Q2 2024 Orion Office REIT Inc Earnings Call

Speaker Change: , Chris Evans, Josh Brolin Studio Walt Disney Pictures Complete Coverage Captain Marvel .

Operator: Greetings. Welcome to Orion Offc Reit's second quarter 2024 earnings call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin.

Speaker Change: Greetings. Welcome to Orion Offc Reit's second quarter 2024 earnings call. As a reminder, this conference is being recorded. I would now like to turn the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin.

Paul Hughes: Thank you and good morning everyone. Yesterday, Orion released its financial results for the quarter ended June 30th, 2024, filed its form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website. These documents are available in the investor section of the company's website at onlreit.com. Certain statements made during the call today are not strictly historical information and constitute forward-looking statements.

Paul Hughes: Thank you and good morning everyone. Yesterday, Orion released its financial results for the quarter ended June 30, 2024, filed its Form 10-Q with the Securities and Exchange Commission, and posted its earnings supplement to its website.

Speaker Change: These documents are available in the investor section of the company's website at onlreit.com.

Speaker Change: Certain statements made during the call today are not strictly historical information and constitute forward-looking statements.

Paul Hughes: These statements include the company's guidance estimates for calendar year 2024 that are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release, as well as in our Form 10-Q and other SEC filings. Orion undertakes no duty to update any forward-looking statements made during this call.

Speaker Change: These statements include the company's guidance estimates for calendar year 2024 that are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates.

Speaker Change: The risks are discussed in our earnings release as well as in our Form 10-Q and other SEC filings. Orion undertakes no duty to update any forward-looking statements made during this call.

Paul Hughes: Today, on the call, we will be discussing certain non-GAAP financial measures, such as Funds from Operations, or FFO, and Core Funds from Operations, or Core FFO. Orion's earnings release and supplement include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. Our presentation of this information is not a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Orion's Chief Executive Officer, Paul McDowell, and Chief Operating Officer, Chris Day. And joining us for the Q&A session are Gary Landriau, our Chief Investment Officer, and Gavin Brandon, our Chief Financial Officer. With that, I am now going to turn the call over to Paul McDowell.

Speaker Change: Today, on the call, we will be discussing certain non-GAAP financial measures, such as Funds from Operations, or FFO, and Core Funds from Operations, or Core FFO.

Speaker Change: Orion's earnings release and supplement include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure.

Speaker Change: Our presentation of this information is not a substitute for the financial information presented in accordance with GAAP.

Speaker Change: Hosting the call today are Orion's Chief Executive Officer Paul McDowell and Chief Operating Officer Chris Day.

Speaker Change: And joining us for the Q&A session are Gary Landriau, our Chief Investment Officer, and Gavin Brandon, our Chief Financial Officer.

Speaker Change: With that, I am now going to turn the call over to Paul McDowell.

Paul McDowell: Good morning, everyone, and thank you for joining us on Orion Offc Reit's second quarter 2024 earnings call. Today I will provide an update on our business and discuss our second quarter performance and operations. Following my remarks, Chris Day will review our financial results and provide our outlook for the rest of the year. Chris is standing in for Gavin, who has temporarily lost his voice.

Paul McDowell: Good morning, everyone, and thank you for joining us on Orion Offc Reit's second quarter 2024 earnings call.

Paul McDowell: At the end of the second quarter, we owned 69 operating properties and 6 unconsolidated joint venture properties comprising 8.2 million rentable square feet that were 79.7% occupied. The lower property count, as compared to last quarter, reflects the classification of six properties that made up the former Walgreens campus as non-operating properties because the buildings are to be demolished in connection with the redevelopment of the property, adjusted for one operating property that is currently under agreement to be sold, our occupancy rate was 80.9% at quarter end.

Paul McDowell: Today, I will provide an update on our business and discuss our second quarter performance and operations.

Paul McDowell: Following my remarks Chris Day will review our financial results and provide our outlook for the rest of the year.

Speaker Change: Chris is standing in for Gavin, who has temporarily lost his voice.

Chris Day: At the end of the second quarter, we owned 69 operating properties and 6 unconsolidated joint venture properties comprising 8.2 million rentable square feet that were 79.7% occupied.

Chris Day: The lower property count as compared to last quarter reflects the classification of six properties that made up the former Walgreens campus as non-operating properties because the buildings are to be demolished in connection with the redevelopment of the property.

Chris Day: Adjusted for one operating property that is currently under agreement to be sold, our occupancy rate was 80.9% at quarter end.

Paul McDowell: The properties in our portfolio are predominantly either triple or double net leased to credit worthy tenants. As a percentage of annualized base rent as of June 30, 72.3% of our tenants were investment grade. Our portfolio of assets remains well diversified by tenant, tenant industry, and geography. The United States government is our largest tenant by annualized base rent. And our two largest tenant industries are government and health care.

Chris Day: The properties in our portfolio are predominantly either triple or double net leased to creditworthy tenants.

Chris Day: As a percentage of annualized base rent as of June 30, 72.3% of our tenants were investment grade.

Chris Day: Our portfolio of assets remains well diversified by tenant, tenant industry, and geography.

Chris Day: The United States government is our largest tenant by annualized space rent, and our two largest tenant industries are government and healthcare.

Paul McDowell: Over 35% of our annualized base rent is derived from Sunbelt Market. Our portfolio's weighted average lease term is 4.2 years. In the second quarter, we continued our leasing progress from the start of the year. To date, in 2024, we've completed 633,000 square feet of lease transactions, a more than twofold increase over all of 2023. During the quarter, we signed two large leases, a four-year renewal, which we discussed on our last call, for 413,000 square feet at our Covington, Kentucky property. And importantly, a new 15.4 year lease for 56,000 square feet with a law firm tenant at our Persephone, New Jersey property that represents over a third of the leaseable square feet at that property.

Chris Day: Over 35% of our annualized base rent is derived from SunBelt markets.

Chris Day: Our portfolio's weighted average lease term is 4.2 years.

Chris Day: In the second quarter, we continued our leasing progress from the start of the year.

Chris Day: To date, in 2024, we've completed 633,000 square feet of lease transactions, a more than two-fold increase over all of 2023.

Chris Day: [inaudible]

Chris Day: During the quarter, we signed two large leases.

Chris Day: a four-year renewal, which we discussed on our last call, for 413,000 square feet at our Covington, Kentucky property, and importantly, a new 15.4-year lease for 56,000 square feet with a law firm tenant at our Persepone, New Jersey property that represents over a third of the leasable square feet at that property.

Paul McDowell: As part of that lease up effort, we intend to invest approximately $3 million in improvements, including to adapt the property to multi-tenant usage, and upgraded amenities such as a fitness center, conference center, and cafeteria. While undeniably expensive, these building upgrades will materially improve the long-term competitiveness of this Class A asset, in a strong real estate location and are the reason we have kept leverage low so we can fund exactly these type of expenditures at the right time. Our commitment to make these upgrades has already resulted in increased interest.

Chris Day: As part of that lease up effort, we intend to invest approximately $3 million in improvements, including to adapt the property to multi-tenant usage and upgraded amenities, such as a fitness center, conference center, and cafeteria.

Speaker Change: While undeniably expensive, these building upgrades will materially improve the long-term competitiveness of this Class A asset.

Speaker Change: in a strong real estate location and are the reason we have kept leverage low so we can fund exactly these type of expenditures at the right time.

Speaker Change: Our commitment to make these upgrades has already resulted in increased interest and we are in active discussions with additional potential tenants for the remaining vacant space.

Paul McDowell: And we are in active discussions with additional potential tenants for the remaining vacant space. Subsequent to quarter end, our large health insurance company tenant at the company's 55,000 square foot property in Nashville, Tennessee, exercised a five-year renewal option extending their lease expiration until September 2030. Although we anticipate that leasing will remain chop, We are pleased that our forward leasing pipeline continues to show strength with more than 1 million square feet in various stages of discussion, negotiation, and documentation. These signs of increased interest and traffic are positive, including seeing more interest in our vacant properties from new potential tenants. However, the leaching environment remains very difficult.

Speaker Change: Subsequent to quarter end, our large health insurance company tenant at the company's 55,000 square foot property in Nashville, Tennessee, exercised a five-year renewal option, extending their lease expiration until September , 2030.

Speaker Change: Although we anticipate that leasing will remain choppy,

Speaker Change: We are pleased that our forward leasing pipeline continues to show strength with more than one million square feet in various stages of discussion, negotiation, and documentation.

Speaker Change: These signs of increased interest and traffic are positive, including seeing more interest in our vacant properties from new potential tenants.

Paul McDowell: As we've discussed previously, it remains our expectation that we will continue to carry substantial vacancy for the foreseeable future as the overall office market slowly recovers. We have made strong headway in our ongoing efforts to reposition our portfolio, and we remain focused on dispositions of vacant and soon-to-be-vacant assets that we deem highly uncertain and or expensive to release. Since the spin, we have sold 18 properties totaling 1.9 million square feet, comprising more than 15% of the portfolio.

Speaker Change: However, the leaching environment remains very difficult.

Speaker Change: As we've discussed previously, it remains our expectation that we will continue to carry substantial vacancy for the foreseeable future as the overall office market slowly recovers.

Speaker Change: We have made strong headway on our ongoing efforts to reposition our portfolio, and we remain focused on dispositions of vacant and soon-to-be-vacant assets that we deem highly uncertain and or expensive to release.

Speaker Change: Since the spin, we have sold 18 properties totaling 1.9 million square feet, comprising more than 15% of the portfolio.

Paul McDowell: 15 of these properties were vacant at the time of sale and the remainder had very short remaining lease, Much of the $60.6 million in gross proceeds from these sales was utilized to pay down debt, which has been reduced by $158 million over the same time period. These dispositions have resulted in material reduction of carry costs and forward expected CAPEX, and enabled our team to focus on the properties in the portfolio where we believe we have strong, long-term releasing processes. During the quarter, we closed the sale of the 96,000 square foot vacant property in St. Charles, Missouri for $2.1 million.

Speaker Change: 15 of these properties were vacant at the time of sale and the remainder had very short remaining leases.

Speaker Change: Much of the $60.6 million in gross proceeds from these sales was utilized to pay down debt, which had been reduced by $158 million over the same time period.

Speaker Change: These dispositions have resulted in material reduction of carry costs and forward expected CapEx.

Speaker Change: and enabled our team to focus on the properties in the portfolio where we believe we have strong, long-term releasing prospects.

Speaker Change: During the quarter, we closed the sale of a 96,000 square foot vacant property in St. Charles, Missouri for 2.1 million dollars.

Paul McDowell: As of today, we have definitive agreements to sell one operating property and six non-operating properties for $39 million. This pipeline is comprised of a vacant property in Denver, Colorado, that the buyer intends to redevelop into residential, and the former Walgreens campus in Deerfield, Illinois, that the buyer intends to redevelop into experiential retail. The sale of the Denver, Colorado property is expected to close in the first half of 2025, although the closing remains subject to the buyer's completion of due diligence and other conditions outside Orion's control.

Speaker Change: As of today, we have definitive agreements to sell one operating property and six non-operating properties for $39 million.

Speaker Change: This pipeline is comprised of a vacant property in Denver, Colorado, that the buyer intends to redevelop into residential, and the former Walgreens campus in Deerfield, Illinois, that the buyer intends to redevelop into experiential retail.

Speaker Change: The sale of the Denver, Colorado property is expected to close in the first half of 2025. No closing remains subject to the buyer's completion of due diligence and other conditions outside Orion's control.

Paul McDowell: In addition, we have a 69,000 square foot property under letter of intent for sale. We expect to continue to identify additional properties to market as we move ahead. During the quarter, we agreed to an amendment with the buyer of the Walgreens campus, including a revised purchase price of $27 million, reflecting the adverse impact of market and financing conditions since we entered into the purchase and sale agreement with them in January 2023.

Speaker Change: In addition, we have a 69,000 square foot property under letter of intent for sale.

Speaker Change: We expect to continue to identify additional properties to market as we move ahead.

Speaker Change: During the quarter, we agreed to an amendment with the buyer of the Walgreens campus, including a revised purchase price of $27 million, reflecting the adverse impact of market and financing conditions since we entered into the purchase and sale agreement with them in January 2023.

Paul McDowell: The buyer continues to make significant progress with its redevelopment plans, including signing a letter of intent with a key tenant and has recently increased its at-risk deposit. However, there remains significant uncertainty as to whether and when the sale will close.

Speaker Change: The buyer continues to make significant progress with its redevelopment plans, including signing a letter of intent with a key tenant, and has recently increased its at-risk deposits.

Speaker Change: However, there remains significant uncertainty as to whether and when this sale will close.

Paul McDowell: As I mentioned earlier, given the delays and uncertainty, and consistent with the highest and best use of this 37.4 acre campus as a redevelopment play, and our desire to reduce carrying costs, We intend to commence demolition of the six buildings later this year. As part of the recent amendment, the buyer has agreed to reimburse us for the demolition costs if the sale closes. It continues to be worth noting that although asset sales reduce capital expenditure requirements and operating expense drag in the short term, Our smaller asset base will reduce our ability to generate earnings in the future until we can find a path to growth or other strategic alternatives.

Speaker Change: As I mentioned earlier, given the delays and uncertainty, and consistent with the highest and best use of this 37.4 acre campus as a redevelopment play, and our desire to reduce carrying costs,

Speaker Change: We intend to commence demolition of the six buildings later this year.

Speaker Change: As part of the recent amendment, the buyer has agreed to reimburse us for the demolition costs if the sale closes.

Speaker Change: It continues to be worth noting that although asset sales reduce capital expenditure requirements and operating expense drag in the short term,

Speaker Change: Our smaller asset base will reduce our ability to generate earnings in the future until we can find a path to growth or other strategic alternatives.

Paul McDowell: We remain confident that in the current environment, this is the right approach to maximize the long-term value of Orion as we continue working to build a core portfolio of well-leased properties in attractive long-term markets with stable cash. However, maintaining a strong capital structure remains essential to support the necessary investments in our buildings.

Speaker Change: We remain confident that in the current environment, this is the right approach to maximize the long-term value of Orion as we continue working to build a core portfolio of well-leased properties in attractive long-term markets with stable cash flows.

Speaker Change: Maintaining a strong capital structure remains essential to support the necessary investments in our buildings.

Paul McDowell: Therefore, we continue to prioritize a low-leverage balance sheet to retain the financial flexibility needed to invest in the remaining portfolio. It will require significant ongoing efforts to execute our repositioning plan and leverage will inevitably rise as we as we reinvest in our assets. In light of our ongoing efforts, we will continue to evaluate our opportunities and all sources of capital. We are proud of the substantial progress made to date in a difficult operating environment and our ability to accomplish this while maintaining FFO and core FFO profitability.

Speaker Change: Therefore, we continue to prioritize a low-leverage balance sheet to retain the financial flexibility needed to invest in the remaining portfolio.

Speaker Change: It will require significant ongoing efforts to execute our repositioning plan and leverage will inevitably rise as we as we reinvest in our assets.

Speaker Change: In light of our ongoing efforts, we will continue to evaluate our opportunities and all sources of capital.

Speaker Change: We are proud of the substantial progress made to date in a difficult operating environment and our ability to accomplish this while maintaining FFO and core FFO profitability.

Paul McDowell: As we continue to execute, we remain open and flexible in our approach, including continuing to evaluate strategic opportunities in pursuit of the best outcome for shareholders. With that, I will now turn the call over to Chris.

Speaker Change: As we continue to execute, we remain open and flexible in our approach, including continuing to evaluate strategic opportunities in pursuit of the best outcome for shareholders.

Speaker Change: With that, I will now turn the call over to Chris. Chris?

Christopher Day: Thanks, Paul. I want to start off by highlighting some additional transparency we are providing in our financial disclosures this course. First, we have added a variety of property level detail to our supplemental, including occupancy rate, leased rate, weighted average lease term, and annualized base year. We also commence classifying certain of our properties that are being repositioned, redeveloped, developed, or held for sale as non-operating properties, rather than operating. Our non-operating properties are initially comprised of a six-property former Walgreens campus in Deerfield, Illinois. We believe that separately classifying non-operating properties from operating properties provides better transparency into our portfolio.

Chris Day: Thanks Paul. I want to start off by highlighting some additional transparency we are providing in our financial disclosures this quarter.

Chris Day: First, we have added a variety of property level detail to our supplemental, including occupancy rate, lease rate, weighted average lease term, and annualized base rent.

Chris Day: We also commence classifying certain of our properties that are being repositioned, redeveloped, developed or held for sale as non-operating properties rather than operating properties.

Speaker Change: Our non-operating properties are initially comprised of the six-property former Walgreens campus in Deerfield, Illinois. We believe that separately classifying non-operating properties from operating properties provides better transparency into our portfolio.

Christopher Day: Moving now to our financial results. Orion generated total revenues of $40.1 million in the second quarter as compared to $52 million in the same quarter of the prior year. We reported a net loss attributable to common stockholders of $33.8 million, or $0.60 per share, as compared to a net loss of $15.7 million, or $0.28 per share, reported in the second quarter of 2020. Core funds from operation for the quarter was $14.2 million, or $0.25 per share, as compared to $26.9 million, or $0.48 per share, in the same quarter of 2023, adjusted EBITDA was $20.5 million versus $32.7 million in the second quarter of 2023.

Chris Day: Moving now to our financial results.

Ryan: Orion generated total revenues of $40.1 million in the second quarter, as compared to $52 million in the same quarter of the prior year.

Chris Day: We reported a net loss attributable to common stockholders of $33.8 million, or $0.60 per share, as compared to a net loss of $15.7 million, or $0.28 per share, reported in the second quarter of 2023.

Chris Day: Core funds from operation for the quarter was $14.2 million, or $0.25 per share, as compared to $26.9 million, or $0.48 per share, in the same quarter of 2023.

Chris Day: Adjusted EBITDA was $20.5 million versus $32.7 million in the second quarter of 2023.

Christopher Day: Our lower results year-over-year, while expected, reflect lease expirations, the right sizing of the portfolio, and associated declining property. GNA in the second quarter was roughly flat at 4.5 million compared to 4.6 million in the same quarter of 2023.

Chris Day: Our lower results year-over-year, while expected, reflect lease expirations, the right size in our portfolio, and associated declining property count.

Chris Day: G&A in the second quarter was roughly flat at $4.5 million compared to $4.6 million in the same quarter of 2023.

Christopher Day: CapEx in the second quarter was $6.3 million, compared to $2.2 million in the same quarter of 2023. As we have previously discussed, CapEx timing is dependent on when leases are signed and work is completed on the property. CAPEX will likely increase over time as leases roll and tenants draw upon tenant improvement allowances and we upgrade our building.

Chris Day: CapEx in the second quarter was $6.3 million compared to $2.2 million in the same quarter of 2023. As we have previously discussed, CapEx timing is dependent on when leases are signed and work is completed on properties.

Chris Day: CAPEX will likely increase over time as leases roll and tenants draw upon tenant improvement allowances and we upgrade our buildings.

Christopher Day: We ended the second quarter with $489.3 million of outstanding debt, including $355 million under the fixed rate non-recourse CMBS loan due in February 2027, $107 million of floating rate debt on the revolving credit facility, and $27.3 million representing our share of the Arc Street Joint Venture debt, which is scheduled to mature on November 27, 2024. At quarter end, our net debt to annualized year-to-date adjusted EBITDA was 4.92 times. We recently paid down our revolver by another $9 million, bringing the total since the spend to $158 million.

Chris Day: We ended the second quarter with $489.3 million of outstanding debt, including $355 million under the fixed-rate, non-recourse program.

Speaker Change: CMBS loan due in February 2027.

Speaker Change: $107 million of floating rate debt on the Revolving Credit Facility and $27.3 million representing our share of the Arc Street Joint Venture Debt, which is scheduled to mature on November 27, 2024.

Chris Day: At quarter end, our net debt to annualized year-to-date adjusted EBITDA was 4.92 times. We recently paid down our revolver by another $9 million, bringing the total since the spend to $158 million.

Christopher Day: During the quarter, we exercised our option on our evolving credit facility to extend the maturity 18 months to May 2026. As of the end of the quarter, we had strong total liquidity of $267.9 million, comprised of $24.9 million of cash and cash equivalents, including the company's pro rata share of cash from the Arc Street Joint Venture, and $243 million of available capacity on the company's $350 million revolving credit facility. We intend to maintain significant liquidity on the balance sheet for the foreseeable future to provide the financial flexibility required to execute on our business plan over the next several years, including the funding of expected capital commitments to support our future leasing efforts.

Chris Day: During the quarter, we exercised our option on our evolving credit facility to extend the maturity 18 months to May 2026.

Speaker Change: As of the end of the quarter, we had strong total liquidity of $267.9 million, comprised of $24.9 million of cash and cash equivalents, including the company's pro rata share of cash from the Arc Street Joint Venture, and $243 million of available capacity on the company's $350 million Revolving Credit Facility.

Speaker Change: We intend to maintain significant liquidity on the balance sheet for the foreseeable future to provide the financial flexibility required to execute on our business plan over the next several years, including the funding of expected capital commitments to support our future leasing efforts.

Christopher Day: As it relates to the Yard Street joint venture debt, the joint venture has two successive one-year options to extend the non-recourse loan maturity date until November 27, 2026, subject to satisfaction of certain financial and operating covenants and other conditions. There remains some uncertainty as to whether the joint venture can satisfy the extension conditions, but it has reached a tentative agreement with the existing lenders to extend the loan for one year on mutually acceptable terms.

Speaker Change: As it relates to the Yard Street Joint Venture debt, the joint venture has two successive one-year options to extend the non-recourse loan maturity date until November 27, 2026, subject to satisfaction of certain financial and operating covenants and other conditions.

Speaker Change: There remains some uncertainty as to whether the joint venture can satisfy the extension conditions, but it has reached a tentative agreement with the existing lenders to extend the loan for one year on mutually acceptable terms.

Christopher Day: We expect to complete the first one-year extension in the third quarter, although closing is subject to agreement with the lenders on definitive documentation and other contingencies. Turning to our dividend, Orion'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. As it relates to our outlook for 2024, we are narrowing the range of our 2024 guidance expectations for core FFO and net debt to adjusted EBITDA and reaffirming our expectations for GNA.

Speaker Change: We expect to complete the first one-year extension in the third quarter, although closing is subject to agreement with the lenders on definitive documentation and other contingencies.

Speaker Change: Turning to our dividend, Orion'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.

Speaker Change: As it relates to our outlook for 2024, we are narrowing the range of our 2024 guidance expectations for core FFO and net debt to adjusted EBITDA and reaffirming our expectations for GNA.

Speaker Change: Core FFO is now anticipated to range from $0.97 to $1.01 per diluted share, up from $0.93 to $1.01 per diluted share.

Speaker Change: Our net debt to adjusted EBITDA is now anticipated to range from 6.2 times to 6.6 times, down from 6.2 times to 7.0 times.

Speaker Change: Our GNA range of 19.5 million to 20.5 million is unchanged. With that, we will open up the line for questions. Operator?

Christopher Day: Core FFO is now anticipated to range from $0.97 to $1.01 per diluted share, up from $0.93 to $1.01 per diluted share. Our net debt to adjusted EBITDA is now anticipated to range from 6.2 times to 6.6 times, down from 6.2 times to 7.0 times. Our GNA range of 19.5 million to 20.5 million is unchanged. With that, we will open up the line for questions. Operator.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for your question. Our first question has come from the line of Mitch Germain with Citizens JMP. Please proceed with your question.

Speaker Change: One moment, please, while we poll for your questions.

Speaker Change: Our first questions come from the line of Mitch Germain with Citizens JMP. Please proceed with your questions.

Mitchell Germain: Good morning. Thank you. A lot to digest there with Walgreens, campus, and I'm curious what drove you to the decision to, to accelerate some of the work, rather than delay.

Speaker Change: Good morning. Thank you.

Speaker Change: A lot to digest there with Walgreens.

Speaker Change: campus. And I'm curious what

Speaker Change: drove you to the decision to...

Speaker Change: to accelerate some of the work rather than delay.

Paul McDowell: and Jyoti Yadav. Thank you. Good morning, Mitch.

Paul McDowell: There was there are a few things. One is the project has taken longer than we initially expected. The developer has got some good momentum is now signed an LOI with a key tenant. So one of the key things that was driving the, The desire to demolish the building was to reduce our carry costs and to eventually reduce taxes and so on and so forth at the property. We didn't demolish them before because the developer was getting a TIF in place. Um.., with the town. That tip was put in place earlier in the spring. Um, and that required the buildings to still be standing. Now the tip is in place.

Gordon: Gordon, um...

Gordon: Good morning, Mitch. There are a few things. One is the project has taken longer than we initially expected. The developer has got some good momentum, has now signed an LOI with a key tenant.

Speaker Change: The desire to demolish the building was to reduce our carry costs and to eventually reduce taxes and so on and so forth at the property. We didn't demolish them before because the developer was getting a TIF in place.

Gordon: with the town. That TIF was put in place earlier in the spring and that required the buildings to still be standing. Now the TIF is in place, we are free to demolish the buildings.

Paul McDowell: We are free to demolish the building. So we intend to do that this fall. And then, obviously, if the developer closes, we expect they will. They'll reimburse us for that demolition cost. And if, for some reason, the developer doesn't close, well, we will have taken down buildings that don't really have any functional use at the moment. And we'll now just own raw land.

Gordon: So, we intend to do that this fall, and then, obviously, if the developer closes, we expect they will. They'll reimburse us for that demolition cost.

Speaker Change: And if for some reason the developer doesn't close, well, we will have taken down buildings that don't really have any functional use at the moment and will now just own raw land.

Mitchell Germain: Okay. Thank you for that. You've been able to do that.

Speaker Change: Okay, thank you for that.

Speaker Change: you've been able to

Paul McDowell: Schulte Singh, significant investment into your properties. After signing leases. In this case, though, you highlighted a pretty significant capital project you're undertaking. Do you anticipate going forward that these capital projects will be more aligned with some of your leasing efforts? Now that you're selling some of the buildings that you consider to be non-core and these buildings that you're leasing are now going to be, you know, kind of more core toward the portfolio on a forward basis.

Speaker Change: Skirt, some significant investment into your properties.

Speaker Change: after signing leases. In this case, though, you highlighted a pretty significant capital project you're undertaking.

Speaker Change: Do you anticipate going forward that these capital projects will be more aligned with some of your leasing efforts?

Speaker Change: Now that you're selling some of the buildings that you consider to be non-core and these buildings that you're leasing are now going to be, you know, kind of more core toward the portfolio on a forward basis.

Paul McDowell: Yes, I think that's exactly right, Mitch. You know, the property in Parsippany, New Jersey, you know, we've had some good tenant interest in there, but what we found, as many other office companies have found, is that tenants are obviously attracted to amenities and having those amenities in place, before they sign the lease. So, you know, we are upgrading some of our buildings, the building of Persephone is one. We're looking at upgrading a few others with, you know, relatively modest upgrades that we think will have very significant impacts on demand, doing it in Persephone helped us get the lease signed with the law firm there for 56,000 feet.

Speaker Change: Yes, I think that's exactly right, Mitch. You know, the property...

Speaker Change: In Parsippany, New Jersey, you know, we've had some good tenant interest in there, but what we found, as many other office companies have found, is that tenants are obviously attracted to

Speaker Change: and having those amenities in place.

Speaker Change: before they signed the lease. So, you know, we are upgrading some of our buildings. The building in Persephone is one. We're looking at upgrading a few others with, you know, relatively modest upgrades that we think will have very significant impacts on demand.

Speaker Change: Doing it in Persephone helped us get the lease signed with the law firm there for 56,000 feet.

Paul McDowell: And we also have two or three other additional tenants that are now very interested in leasing the remaining square footage in that building, driven, we think, in large part by the investment we're making in the asset.

Speaker Change: And we also have two or three other additional tenants that are now very interested in leasing the remaining square footage in that building, driven, we think, in large part by the investment we're making in the asset.

Mitchell Germain: Gotcha. Last one for me.

Paul McDowell: It, you know, as these vacancies are absorbed. You know, you have kind of built into your guidance an increase in net debt to EBITDA. You know, kind of what's the outlook there? I mean, it seems like. You know, as your operating income continues to dwindle, we could see that metric move into the seven times area. Is that, you know, maybe toward the end part of next year? Is that aligned with your assumptions or am I being a little too aggressive?

Speaker Change: Gotcha. Last one for me.

Speaker Change: Hey, you know, as of these phatitudes are absorbed.

Speaker Change: You know, you have kind of built into your guidance an increase in net debt to even top. You know, kind of what's the outlook there? I mean, it seems like...

Speaker Change: you know, as your operating income continues to dwindle, we could see that metric move into the seven times area. Is that, you know, maybe toward the end part of next year? Is that aligned with your assumptions or am I being a little too aggressive?

Paul McDowell: No, I mean, I think that's probably probably right. We haven't forecasted that far ahead yet, Mitch.

Mitchell Germain: But, you know, I think you correctly identified the two components of it. One is we do have, you know, some declining revenues as we've had tenants leave our buildings and, you know, we've absorbed some vacancy and had increased expenses. So obviously that just by itself pushes debt to EBITDA up, even though the debt itself isn't particularly rising. Also, there will be some pressure as we invest in our properties. So we start putting in tenant improvement allowances, which will eventually generate revenue, or we put in upgrades to the building, which we believe will also generate revenue, but that will temporarily increase debt.

Speaker Change: you know some declining revenues as we've had tenants leave our buildings and you know we've absorbed some vacancy and had increased

Speaker Change: expenses, so obviously that just by itself pushes debt to EBITDA up, even though the debt itself isn't particularly rising.

Speaker Change: Also, there will be some pressure as we invest in new, in our properties, you know, so we start putting in

Speaker Change: Tenant Improvement Allowances, which will eventually generate revenue, or we put in upgrades to the building, which we believe will also generate revenue, but that will temporarily increase debt.

Mitchell Germain: That could be offset to some degree by additional sales of properties, which we can utilize, obviously, that capital to pay down debt. So, you know, we'll see how we go over the next year, but I think it's fair to say, and we did say in our prepared remarks, that we expect our debt to EBITDA ratio to rise in the coming period.

Speaker Change: that

Speaker Change: could be offset to some degree by additional sales of properties which we can utilize obviously that capital to pay down debt.

Speaker Change: So, you know, we'll see how we go over the next year, but I think it's fair to say, and we did say in our prepared remarks, that we expect our debt-to-EBITDA ratio to rise in the coming periods.

Paul McDowell: Great. That's super helpful. That's it for me.

Speaker Change: Great. That's super helpful. That's it for me. Thank you so much.

Operator: Thank you. Our final questions will come from the line of Jyoti Yadav with Citizens JMP. Please proceed with your question. Hi, thank you for taking my question.

Operator: Thank you so much. Thank you much. Thank you. Our final questions will come from the line of Jyoti.

Speaker Change: Thank you, guys.

Speaker Change: Thank you. Our final questions will come from the line of Jyoti Yadav with Citizens JMP. Please proceed with your questions.

Speaker Change: Hi, thank you for taking my question. I just wanted to ask what are the sensitivities to the top and the bottom end of your guidance here at the restaurant?

Jyoti Yadav: Yeah, I mean, the sensitivities for the top and the bottom of the guidance are not that much. You know, we were at that stage in the year where we sort of know where we think we're going to come out. You know, if we get some tenant reimbursements that we don't expect, sort of more one-time items, that will push us more towards the top of our guidance.

Speaker Change: Yeah, I mean, the sensitivities for the top and the bottom of the guidance, really, to be honest with you, are not that much. You know, we're at that stage in the year where we sort of know where we think we're going to come out.

Speaker Change: You know, if we get some tenant reimbursements that we don't expect,

Speaker Change: So more one-time items, that will push us more towards the top of our guidance. And if we have somewhat more in the way of expenditures, then we expect that will push us towards the low end of the guidance.

Jyoti Yadav: And if we have somewhat more in the way of expenditures, then we expect that will push us towards the low end of the guidance. That, of course, this, of course, all assumes no events that we don't expect, you know, some credit event we don't expect or some external event we don't expect. But, you know, as far as our guidance is concerned right now, you know, we think we're in a relatively tight range where we expect to come out.

Speaker Change: That, of course, this, of course, all assumes no events that we don't expect, you know, some credit event we don't expect, or some external event we don't expect, but, you know, as far as our guidance is concerned right now, you know, we think we're in a relatively tight range of where we expect to come out.

Speaker Change: Got it. That's all for me. Thank you.

Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Speaker Change: Okay, thank you.

Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Paul McDowell: Thank you all for joining us today, and we look forward to updating you after our third quarter results are published.

Speaker Change: Thank you all for joining us today and we look forward to updating you after our third quarter results are published.

Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Operator: Greetings. Welcome to Orion Offc Reit's second quarter, 2024 Earnings Call. As a reminder, this conference is being recorded.

Paul Hughes: I will now lecture on the call over to Paul Hughes, General Counsel for Orion. Thank you. You may begin. Thank you. You're in good morning, everyone. Yesterday, Orion released its financial results for the quarter-ended June 30, 2024, filed its form 10Q with the Securities and Exchange Commission and posted its earnings supplement to its website. These documents are available in the Investor section of the company's website at ONLReed.com. Certain statements made during the call today are not strictly historical information and constitute forward-looking statements.

Paul Hughes: These statements include the company's guidance estimates for calendar year 2024 that are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our form 10Q and other SEC filings. Orion undertakes no duty to update any forward-looking statements made during this call. Today, on the call, we will be discussing certain non-gap financial measures, such as funds from operations or FFO and core funds from operations or core FFO.

Paul Hughes: Orion's earnings release and supplement include a reconciliation of these non-gap financial measures to the most directly comparable gap measure. Our presentation of this information is not a substitute for the financial information presented in accordance with GAP.

Operator: Hosting the call today are Orion's Chief Executive Officer Paul McDowell and Chief Operating Officer Chris Day.

Operator: Joining us for the Q&A session are Gary Laundrie out, our Chief Investment Officer and Gavin Brandon, our Chief Financial Officer.

Paul McDowell: With that, I am now going to turn the call over to Paul McDowell. Good morning, everyone, and thank you for joining us on our Orion Office Reads second quarter of 2024 earnings call. Today, I will provide an update on our business and discuss our second quarter performance and operations.

Paul McDowell: Following my remarks, Chris Day will review our financial results and provide our outlook for the rest of the year.

Paul McDowell: Chris is standing in for Gavin who has temporarily lost his voice. At the end of the second quarter, we own 69 operating properties and six unconsolidated joint venture properties comprising 8.2 million rentable square feet that were 79.7 percent occupied. The lower property count as compared to last quarter reflects the classification of six properties that made up the former Walgreens campus as non-operating properties because the buildings are to be demolished in connection with the redevelopment of the property.

Paul McDowell: Adjusted for one operating property that is currently under agreement to be sold, our occupancy rate was 80.9 percent at quarter f. The properties in our portfolio are predominantly either triple or double, at least, to credit worthy tenants. As a percentage of annualized base rent as of June 30, 72.3% of our tenants were investment grades. Our portfolio assets remain well diversified by tenant, tenant industry, and geography. The United States government is our largest tenant by annualized base rent, and our two largest tenant industries are government and healthcare.

Paul McDowell: Over 35% of our annualized base rent is derived from Sunbelt Markets. Our portfolio's weighted average lease term is 4.2 years. In the second quarter, we continued our leasing progress from the start of the year. To date, in 2024, we've completed 633,000 square feet of lease transactions and more than twofold increase over all of 2023. During the quarter, we signed two large leases, a four-year renewal, which we discussed on our last call, for 413,000 square feet at our Covington Kentucky property, and importantly, a new 15.4 year lease for 56,000 square feet with a law firm tenant at our precipitating New Jersey property that represents over a third of the leaseable square feet at that property.

Paul McDowell: As part of that lease-up effort, we intend to invest approximately $3 million in improvements, including to adapt the property to multi-ten usage and upgraded amenities, such as a fitness center, conference center, and cafeteria. While building upgrades will materially improve the long-term competitiveness of this class A asset in a strong real estate location, and are the reason we have kept leverage low, so we can fund exactly these types of expenditures at the right time.

Paul McDowell: Our commitment to make these upgrades has already resulted in increased interest, and we are in active discussions with additional potential tenants for the remaining vacant space. Subsequent to quarter end, our large health insurance company tenant at the company's 55,000 square foot property in national Tennessee exercised a five-year renewal option extending their lease expiration until September 2030. Although we anticipate that leasing will remain choppy, we are pleased that our forward leasing pipeline continues to show strength with more than 1 million square feet in various stages of discussion, negotiation, and documentation.

Paul McDowell: These signs of increased interest and traffic are positive, including seeing more interest in our vacant properties from new potential tenants. However, the leasing environment remains very difficult. As we've discussed previously, it remains our expectation that we will continue to carry substantial vacancy for the foreseeable future as the overall office market slowly recovers. We have made strong headway on our ongoing efforts to position our portfolio, and we remain focused on dispositions of vacant and soon-to-be-vacant assets that we gain highly uncertain and-or-expensive to release.

Paul McDowell: Since the spin, we have sold 18 properties totaling 1.9 million square feet, comprising more than 15% of the portfolio. 15 of these properties were vacant at the time of sale, and the remainder had very short remaining leases. Much of the 60.6 million gross proceeds from these sales was utilized to pay down debt, which has been reduced by $158 million over the same time period. These dispositions have resulted in material reduction of carry costs and forward expected capex, and enabled our team to focus on the properties in the portfolio, so we believe we have strong long-term releasing prospects.

Paul McDowell: During the quarter, we closed the sale of 96,000 square foot vacant property in St. Charles, Missouri for $2.1 million. As of today, we have definitive agreements to sell one operating property and six non-operating properties for $39 million. This pipeline is comprised of a vacant property in Denver, Colorado, that the buyer intends to redevelop into residential, and the formal Walgreens campus in Deerfield, Illinois, that the buyer intends to redevelop into experiential retail.

Paul McDowell: The sale of a Denver, Colorado properties expected to close in the first half of 2025. No closing remains subject to the buyer's completion of due diligence and other conditions outside of Ryan's control. In addition, we have a 69,000 square foot property under letter intend for sale. We expect to continue to identify additional properties to market as we move ahead. During the quarter, we agreed to an amendment with the buyer of the Walgreens campus, including a revised purchase price of $27 million, reflecting the adverse impact of market and financing conditions since we entered into the purchase and sale agreement with them in January 2023.

Paul McDowell: The buyer continues to make significant progress with its redevelopment plans, including signing a letter of intent for the key tenant, and has recently increased its at risk deposit. However, there remains significant uncertainty as to whether and when the sale will close. As I mentioned earlier, given the delays and uncertainty and consistent with the highest and best use of this 37.4 acre campus as a redevelopment play, and our desire to reduce carrying costs, we intend to commence demolition of the six buildings later this year.

Paul McDowell: As part of the recent amendment, the buyer has agreed to reimburse us for the demolition costs if the sale closes. It continues to be worth noting that although asset sale produced capital expenditure requirements and operating expense drag in the short term, our smaller asset base will reduce our ability to generate earnings in the future until we can find a path to growth or other strategic alternative. We remain confident that in the current environment, this is the right approach to maximize the long term valuable Ryan, as we continue working to build a core portfolio of well least properties in attractive long term markets with stable cash, and Dr. Mitchell's.

Paul McDowell: Maintaining a strong capital structure remains essential to support the necessary investments in our buildings. Therefore, we continue to prioritize a low leverage balance sheet to retain the financial flexibility needed to invest to invest in the remaining portfolio. It will require significant ongoing efforts to execute our repositioning plan and leverage will inevitably rise as we reinvest in our assets. In light of our ongoing efforts, we will continue to evaluate our opportunities and all sources of capital.

Paul McDowell: We are proud of substantial progress made to date in a difficult operating environment and our ability to accomplish this while maintaining FFO and core FFO profitability. As we continue to execute, we remain open and flexible in our approach, including continuing to evaluate strategic opportunities and pursue the best outcome for shareholders.

Christopher Day: With that, I will now turn the call over to Chris. Chris, thanks Paul.

Christopher Day: I want to start off by highlighting some additional transparency we are providing in our financial disclosures this quarter. First, we have added a variety of property level detail to our supplemental, including occupancy rate, lease rate, weighted average lease term and annualized base rent. We also commence classifying certain of our properties that are being re-positioned, redeveloped or helped for sale as non-operating properties rather than operating properties. Our non-operating properties are initially comprised of the six properties for the Walgreens campus and Gearfield Illinois. We believe that separately classifying non-operating properties from operating properties provides better transparency into our portfolio.

Christopher Day: Moving now to our financial results, the Ryan generated total revenues of $40.1 million in the second quarter as compared to $52 million in the same quarter of the prior year. We reported a net loss attributable to common stockholders of $0.33.8 million or $0.60 per share as compared to a net loss of $0.15.7 million or $0.28 per share reported in the second quarter of $0.23. Core funds from operations for the quarter was $14.2 million or $0.25 per share as compared to $0.26.9 million or $0.48 per share in the same quarter of the 2023.

Christopher Day: Adjusted to even a $0.5 million versus $0.32.7 million in the second quarter of 2023. Our lower results year over year while expected reflect these aspirations, the right sizing of portfolio, and associated decline in property count. GNA in the second quarter was roughly flat at $4.5 million compared to $4.6 million in the same quarter of 2023. CapEx in the second quarter with $6.3 million compared to $2.2 million in the same quarter of 2023.

Christopher Day: As we have previously discussed, CapEx timing is dependent on when leases are signed and work is completed on property. CapEx will likely increase over time as Lisa's role in tenants draw upon tenant improvement allowances and we upgrade our buildings. We ended the second quarter with 480.3 million of outstanding debt, including 355 million under the 6th rate non-recourse CMDS loan due in February, 2027, 107 million of floating rate debt on the revolving credit facility and 27.3 million representing our share of the Arc Street venture debt, which is scheduled to mature on November 27, 2024.

Christopher Day: At quarter end, our net debt to annualize year-to-date adjusted EBITDA was 4.92 times. We recently pay down our revolver by another 9 million, bringing the total since the spend to 158 million. During the quarter, we exercised our auction on our revolving credit facility to extend the maturity 18 months to May 2026. As of the end of the quarter, we had strong total liquidity of 267.9 million comprised of 24.9 million of cash and cash equivalents, including the company's pro-rata share of cash from the Arc Street joint venture and 243 million of available capacity on the company's 350 million revolving credit facility.

Christopher Day: We intend to maintain significant liquidity on the balance sheet for the foreseeable future to provide the financial flexibility required to execute on our business plan over the next several years, including the funding of expected capital commitments to support our future leasing efforts. As it relates to the Arc Street joint venture debt, the joint venture has two successive one-year options to extend the non-recourse loan maturity date until November 27, 2026, subject to satisfaction of certain financial and operating covenants and other conditions.

Christopher Day: There remains some uncertainty as to whether the joint venture can satisfy the extension conditions, but it has reached a tentative agreement with the existing lenders to extend the loan for one year on mutually acceptable terms. We expect to complete the first one-year extension in the third quarter, although closing is subject to agreement with the lenders on definitive documentation in other contingencies.

Christopher Day: Turning to our dividend, Orion's Board of Directors declared a quarterly cash dividend of 10 cents per share for the third quarter of 2024 payable on October 15, 2024 to stock quarters of record as of September 30, 2024. As it relates to our outlook for 2024, we are narrowing the range for 2024 guidance expectations for core FFO and net debt to adjusted EBITDA and reaffirm our expectations for GNA. Core FFO is now anticipated to range from 97 cents to $1.01 per diluted share up from 93 cents to $1.01 per diluted share.

Operator: Our net debt to adjusted EBITDA is now anticipated to range from 6.2 times to[inaudible] A GNA range of 19.5 million to 20.5 million is unchanged, with that we will open up the line for questions.

Operator: Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tunnel indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker, your equipment may be necessary to pick up your hands that before pressing the star keys. One moment, please, while we pull for your questions.

Mitch Germain: Our first questions come from the line of Mitch Germain with Citizens JMP.

Mitch Germain: Please proceed with your questions. Good morning. Thank you. Lots of digest there with Walgreens campus. And I'm curious what drove you to the decision to accelerate some of the work rather than delay?

Paul McDowell: Good morning, Mitch. There were a few things. One is the project has taken longer than we initially expected. The developer has got some good momentum that's now signed an L.O.I, with a key tenant. One of the key things that was driving the desire to demolish the building was to reduce our carry costs and to eventually reduce taxes and so on and so forth at the property. We didn't demolish them before because the developer was getting a tiff in place with the town.

Paul McDowell: That tiff was put in place earlier in the spring and that required the buildings to still be standing. Now the tiff is in place. We are free to demolish the buildings. So we intend to do that this fall. And then, obviously, if the developer closes, we expect they will. They'll reimburse us for that demolition costs. And if for some reason the developer doesn't close, well, we will have taken down buildings that don't really have any functional use at the moment and will now just own raw land. Thank you for that.

Mitch Germain: You've been able to skirt some significant investment into your properties after signing leases.

Paul McDowell: In this case, though, you highlighted a pretty significant capital project you're undertaking. You anticipate going forward that these capital projects will be more aligned with some of your leasing efforts. Now that you're selling some of the buildings that you continue to be now core and these buildings that you're leasing are now going to be more core toward the portfolio on a forward basis. Yes, I think that's exactly right, bitch. You know, the property in Percipient New Jersey, you know, we've had some good tenant interest in there, but what we found, as many other office companies have found, is that tenants are obviously attracted to amenities and having those amenities in place before they sign the lease.

Paul McDowell: So, you know, we are upgrading some of our buildings, the building of Percipient New is one, we're looking at upgrading a few others, with, you know, relatively modest upgrades that we think will have very significant impacts on demand. Doing it in Percipient New helped us get the lease signed with the law firm there for 56,000 feet, and we also have two or three other additional tenants that are now very interested in leasing the remaining square footage in that building, driven we think in large part by the investment we're making in the asset. Gotcha.

Mitch Germain: Thank you.

Mitch Germain: Well, also for me, you know, these vacancies are absorbed. You know, you have kind of built into your guidance and increase in net debt to EBITDAW.

Mitch Germain: You know, kind of what's the outlook there? I mean, it seems like, you know, as your operating income continues to dwindle, we could see that metric move into this seven times area. Is that, you know, maybe toward the end part of what next year? Is that allowed with your assumptions or am I being a little too aggressive?

Paul McDowell: No, I mean, I think that's probably probably right.

Paul McDowell: We haven't forecasted that far ahead yet, Mitch. But, you know, I think you correctly identified the two components of it. One is we do have, you know, some declining revenue that we've had tenants leave our buildings and, you know, we've absorbed some vacancy and had increased expenses. So, obviously, that just by itself pushes debt to EBITDAW even though the debt itself isn't particularly rising. Also, there will be some pressure as we invest in new in our properties.

Paul McDowell: You know, so we start putting in tenant improvement allowances, which will eventually generate revenue or we put in upgrades to the building, which we believe will also generate revenue, but that will temporarily increase debt. That could be offset to some degree by additional sales of properties, which we can utilize. Obviously, that capital to pay down debt.

Mitch Germain: So, you know, we'll see how we go over the next year, but I think it's fair to say and we did say in our prepared remarks that we expect our debt to EBITDAW ratio to rise in the coming periods. Great. That you were helpful. Other symphonies. Thank you so much. Thank you, Lerge. Thank you.

Jyoti Yadav: Our final questions will come from the line of JOT YADA with citizens, JMP. Please proceed with your questions. Hi. Thank you for taking my question. I just wanted to ask, what are the sensitivities to the top and the bottom end of your guidance here? Yeah, I mean the sensitivities for the top and the bottom of the guidance, really to be a host with you are not that much. You know, we were at that stage in the year where we sort of know where we think we're going to come out.

Jyoti Yadav: You know, if we get some tenetly embersments that we don't expect, certainly more one-time items, that will push us more towards the top of our guidance. And if we have somewhat more in the way of expenditures, then we expect that will push us towards the low end of the guidance. That of course, this of course all assumes no events that we don't expect. You know, some credit event we don't expect or some external event we don't expect.

Jyoti Yadav: But, you know, as far as our guidance is concerned right now, we think we're in a relatively tight range of where we expect to come out. We got it. That's close for me. Thank you. Okay, thank you. Thank you.

Operator: There are no further questions at this time.

Paul McDowell: I'd like to turn the call back over to management for closing remarks. Thank you all for joining us today and we look forward to updating you after our third quarter results are published. Thank you.

Operator: This does conclude today's teleconference. We appreciate your participation. We may disconnect your lines at this time.

Operator: Enjoy the rest of your day.