Orion Office REIT Inc

Previous wording

This Quarterly Report on Form 10-Q includes “forward-looking statements” which reflect Orion Office REIT Inc.’s (the “Company, “Orion”, “we”, or “us”) expectations and projections regarding future events and plans, future financial condition, results of operations, liquidity and business, including leasing and occupancy, acquisitions, dispositions, rent receipts, expected borrowings and financing costs and the payment of future dividends. Generally, the words “anticipates,” “assumes,” “believes,” “continues,” “could,” “estimates,” “expects,” “goals,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “guidance,” variations of such words and similar expressions identify forward-looking statements. These forward-looking statements are based on information currently available to us and involve a number of known and unknown assumptions and risks, uncertainties and other factors, which may be difficult to predict and beyond the Company’s control, that could cause actual events and plans or could cause our business, financial condition, liquidity and results of operations to differ materially from those expressed or implied in the forward-looking statements. These factors include, among other things, those discussed below. Information regarding historical rent collections should not serve as an indication of future rent collection. We disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or factors, new information, future events or otherwise, except as may be required by law.

Current wording

This Quarterly Report on Form 10-Q includes “forward-looking statements” which reflect Orion Office REIT Inc.’s (the “Company, “Orion”, “we”, or “us”) expectations and projections regarding future events and plans, future financial condition, results of operations, liquidity and business, including leasing and occupancy, acquisitions, dispositions, rent receipts, expected borrowings and financing costs and the payment of future dividends. Generally, the words “anticipates,” “assumes,” “believes,” “continues,” “could,” “estimates,” “expects,” “goals,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “guidance,” variations of such words and similar expressions identify forward-looking statements. These forward-looking statements are based on information currently available to us and involve a number of known and unknown assumptions and risks, uncertainties and other factors, which may be difficult to predict and beyond the Company’s control, that could cause actual events and plans or could cause our business, financial condition, liquidity and results of operations to differ materially from those expressed or implied in the forward-looking statements. These factors include, among other things, those discussed below. Information regarding historical rent collections should not serve as an indication of future rent collections. We disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or factors, new information, future events or otherwise, except as may be required by law.

Previous wording

•risks accompanying our investment in and the management of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), our unconsolidated joint venture, in which we hold a non-controlling ownership interest, including that the unconsolidated joint venture may be unable to satisfy the extension conditions or otherwise extend or refinance its outstanding mortgage debt on or prior to maturity;

Current wording

•risks accompanying our investment in and the management of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), our unconsolidated joint venture, in which we hold a non-controlling ownership interest, including that our joint venture partner may fail to fund its share of required capital contributions and that the unconsolidated joint venture may be unable to satisfy the extension conditions or otherwise extend or refinance its outstanding mortgage debt on or prior to maturity;

Previous wording

As of June 30, 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 six properties being removed from the presentation of the Company’s portfolio of operating properties. Additionally, during the three months ended June 30, 2024, we completed a parcel split of our property located in Amherst, New York, which included two buildings. As a result of the split, the two parcels and respective buildings on the parcels are being reported as separate operating properties. As of June 30, 2024, following the reclassification of six properties as non-operating properties and the parcel split, we owned and operated 69 office properties with an aggregate of 8.0 million leasable square feet located in 29 states with an occupancy rate of 79.2% and a weighted-average remaining lease term of 4.2 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 8.2 million leasable square feet with an occupancy rate of 79.7%, or 80.9% adjusted for one operating property that is currently under agreement to be sold, and a weighted-average remaining lease term of 4.2 years as of June 30, 2024.

Current wording

During the nine months ended September 30, 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 six properties being removed from the presentation of the Company’s portfolio of operating properties. Also during the nine months ended September 30, 2024, we completed a parcel split of our property located in Amherst, New York, which included two buildings. As a result of the split, the two parcels and respective buildings on the parcels are being reported as separate operating properties. As of September 30, 2024, we owned and operated 70 office properties with an aggregate of 8.1 million leasable square feet located in 29 states with an occupancy rate of 74.0% and a weighted-average remaining lease term of 5.0 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 8.3 million leasable square feet with an occupancy rate of 74.6%, or 76.9% adjusted for three operating properties that are currently under agreement to be sold or have been sold following September 30, 2024, and a weighted-average remaining lease term of 5.0 years as of September 30, 2024.

Previous wording

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 12.7% and 13.6% of our annualized base rent are scheduled to expire during the remainder of 2024 and in 2025, 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 U.S. 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 our leases or pay rent to us.

Current wording

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 2.8% and 13.0% of our annualized base rent are scheduled to expire during the remainder of 2024 and in 2025, 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 U.S. 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 our leases or pay rent to us.

Previous wording

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 buildings with more amenities. As of June 30, 2024,64.1%,30.9% and 5.0% of our office buildings by square feet were classified as class A, class B and class C, respectively, as determined by the most recent appraisals of the properties. As of June 30, 2024, our class B and class C properties collectively included the following 10% or greater geographic concentration as measured by square footage: Texas (17.7%); and the following 10% or greater property type concentrations as measured by square footage: Traditional Office (67.3%); Flex/Industrial (20.7%); and Governmental Office (10.0%). In the current office environment, class B and class C buildings generally have been experiencing reduced demand and lease or sell at discounts to class A buildings and our tenants and prospective new tenants across our portfolio sometimes compare the cost and the value of leasing space in our building to the value of newer space with more amenities asking higher rent in other buildings in the market. The class of buildings we own may be negatively impacting our leasing velocity and pushing our leasing costs higher, and has negatively impacted our sales price on non-core asset dispositions.

Current wording

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 buildings with more amenities. As of September 30, 2024, 63.3%, 31.7% and 5.0% of our office buildings by 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 September 30, 2024, our class B and class C properties collectively included the following 10% or greater geographic concentrations as measured by square footage: Texas (17.1%) and California (11.2%); and the following 10% or greater property type concentrations as measured by square footage: Traditional Office (65.2%) and Flex/Industrial (20.1%). In the current office environment, class B and class C buildings generally have been experiencing reduced demand and lease or sell at discounts to class A buildings and our tenants and prospective new tenants across our portfolio sometimes compare the cost and the value of leasing space in our building to the value of newer space with more amenities asking higher rent in other buildings 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 dispositions.

Previous wording

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 or refinance 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 likely increase our cost of, capital as we seek to extend or refinance our debts. 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. Upon exercising the extension, our nearest debt maturity is the non-recourse mortgage notes associated with the Arch Street Joint Venture of $136.4 million, which are scheduled to mature on November 27, 2024. As of June 30, 2024, our proportionate share of the non-recourse mortgage notes associated with the Arch Street Joint Venture was $27.3 million. The Arch Street Joint Venture has two successive one-year options to extend the maturity date until November 27, 2026, however, the extension options are subject to satisfaction of certain conditions, including satisfaction of certain financial and operating covenants. The Arch Street Joint Venture may be unable to satisfy the extension conditions, and has preliminarily agreed with the existing lenders to extend the mortgage notes for one year and on other mutually acceptable terms, subject to definitive documentation and other conditions. We cannot provide any assurance that the Arch Street Joint Venture will be able to satisfy the extension conditions or reach final agreement with its lenders to extend the mortgage notes or otherwise refinance the mortgage notes. 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.

Current wording

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 or refinance 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 likely increase our cost of, capital as we seek to extend or refinance our debts. 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. Upon exercising the extension, our nearest debt maturity is the non-recourse mortgage notes associated with the Arch Street Joint Venture of $135.7 million, which are scheduled to mature on November 27, 2024. As of September 30, 2024, our proportionate share of the non-recourse mortgage notes associated with the Arch Street Joint Venture was $27.1 million. The Arch Street Joint Venture has two successive one-year options to extend the maturity date until November 27, 2026, however, the extension options are subject to satisfaction of certain conditions, including satisfaction of certain financial and operating covenants. In October 2024, the Arch Street Joint Venture and its lenders entered into an amendment to the loan agreement pursuant to which, among other things, the lenders agreed to modify certain conditions for the first loan extension and which amendment provides greater certainty the Arch Street Joint Venture will be able to satisfy all conditions for the first loan extension until November 27, 2025. In connection with the amendment, the Arch Street Joint Venture exercised the first extension option and is working with the lenders to satisfy all extension conditions, including a maximum loan-to-value of 60% which may result in a partial repayment of the mortgage notes that we anticipate will require us to fund a member loan to the Arch Street Joint Venture. We cannot provide any assurance the Arch Street Joint Venture will be able to satisfy the extension conditions for the first or 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.

Previous wording

One of our main asset management strategies since the completion of our distribution from Realty Income has been to sell vacant and identified non-core assets that do not fit our long-term investment objectives. The sale of these assets will allow us to both reduce carry costs and avoid the uncertainty and significant capital expenditures associated with re-tenanting. We expect to continue this non-core asset disposition strategy through the remainder of 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.

Current wording

One of our main asset management strategies since the completion of our distribution from Realty Income has been to sell vacant and identified non-core assets that do not fit our long-term investment objectives. The sale of these assets will allow us to both reduce carry costs and avoid the uncertainty and significant capital expenditures associated with re-tenanting. We expect to continue this non-core asset disposition strategy through the remainder of 2024 and in 2025. 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.

Previous wording

For the three and six months ended June 30, 2024 and 2023, the consolidated financial statements of the Company include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture.

Current wording

For the three and nine months ended September 30, 2024 and 2023, the consolidated financial statements of the Company include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture.

Previous wording

Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, expectations and projections regarding future events and plans, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. 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 financial statements.

Current wording

Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, expectations and projections regarding future events and plans, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. 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 policies 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 in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

•During the six months ended June 30, 2024, we closed on the sale of one vacant property for a gross sales price of $2.1 million. As of August 8, 2024, we had pending agreements in place to sell one operating property and six non-operating properties for an aggregate gross sales price of $39.0 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.

Current wording

•During the nine months ended September 30, 2024 and shortly thereafter, we closed on the sale of two vacant properties for an aggregate gross sales price of $5.3 million. In October 2024, the proposed buyer of our six-property former Walgreens campus in Deerfield, Illinois, elected to terminate the purchase and sale agreement we originally entered into with them in January 2023 related to the proposed buyer’s failure to obtain certain governmental approvals contemplated by its redevelopment plans. As of November 7, 2024, we had pending agreements in place to sell two operating properties for an aggregate gross sales price of $21.5 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.

Previous wording

•During the six months ended June 30, 2024, we made repayments of debt obligations of $9.0 million, utilizing a combination of cash flows from operations and proceeds from real estate dispositions. As of June 30, 2024, we had $243.0 million of borrowing capacity under the Revolving Facility and $107.0 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.

Current wording

•As of September 30, 2024, we had $220.0 million of borrowing capacity under the Revolving Facility and $130.0 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.

Previous wording

•The Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first and second quarters of 2024 which were paid on April 15, 2024 and July 15, 2024. On August 7, 2024 the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the third quarter of 2024, payable on October 15, 2024, to stockholders of record as of September 30, 2024.

Current wording

•The Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the first, second and third quarters of 2024 which were paid on April 15, 2024, July 15, 2024 and October 15, 2024. On November 6, 2024 the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share for the fourth quarter of 2024, payable on January 15, 2025, to stockholders of record as of December 31, 2024.

Previous wording

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 June 30, 2024 and December 31, 2023, including our pro rata share of the applicable statistics of the properties owned by the Arch Street Joint Venture:

Current wording

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 the periods indicated below, including our pro rata share of the applicable statistics of the properties owned by the Arch Street Joint Venture:

Previous wording

(1)As of June 30, 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 six properties being removed from the presentation of the Company’s portfolio of operating properties and the associated rentable square feet. Additionally, during the three months ended June 30, 2024, we completed a parcel split of our property located in Amherst, New York, which included two buildings. As a result of the split, the two parcels and respective buildings on the parcels are being reported as separate operating properties.

Current wording

(1)During the nine months ended September 30, 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 six properties being removed from the presentation of the Company’s portfolio of operating properties and the associated rentable square feet. Also during the nine months ended September 30, 2024, we completed a parcel split of our property located in Amherst, New York, which included two buildings. As a result of the split, the two parcels and respective buildings on the parcels are being reported as separate operating properties.

Previous wording

(3)Occupancy rate equals the sum of occupied square feet divided by rentable square feet of operating properties. Adjusting for one operating property that is currently under agreement to be sold, the occupancy rate as of June 30, 2024 equals 80.9%.

Current wording

(3)Occupancy rate equals the sum of occupied square feet divided by rentable square feet of operating properties. Adjusting for three operating properties that are currently under agreements to be sold or have been sold following September 30, 2024, the occupancy rate as of September 30, 2024 equals 76.9%.

Previous wording

We remain highly focused on leasing activity, given the 4.2 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. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all. Our properties may not be as attractive to existing or new tenants as properties owned by our competitors due to age of buildings, physical condition, lack of amenities or other similar factors. Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations, improvements or concessions to tenants, may be less favorable to us than current lease terms. As a result, our net income and ability to pay dividends to stockholders could be materially adversely affected. Further, if any of our properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property; however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations. 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.

Current wording

We remain highly focused on leasing activity, given the 5.0 year weighted-average remaining lease term and the significant lease maturities which will continue 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. We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all. Our properties may not be as attractive to existing or new tenants as properties owned by our competitors due to age of buildings, physical condition, lack of amenities or other similar factors. Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations, improvements or concessions to tenants, may be less favorable to us than current lease terms. As a result, our net income and ability to pay dividends to stockholders could be materially adversely affected. Further, if any of our properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property; however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations. 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.

Previous wording

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. The restricted cash included in this reserve totaled $34.7 million as of June 30,

Current wording

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

Previous wording

During the three and six months ended June 30, 2023, we entered into new and renewal leases as summarized in the following tables (dollars and square feet in thousands):

Current wording

During the period indicated below, we entered into new and renewal leases as summarized in the following tables (dollars and square feet in thousands). There were no new or renewed leases executed during the three months ended September 30, 2023.

Previous wording

(3)Includes tenant improvement allowances and base building allowances, leasing commissions and free rent (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 relevant tenant.

Current wording

(2)Includes tenant improvement allowances and base building allowances, leasing commissions and free rent (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.

Previous wording

(4)There were no reimbursable landlord funded improvements or reimbursable tenant improvement allowances included in the tenant rent concessions and leasing costs for the three and six months ended June 30, 2023.

Current wording

(3)There were no reimbursable landlord funded improvements or tenant improvement allowances included in the tenant rent concessions and leasing costs for the three months ended September 30, 2024.

Previous wording

(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 three and six months ended June 30, 2024 would be 5.3 years and 7.0 years, respectively, if such non-firm terms were included.

Current wording

(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 three months ended September 30, 2024 would be 8.9 years if such non-firm terms were included.

Previous wording

During the three and six months ended June 30, 2024, we entered into new and renewal leases as summarized in the following tables (dollars and square feet in thousands):

Current wording

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

Previous wording

(2)Excludes two new leases for approximately 57,000 square feet of space and four new leases for approximately 149,000 square feet of space for the three and six months ended June 30, 2024, respectively, that had been vacant for more than 12 months at the time the new lease commences.

Current wording

(2)Excludes four new leases for approximately 149,000 and one new lease for approximately 4,000 square feet of space for the nine months ended September 30, 2024 and 2023, respectively, that had been vacant for more than 12 months at the time the new lease was executed.

Previous wording

(3)Includes tenant improvement allowances and base building allowances, leasing commissions and free rent (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 relevant tenant.

Current wording

(3)Includes tenant improvement allowances and base building allowances, leasing commissions and free rent (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.

Previous wording

(4)Includes reimbursable landlord funded improvements of $32.02 per rentable square foot for new leases, $0.63 per rentable square foot for renewals, and $8.73 per rentable square foot in total for the six months ended June 30, 2024. There were no reimbursable landlord funded improvements included in the tenant rent concessions and leasing costs for the three months ended June 30, 2024. Includes reimbursable tenant improvement allowances of $34.09 per rentable square foot for new leases and $4.14 per rentable square foot in total for the three months ended June 30, 2024 and $13.05 per rentable square foot for new leases and $3.37 per rentable square foot in total for the six months ended June 30, 2024.

Current wording

(4)Includes reimbursable landlord funded improvements of $32.02 per rentable square foot for new leases, $0.40 per rentable square foot for renewals, and $6.07 per rentable square foot in total for the nine months ended September 30, 2024. Includes reimbursable tenant improvement allowances of $13.05 per rentable square foot for new leases and $2.34 per rentable square foot in total for the nine months ended September 30, 2024. There were no reimbursable landlord funded improvements or reimbursable tenant improvement allowances for the nine months ended September 30, 2023.

Previous wording

(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 three and six months ended June 30, 2023 would be 4.9 years and 10.2 years, respectively, if such non-firm terms were included.

Current wording

(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 nine months ended September 30, 2024 and 2023, would be 7.6 years and 10.2 years, respectively, if such non-firm terms were included.

Previous wording

During the six months ended June 30, 2024, five leases across four properties expired consisting of 597,000 square feet. During the six months ended June 30, 2024, we closed on the sale of one of these four properties comprising approximately 96,000 square feet. During the three months ended June 30, 2024, two leases expired comprising a total of 173,000 square feet, including one lease where the tenant occupied all 172,000 square feet at the property. We currently intend to re-tenant the vacancy at this property. The base rent per square foot under the lease at expiration was approximately $21.00 per square foot, and our estimate of market rent at this property is $17.00 to $19.00 per square foot. Our market rent estimates are based on a variety of assumptions 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.

Current wording

During the nine months ended September 30, 2024, seven leases across six properties expired consisting of 1.1 million square feet. During the nine months ended September 30, 2024, we closed on the sale of one of these six properties comprising approximately 96,000 square feet. During the three months ended September 30, 2024, two leases expired comprising a total of 500,000 square feet. We currently intend to re-tenant the vacancy at these properties. The expired base rent per square foot and our market rent estimates for the properties are as follows (square feet in thousands):

Previous wording

During the three and six months ended June 30, 2024 and 2023, amounts capitalized by the Company for lease related costs, lease incentives and building, fixtures and improvements were as follows (in thousands):

Current wording

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

Previous wording

The results of operations discussed in this section include the accounts of the Company and its consolidated subsidiaries for the three and six months ended June 30, 2024 and 2023.

Current wording

The results of operations discussed in this section include the accounts of the Company and its consolidated subsidiaries for the three and nine months ended September 30, 2024 and 2023.

Previous wording

The decreases in rental revenue of $11.9 million and $14.9 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 was primarily due to the impact from a decrease in our overall occupied square footage due to scheduled vacancies of $8.8 million and $12.7 million during the three and six months ended June 30, 2024, respectively, and the impact from property dispositions of $2.5 million and $4.7 million during the three and six months ended June 30, 2024, respectively. Our portfolio occupancy rate was 79.2% and we had 69 operating properties with an aggregate of 8.0 million leasable square feet and six non-operating properties as of June 30, 2024, as compared to a portfolio occupancy rate of 86.2% and 81 operating properties with an aggregate of 9.5 million leasable square feet as of June 30, 2023. The decrease in revenues during the six months ended June 30, 2024 was partially offset by $2.7 million of reimbursements from previous tenants for certain end of lease obligations.

Current wording

The decreases in rental revenues of $9.9 million and $24.8 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 was primarily due to a decrease in our overall occupied square footage from scheduled vacancies of $8.2 million and $20.9 million during the three and nine months ended September 30, 2024, respectively, and the impact from property dispositions of $1.8 million and $6.7 million during the three and nine months ended September 30, 2024, respectively. Our portfolio occupancy rate was 74.0% and we had 70 operating properties with an aggregate of 8.1 million leasable square feet and six non-operating properties as of September 30, 2024, as compared to a portfolio occupancy rate of 80.1% and 79 operating properties with an aggregate of 9.3 million leasable square feet as of September 30, 2023. The decrease in revenues during the nine months ended September 30, 2024 was partially offset by $2.9 million of reimbursements from previous tenants for certain end of lease obligations.

Previous wording

Fee income from unconsolidated joint venture consists of fees earned for providing various services to the Arch Street Joint Venture. Fee income from unconsolidated joint venture remained consistent at $0.2 million and $0.4 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

Current wording

Fee income from unconsolidated joint venture consists of fees earned for providing various services to the Arch Street Joint Venture. Fee income from unconsolidated joint venture remained consistent at $0.2 million and $0.6 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

Previous wording

Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses. Property operating expenses increased $0.3 million and $0.9 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The increase during the three months ended June 30, 2024 compared to the same period in 2023 is the result of property vacancies which led to the recognition of certain operating expenses which were previously paid directly by the tenant of $1.0 million, offset by decreases in property operating expenses resulting from property dispositions of $0.5 million and the timing of certain operating expenses of $0.2 million. The increase during the six months ended June 30, 2024 compared to the same period in 2023 is the result of expenses from property vacancies of $1.4 million and timing of certain operating expenses of $0.8 million, offset by decreases in property operating expenses resulting from property dispositions of $1.2 million.

Current wording

Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses. Property operating expenses increased $1.1 million and $2.1 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increase during the three months ended September 30, 2024 compared to the same period in 2023 is the result of property vacancies which led to the recognition of certain operating expenses which were previously paid directly by the tenant of $1.0 million and the timing of certain operating expenses of $0.4 million, offset by decreases in property operating expenses resulting from property dispositions of $0.2 million. The increase during the nine months ended September 30, 2024 compared to the same period in 2023 is the result of expenses from property vacancies of $2.1 million and timing of certain operating expenses of $1.0 million, offset by decreases in property operating expenses resulting from property dispositions of $1.1 million.

Previous wording

General and administrative expenses increased $0.6 million during the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to increased stock compensation expense of $0.6 million for additional equity award issuances. General and administrative expenses for the three months ended June 30, 2024 were essentially unchanged compared to the same period in 2023.

Current wording

General and administrative expenses increased $0.1 million and $0.7 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, primarily due to increased stock compensation expense of $0.1 million and $0.7 million for additional equity award issuances.

Previous wording

Depreciation and amortization expenses increased $10.7 million and $7.1 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 primarily due to the full depreciation of $15.9 million during the three and six months ended June 30, 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. The increase of depreciation and amortization expense during the three and six months ended June 30, 2024 compared to the same periods in 2023 was partially offset by the full amortization of certain intangible assets as a result of leases expiring in accordance with their terms and early terminations of $5.1 million and $8.8 million, respectively.

Current wording

Depreciation and amortization expenses decreased $7.1 million and less than $0.1 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 due to the full amortization of certain intangible assets as a result of leases expiring in accordance with their terms and early lease terminations of $7.0 million and $15.8 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The decrease of depreciation and amortization expense during the nine months ended September 30, 2024 compared to the same period in 2023 was partially offset by the full depreciation of $15.9 million during the nine months ended September 30, 2024 of the buildings at a six-property campus in Deerfield, Illinois. This accelerated depreciation was the result of management’s designation of the properties as non-operating.

Previous wording

Impairments decreased $6.1 million and increased $9.8 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The impairment charges of $5.7 million and $25.4 million in the three and six months ended June 30, 2024, include a total of seven and eight properties, respectively, and the charges were incurred primarily with respect to real estate assets expected to be sold or 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 $11.8 million and $15.6 million with respect to four properties were recorded during the same periods in 2023. See Note 5 - Fair Value Measures for further information.

Current wording

Impairments decreased $11.4 million and $1.6 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The impairment charges of $25.4 million in the nine months ended September 30, 2024, include a total of eight properties and the charges were incurred primarily with respect to real estate assets expected to be sold or 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 $11.4 million and $27.0 million with respect to four and six properties were recorded during three and nine months ended September 30, 2023, respectively. There were no impairment charges recognized during the three months ended September 30, 2024. See Note 5 - Fair Value Measures for further information.

Previous wording

Transaction related expense remained relatively consistent at $0.2 million and $0.3 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

Current wording

Transaction related expense remained relatively consistent at $0.1 million and $0.4 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

Previous wording

Interest expense, net increased $0.8 million and $1.8 million during the three and six months ended June 30, 2024 as compared to the same periods in 2023, which was primarily due to higher interest rates, partially offset by lower outstanding debt during the three and six months ended June 30, 2024. The Company’s average debt outstanding was $471.0 million and $466.5 million for the three and six months ended June 30, 2024, respectively compared to $530.0 million for each of the same periods in 2023. The Company’s weighted-average interest rate on its debt obligations was 5.87% for the three and six months ended June 30, 2024, and 4.63% for the three and six months ended June 30, 2023. Interest expense for the three and six months ended June 30, 2024 included no offsets of reclassified previous gains or losses on interest rate derivatives from accumulated other comprehensive income (loss), compared with $1.9 million and $3.6 million of reclassified gains during the three and six months ended June 30, 2023, respectively.

Current wording

Interest expense, net increased $0.8 million and $2.6 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, which was primarily due to higher interest rates, partially offset by lower outstanding debt during the three and nine months ended September 30, 2024. The Company’s average debt outstanding was $473.5 million and $478.0 million for the three and nine months ended September 30, 2024, respectively, compared to $530.0 million for each of the same periods in 2023. The Company’s weighted-average interest rate on its debt obligations was 5.88% for the three and nine months ended September 30, 2024, and 4.63% for the three and nine months ended September 30, 2023. Interest expense for the three and nine months ended September 30, 2024 included no offsets of reclassified previous gains or losses on interest rate derivatives from accumulated other comprehensive income (loss), compared with $2.1 million and $5.7 million of reclassified gains during the three and nine months ended September 30, 2023, respectively.

Previous wording

Loss on extinguishment of debt, net during the three and six months ended June 30, 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. Loss on extinguishment of debt, net during the three and six months ended June 30, 2023 related to the write off of deferred financing costs due to the early extinguishment of the Company’s Term Loan Facility, as discussed below.

Current wording

Loss on extinguishment of debt, net during the nine months ended September 30, 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. Loss on extinguishment of debt, net during the nine months ended September 30, 2023 related to the write off of deferred financing costs due to the early extinguishment of the Company’s Term Loan Facility, as discussed below.

Previous wording

Equity in loss of the unconsolidated joint venture remained relatively consistent during the three and six months ended June 30, 2024 as compared to the same periods in 2023.

Current wording

Equity in loss of the unconsolidated joint venture remained relatively consistent during the three and nine months ended September 30, 2024 as compared to the same periods in 2023.

Previous wording

The provision for income taxes consists of certain state and local income and franchise taxes. The provision for income taxes remained relatively consistent during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

Current wording

The provision for income taxes consists of certain state and local income and franchise taxes. The provision for income taxes declined modestly during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.