Orion Properties Inc. (ONL): A Bull Case Theory

An aerial presumption of a REIT operated commercialized building.

Orion Properties (formerly Orion Office REIT) has go a compelling deep-value accidental aft a punishing spin-off from Realty Income (O) successful 2021. Initially created to location O’s bureau assets, ONL was spun to shareholders successful a 10:1 ratio, but marketplace sentiment swiftly turned negative. Shares fell from $25 to $17, and much precocious collapsed to $2 pursuing an 80% dividend chopped and the removal of “office” from its name—symbolic of the broader rejection of suburban single-tenant bureau REITs. Despite this, the capitulation has created a highly levered equity with asymmetrical upside potential. With a marketplace headdress of $103.8 cardinal and endeavor worth of $606.1 million, Orion trades astatine an implied headdress complaint of 14.2% and $74.70 per quadrate foot, indicating heavy distress pricing.

Orion’s portfolio spans implicit 8.1 cardinal rentable quadrate feet crossed 69 operating and six JV properties, but occupancy stands astatine conscionable 73.7%. Its largest tenant is the U.S. General Services Administration (GSA), contributing 16.3% of basal rent—raising concerns astir lease stability. Yet, ONL besides boasts a “tenderloin” halfway of 25 properties totaling 2.8 cardinal quadrate feet leased to recognition tenants similar Bank of America, T-Mobile, and Cigna, producing $54.5 cardinal successful rent. At a blimpish 10% headdress rate, this halfway unsocial could beryllium worthy $450 million. That would connote the remainder of the portfolio—dubbed the “flank steak”—is being valued astatine conscionable $27.51/sq. ft., assuming a blimpish onshore valuation of $10.3 million. This suggests the marketplace is pricing successful near-total vacancy for the remaining 5.3 cardinal quadrate feet, an improbable doomsday scenario.

Leverage is precocious astatine 7.57x nett indebtedness to EBITDA, and equity holders could beryllium wiped retired if plus values autumn beneath $500 million. But with comps similar Net Lease Office Properties trading astatine 12% headdress rates and $100+/sq. ft., a humble re-rating could treble oregon triple ONL’s stock. Importantly, absorption is making savvy, shareholder-friendly moves—cutting the dividend to sphere $17.9 cardinal annually, addressing the $19.3 cardinal resistance from vacant properties, and pivoting toward “dedicated-use assets” similar medical, lab, and R&D facilities. CEO Paul McDowell has a beardown way grounds from Caplease, and his disciplined absorption connected rationalizing ONL’s portfolio bodes well. In a assemblage plagued by sentiment-driven mispricing, Orion offers a classical contrarian setup: a distressed asset, ignored by Wall Street, but softly pivoting toward stability, with aggregate levers—asset sales, re-leasing, and valuation rerating—that could present important returns for diligent investors.