 million a year earlier. Net debt to annualized adjusted EBITDA improved to 5.6 times from 6.4 times. The company reported $177.2 million in liquidity, and its next debt maturity is in February 2028, with an option to extend it to February 2029.
Orion’s board declared an unchanged fourth-quarter cash dividend of $0.02 per share.
About Orion Office REIT (NYSE:ONL)
Orion Office REIT Inc (NYSE: ONL) is a real estate investment trust focused on owning and managing office properties. Its portfolio has primarily consisted of office buildings leased to single tenants, with an emphasis on properties occupied by creditworthy tenants and supported by long-term leases.
The company was formed through a 2021 spin-off from Realty Income Corporation. At the time of the separation, Orion Office REIT received a portfolio of office properties located across multiple U.S.
