Orion Properties Inc. Annual report [Section 13 and 15(d), not S-K Item 405]

Annual report [Section 13 and 15(d), not S-K Item 405]

Real Estate Investments and Related Intangibles

Real Estate Investments and Related Intangibles

12 Months Ended

Dec. 31, 2024

Real Estate [Abstract]

Real Estate Investments and Related Intangibles

Note 3 – Real Estate Investments and Related Intangibles

Property Acquisitions

During each of the years ended December 31, 2024 and 2022, the Company acquired, for no consideration, the fee simple interest in one parcel of land in connection with the maturity of the tax advantaged bond and ground lease structure on each of the parcels. As a result of the transactions, $3.5 million and $4.7 million that were previously classified as a finance lease right-of-use assets with respect to such land parcels previously subject to the ground leases were reclassified from other assets, net to land in the accompanying consolidated balance sheets as of December 31, 2024 and 2022.

Also during the year ended December 31, 2024, the Company acquired fee simple, controlling financial interest in one real property and the improvements thereon including a 97,000 square foot flex/laboratory and R&D facility located in San Ramon, California for a gross purchase price of $34.6 million and external acquisition-related expenses of $0.1 million that were capitalized. The property is fully leased to a single tenant with a remaining lease term of 15.0 years as of the acquisition date.

The following table presents the allocation of the purchase consideration and capitalized external acquisition-related expenses to the assets acquired and liabilities assumed based on their relative fair values during the year ended December 31, 2024 (in thousands):


Real estate investment, at cost:
Land	$	12,250
Building, fixtures and improvements	25,269
Total real estate investment, at cost	37,519
Acquired intangible assets:
Intangible lease asset	13,847
Assumed intangible liabilities:
Below-market lease liability	(16,632)
Net assets acquired	$	34,734

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

Property Dispositions and Real Estate Assets Held for Sale

The following table summarizes the Company’s property dispositions for the periods indicated below (dollars in thousands):


	Year Ended December 31,
	2024		2023		2022
Total dispositions	2		6		11
Aggregate gross sales price	$	5,260	$	25,425	$	33,098

Gain on disposition of real estate assets	$	—	$	31	$	2,352
Property count	—		3		5

Impairments on disposition of real estate assets	$	2,720	$	575	$	5,089
Property count	2		3		6

As of December 31, 2024, the Company had one property classified as held for sale with a carrying value of $9.7 million, primarily comprised of land of $1.2 million and building, fixtures and improvements, net, of $8.5 million, included in real estate assets held for sale, net in the accompanying consolidated balance sheets, which it expects to be sold in the next 12 months as part of its portfolio management strategy. During the years ended December 31, 2024, 2023 and 2022, the Company recorded losses of $8.6 million, $4.4 million and $6.0 million, respectively, related to properties that were classified as held for sale, which are included as part of impairments in the accompanying consolidated statements of operations.

Intangible Lease Assets and Liabilities

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


	Weighted-Average Useful Life (Years)	December 31, 2024		December 31, 2023
Intangible lease assets:
In-place leases, net of accumulated amortization of $169,898 and $193,470, respectively	9.4	$	68,099	$	103,997
Leasing commissions, net of accumulated amortization of $4,508 and $3,033, respectively	12.7	21,834		13,539
Above-market lease assets, net of accumulated amortization of $12,831 and $10,372, respectively	10.4	2,041		5,006
Deferred lease incentives, net of accumulated amortization of $927 and $419, respectively	11.1	3,970		3,822
Total intangible lease assets, net		$	95,944	$	126,364

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $24,877 and $23,176, respectively	14.9	$	20,596	$	8,074

The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue in the accompanying statements of operations was $1.1 million for the year ended December 31, 2024 and $1.2 million for each of the years ended December 31, 2023 and 2022. The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was $0.5 million, $0.3 million and $0.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense in the accompanying statements of operations was $51.4 million, $75.0 million and $95.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of December 31, 2024 (in thousands):


	2025		2026		2027		2028		2029
In-place leases:
Total projected to be included in amortization expense	$	22,456	$	16,157	$	8,262	$	5,517	$	2,797
Leasing commissions:
Total projected to be included in amortization expense	$	2,103	$	2,099	$	2,072	$	1,852	$	1,563
Above-market lease assets:
Total projected to be deducted from rental revenue	$	849	$	680	$	237	$	115	$	63
Deferred lease incentives:
Total projected to be deducted from rental revenue	$	527	$	429	$	405	$	392	$	381
Below-market lease liabilities:
Total projected to be added to rental revenue	$	2,147	$	1,928	$	1,766	$	1,682	$	1,500

Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2024 and 2023. As of December 31, 2024 and 2023, the consolidated joint venture had total assets of $24.5 million and $27.6 million, respectively, of which $22.6 million and $23.5 million, respectively, were real estate investments, net of accumulated depreciation and amortization. The Company’s joint venture partner is the managing member of the joint venture. However, in accordance with the joint venture agreement, the Company has the ability to control the operating and financing policies of the consolidated joint venture and the joint venture partner must obtain the Company’s approval for any major transactions. The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.

Investment in Unconsolidated Joint Venture

The following is a summary of the Company’s investment in the Arch Street Joint Venture, as of December 31, 2024 and 2023 and for the years ended December 31, 2024, 2023 and 2022 (dollars in thousands):


	Ownership % (1)	Number of Properties	Carrying Value of Investment				Equity in Loss, Net
							Year Ended
Investment	December 31, 2024		December 31, 2024		December 31, 2023		December 31, 2024		December 31, 2023		December 31, 2022
Arch Street Joint Venture (2)	20%	6	$	11,822	$	13,549	$	(740)	$	(435)	$	(524)

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(1)The Company’s ownership interest reflects its legal ownership interest. The Company’s legal ownership interest may, at times, not equal the Company’s economic interest because of various provisions in the joint venture agreement regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interest.

(2)The total carrying value of the Company’s investment in the Arch Street Joint Venture was less than the underlying equity in net assets by less than $0.1 million as of December 31, 2024, and greater than the underlying equity in net assets by $0.4 million as of December 31, 2023. This difference is related to the recognition of the fair value of the investment in the Arch Street Joint Venture in connection with the Separation and the Distribution. The difference in fair value and carrying value of the investment was allocated based on the underlying assets and liabilities of the Arch Street Joint Venture and is being amortized over the estimated useful lives of the respective assets and liabilities in accordance with the Company’s accounting policies.

The non-recourse mortgage notes associated with the Arch Street Joint Venture were scheduled to mature on November 27, 2024, with two successive one-year options to extend the maturity 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 loan extension option, which extended the maturity date of the mortgage notes 12 months to November 27, 2025. As of December 31, 2024, there was $131.6 million outstanding under the mortgage notes and the Company’s 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 case 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.

The Company 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, the Company 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 the Company is 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. The Company’s 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. 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.