UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _________ to __________

Commission file number: 001-40873

Orion Office REIT Inc.

(Exact name of registrant as specified in its charter)

Maryland			87-1656425
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2325 E. Camelback Road, Suite 850	Phoenix	AZ	85016
(Address of principal executive offices)			(Zip Code)

(602)	698-1002
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class:		Trading Symbol(s):	Name of each exchange on which registered:
Common Stock	$0.001 par value per share	ONL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x*

* The registrant became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, on October 22, 2021.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒
Smaller reporting company	☐	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

There were 56,625,650 shares of common stock of Orion Office REIT Inc. outstanding as of November 30, 2021.

1

EXPLANATORY NOTE

This quarterly report of Orion Office REIT Inc. (the “Company”, “Orion”, “we” or “us”) includes the financial statements of the Company, as of September 30, 2021 and for the period from July 15, 2021 (date of capitalization) to September 30, 2021, and the Company’s predecessors, Realty Income Office Assets (as defined below) and VEREIT Office Assets (as defined below), as of and for the three and nine months ended September 30, 2021 and 2020.

On November 1, 2021, pursuant to the Agreement and Plan of Merger, dated as of April 29, 2021 (as amended, the “Merger Agreement”), by and among Realty Income Corporation (“Realty Income”), VEREIT, Inc. (“VEREIT”), Rams Acquisition Sub II, LLC, (“Merger Sub 2”) and Rams MD Subsidiary I, Inc. (“Merger Sub 1”), Merger Sub 2 merged with and into VEREIT Operating Partnership, L.P. (“VEREIT OP”), with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”) (the “Separation”) to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”).

The Distribution is more fully described in the preliminary information statement included as Exhibit 99.1 to the Company’s Registration Statement on Form 10 (File No. 001-40873) (the “Form 10”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 4, 2021, the final version of which was included as Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on October 25, 2021 (the “Information Statement”). The Distribution became effective at 4:01 p.m., Eastern Time, on November 12, 2021.

Following the Distribution, the Company became an independent publicly traded company and intends to qualify and elect to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company’s initial taxable year ending December 31, 2021. The Company’s common stock trades on the New York Stock Exchange under the symbol “ONL”.

The financial statements of the Company covered in this report present the financial condition of the Company as of September 30, 2021, which is prior to the consummation of the Mergers, the Separation and the Distribution. Therefore, the discussion of the Company’s results of operations, cash flows and financial condition set forth in this report is not necessarily indicative of the future results of operations, cash flows or financial condition of the Company as an independent, publicly traded company. Moreover, the combined financial statements for Realty Income Office Assets and VEREIT Office Assets are not necessarily indicative of the Company's results of operations, cash flows or financial position following the completion of the Mergers, the Separation and the Distribution. For more information regarding the risks related to our business, refer to risk factors contained in the Form 10 and the Information Statement.

2

ORION OFFICE REIT INC.

For the quarterly period ended September 30, 2021

	Page
Part I
Item 1. Unaudited Financial Statements	4
Orion Office REIT Inc. Consolidated Balance Sheets as of September 30, 2021 and July 15, 2021 (date of capitalization)	4
Orion Office REIT Inc. Consolidated Statement of Operations for the period from July 15, 2021 (date of capitalization) to September 30, 2021	5
Orion Office REIT Inc. Consolidated Statement of Changes in Equity for the period from July 15, 2021 (date of capitalization) to September 30, 2021	6
Orion Office REIT Inc. Consolidated Statement of Cash Flows for the period from July 15, 2021 (date of capitalization) to September 30, 2021	7
Notes to Orion Office REIT Inc. Consolidated Financial Statements	8
VEREIT Office Assets Combined and Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	12
VEREIT Office Assets Combined and Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	13
VEREIT Office Assets Combined and Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020	14
VEREIT Office Assets Combined and Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	15
Notes to VEREIT Office Assets Combined and Consolidated Financial Statements	16
Realty Income Office Assets Combined Balance Sheets as of September 30, 2021 and December 31, 2020	26
Realty Income Office Assets Combined Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	27
Realty Income Office Assets Combined Statements of Stockholder’s Equity for the Three and Nine Months Ended September 30, 2021 and 2020	28
Realty Income Office Assets Combined Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	29
Notes to Realty Income Office Assets Combined Financial Statements	30
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	55
Part II
Item 1. Legal Proceedings	55
Item 1A. Risk Factors	55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3. Defaults Upon Senior Securities	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	56
Signatures	59

3

ORION OFFICE REIT INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data) (Unaudited)

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements.

	September 30, 2021		July 15, 2021 (date of capitalization)
ASSETS
Cash	$	1	$	1
Total assets	$	1	$	1
LIABILITIES AND EQUITY
Common stock ($0.01 par value, 100,000 shares issued and outstanding)	1		1
Additional paid-in capital	2,797		—
Accumulated deficit	(2,797)		—
Total equity	$	1	$	1

The accompanying notes are an integral part of this statement.

4

ORION OFFICE REIT INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands) (Unaudited)

	For the Period from July 15, 2021 (date of capitalization) to September 30, 2021
Operating expenses:
Transaction costs	$	2,797
Net loss	$	(2,797)

The accompanying notes are an integral part of this statement.

5

ORION OFFICE REIT INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands) (Unaudited)

	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Total Equity
Balance, July 15, 2021 (date of capitalization)	$	1	$	—	$	—	$	1
Net loss	—		—		(2,797)		(2,797)
Capital contributions	—		2,797		—		2,797
Balance, September 30, 2021	$	1	$	2,797	$	(2,797)	$	1

The accompanying notes are an integral part of this statement.

6

ORION OFFICE REIT INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands) (Unaudited)

	For the Period from July 15, 2021 (date of capitalization) to September 30, 2021
Cash flows from operating activities:
Net loss	$	(2,797)
Net cash used in operating activities	(2,797)
Cash flows from financing activities:
Capital contributions	2,797
Net cash provided by financing activities	2,797
Net change in cash	—
Cash, beginning of period	1
Cash, end of period	$	1

The accompanying notes are an integral part of this statement.

7

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies

Organization

Orion Office REIT Inc. (“the Company”, “Orion”, “we” or “us”) was incorporated in the state of Maryland on July 1, 2021 and was capitalized on July 15, 2021. As of September 30, 2021, the Company was an indirect wholly owned subsidiary of Realty Income Corporation (“Realty Income”).

On April 29, 2021, Realty Income entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc. (“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”). On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising Realty Income Office Assets and VEREIT Office Assets (the “Separation”) to the Company and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). Following the Distribution, the Company became an independent publicly traded company and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year ending December 31, 2021.

The Company’s common stock, par value $0.001 per share, trades on the New York Stock Exchange (the “NYSE”) under the symbol “ONL”.

Realty Income and VEREIT are both considered accounting predecessors of the Company.

Following the Mergers, the Separation and the Distribution, the Company owns and operates 92 office properties and related assets previously owned by Realty Income and VEREIT, totaling approximately 10.5 million leasable square feet located within 29 states and Puerto Rico. In addition, the Company owns an equity interest in an unconsolidated joint venture with an affiliate of Arch Street Capital Partners, which, as of September 30, 2021 owned a portfolio consisting of five office properties totaling approximately 0.8 million leasable square feet located within five states.

Through September 30, 2021, the Company had not conducted any business as a separate company other than start-up related activities.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

For periods presented prior to the date of the Distribution, the historical consolidated financial results for the Company reflect charges for certain legal, accounting and other costs related to the Distribution, which were incurred and paid by Realty Income on the Company’s behalf, and are reflected as capital contributions.

Organizational Costs

Organizational costs are expensed as incurred. Such costs are comprised of the legal and professional fees associated with the formation and organization of the Company and are included in transaction costs in the accompanying consolidated statement of operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

8

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited)

Note 2 – Stockholder’s Equity

The Company was initially capitalized on July 15, 2021 with the issuance of 100,000 shares of common stock ($0.01 par value per share) to Realty Income for a total of $1,000. Certain start-up and transaction related costs were incurred and paid on the Company’s behalf by Realty Income and are reflected as capital contributions.

Note 3 – Income Taxes

The Company intends to qualify and elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company’s initial taxable year ending December 31, 2021. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain to its stockholders. As a REIT, the Company generally will not be subject to corporate level U.S. federal income tax.

Note 4 – Subsequent Events

Merger with Realty Income

The Mergers were consummated on November 1, 2021, and the Separation and the Distribution were completed on November 12, 2021.

Credit Facility

In connection with the Separation and the Distribution, on November 12, 2021, the Company, as parent, and Orion Office REIT LP (“Orion OP”), as borrower, entered into (i) a credit agreement (the “Revolver/Term Loan Credit Agreement”) providing for a three-year, $425 million senior revolving credit facility (the “Revolving Facility”), including a $25 million letter of credit sub-facility, and a two-year, $175 million senior term loan facility (the “Term Loan Facility,” and together with the Revolving Facility, the “Revolver/Term Loan Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders and issuing banks party thereto and (ii) a credit agreement (the “CMBS Bridge Credit Agreement,” and together with the Revolver/Term Loan Credit Agreement, the “Credit Agreements”) providing for a 6-month, $355 million senior bridge term loan facility (the “CMBS Bridge Facility,” and together with the Revolver/Term Loan Facilities, the “Facilities”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.

On November 12, 2021, Orion OP borrowed $90.0 million under the Revolving Facility, and each of the Term Loan Facility and the CMBS Bridge Facility was fully drawn. Approximately $595.0 million of the net proceeds of the Facilities was distributed to Realty Income in accordance with the Separation and Distribution Agreement. Orion OP retained the remaining net proceeds of such borrowings as working capital that will be used for the general corporate purposes of the Company, Orion OP and Orion OP’s subsidiaries. As of the completion of the Separation and the Distribution, the Company had $620.0 million in consolidated outstanding indebtedness, approximately $15.6 million in cash and $335.0 million of availability under the Revolving Facility.

The CMBS Bridge Facility is subject to one 6-month extension option at the election of Orion OP. The exercise of such extension option requires the payment of an extension fee and the satisfaction of certain other customary conditions.

The interest rate applicable to the loans under the Facilities may, at the election of Orion OP, be determined on the basis of LIBOR or a base rate, in either case, plus an applicable margin. Under the Revolver/Term Loan Facilities, the applicable margin is (1) in the case of the Revolving Facility, 2.50% for LIBOR loans and 1.50% for base rate loans and (2) in the case of the Term Loan Facility, 2.50% for LIBOR loans and 1.50% for base rate loans. Under the CMBS Bridge Facility, the applicable margin for LIBOR loans is initially 2.50% with increases over time to a maximum of 3.50% and the applicable margin on base rate loans is initially 1.50% with increases over time to a maximum of 2.50%, in each case, based on the number of days elapsed after November 12, 2021. Loans under the Credit Agreements may be prepaid, and unused commitments under the Credit Agreements may be reduced, at any time, in whole or in part, without premium or penalty (except for LIBOR breakage costs).

To the extent that amounts under the Revolving Facility remain unused, Orion OP is required to pay a quarterly commitment fee on the unused portion of the Revolving Facility in an amount equal to 0.25% per annum of the unused portion of the Revolving Facility.

The Revolver/Term Loan Facilities are guaranteed pursuant to a Guaranty (the “Revolver/Term Loan Guaranty”) and the CMBS Bridge Facility is guaranteed pursuant to a Guaranty (the “CMBS Bridge Guaranty”), in each case, by the Company

9

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited)

and, subject to certain exceptions, substantially all of Orion OP’s existing and future subsidiaries (including substantially all of its subsidiaries that directly or indirectly own unencumbered real properties), other than certain joint ventures and subsidiaries that own real properties subject to certain other indebtedness (such subsidiaries of Orion OP, the “Subsidiary Guarantors”).

The Facilities are secured by, among other things, first priority pledges of the equity interests in the Subsidiary Guarantors.

The Credit Agreements require that Orion OP comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales and the payment of certain dividends. In addition, the Credit Agreements require that Orion OP satisfy certain financial covenants, including a:

•ratio of total debt to total asset value of not more than 0.60 to 1.00;

•ratio of adjusted EBITDA to fixed charges of not less than 1.50 to 1.00;

•ratio of secured debt to total asset value of not more than 0.45 to 1.00;

•ratio of unsecured debt to unencumbered asset value of not more than 0.60 to 1.00; and

•ratio of net operating income from all unencumbered real properties to unsecured interest expense of not less than 2.00 to 1.00.

The Credit Agreements include customary representations and warranties of the Company and Orion OP, which must be true and correct in all material respects as a condition to future extensions of credit under the Revolver/Term Loan Facilities. The Credit Agreements also include customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of Orion OP under the Credit Agreements to be immediately due and payable and foreclose on the collateral securing the Facilities.

Equity

On November 10, 2021, the Company issued 56,525,650 additional shares of common stock to Realty Income, such that Realty Income owned 56,625,650 shares of the Company’s common stock. Also on November 10, 2021, in connection with the filing of the Company’s Articles of Amendment, the Company changed the par value of its common stock from $0.01 per share to $0.001 per share. On November 12, 2021, Realty Income effected the Distribution.

On November 12, 2021, in connection with the Distribution, Orion OP entered into an Amended and Restated Limited Liability Company Agreement (the “LLCA”) of OAP/VER Venture, LLC (the “Arch Street Joint Venture”), by and between Orion OP and OAP Holdings LLC (the “Arch Street Partner”), an affiliate of Arch Street Capital Partners, pursuant to which the Arch Street Partner consented to the transfer of the equity interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP.

In connection with the entry into the LLCA, the Company and the Arch Street Joint Venture entered into that certain Right of First Offer Agreement (the “ROFO Agreement”), dated November 12, 2021, pursuant to which, subject to certain limitations, the Company, on behalf of itself and its affiliates, agreed not to acquire or purchase a fee simple or ground leasehold interest in any office real property, including by way of an acquisition of equity interests, within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture, which will expire upon the earlier of (1) the third anniversary of the execution of the ROFO Agreement, (2) the date on which the Arch Street Joint Venture is terminated or (3) the date on which the Arch Street Joint Venture’s gross book value of assets is below $50.0 million. If the Arch Street Joint Venture decides not to acquire any such property, the Company may seek to acquire the property independently, subject to certain restrictions.

Also on November 12, 2021, in connection with the entry into the LLCA, the Company granted certain affiliates of the Arch Street Partner warrants to purchase up to 1,120,000 shares of the Company’s common stock (the “Arch Street Warrants”). The Arch Street Warrants entitle the respective holders to purchase shares of the Company’s common stock at a price per share equal to (1) the 30-day volume weighted average per share price of the Company’s common stock for the first 30 trading days beginning on the first trading date of the Company’s common stock, multiplied by (2) 1.15 (as may be adjusted for any stock splits, dividends, combinations or similar transactions), at any time commencing 31 trading days after the completion of the Distribution. The Arch Street Warrants may be exercised, in whole or in part, through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Company common stock determined according to the formula set forth in the Arch Street Warrants. The Arch Street Warrants expire on the earlier of (a) 10 years after issuance and (b) the termination of the Arch Street Joint Venture.

10

ORION OFFICE REIT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited)

The Arch Street Warrants will be exercisable and the Company will not be obligated to issue shares of the Company’s common stock upon exercise of a warrant unless such common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. The Company has agreed that, prior to six months following the Company’s eligibility to use Form S-3 for the registration of securities of the Company, the Company will file with the SEC a registration statement on Form S-3 (the “Registration Statement”) for the registration, under the Securities Act, of the shares of the Company’s common stock issuable upon exercise of the Arch Street Warrants. The Company will use its commercially reasonable efforts to cause the Registration Statement to become effective and to maintain the effectiveness of the Registration Statement, and a current prospectus relating thereto, until the earlier of (a) the expiration of the Arch Street Warrants, or (b) the shares issuable upon such exercise shall become freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act (or any successor rule)) of us. The holders of the Arch Street Warrants will also remain subject to the ownership limitations pursuant to the Company’s organizational documents.

Also in connection with the entry in the LLCA, the Arch Street Joint Venture’s lender consented to the transfer of the interests of the Arch Street Joint Venture previously held by VEREIT Real Estate, L.P. to Orion OP, and, in connection therewith, Orion OP agreed to become a guarantor of certain limited customary recourse obligations and provide certain customary environmental indemnities under the Arch Street Joint Venture’s existing indebtedness.

11

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED BALANCE SHEETS

(In thousands) (Unaudited)

	September 30, 2021		December 31, 2020
ASSETS
Real estate investments, at cost:
Land	$	163,295	$	167,658
Buildings, fixtures and improvements	1,302,490		1,340,258
Intangible lease assets	184,560		192,291
Total real estate investments, at cost	1,650,345		1,700,207
Less: accumulated depreciation and amortization	523,277		504,192
Total real estate investments, net	1,127,068		1,196,015
Operating lease right-of-use assets	5,365		5,403
Investment in unconsolidated joint venture	14,588		13,434
Cash and cash equivalents	176		400
Restricted cash	3,370		3,014
Rent and tenant receivables and other assets, net	34,339		34,964
Goodwill	159,129		159,129
Total assets	$	1,344,035	$	1,412,359
LIABILITIES AND EQUITY
Mortgage notes payable, net	$	143,269	$	217,588
Below-market lease liabilities, net	5,477		7,188
Accounts payable and accrued expenses	10,286		12,632
Deferred rent and other liabilities	8,702		8,114
Operating lease liabilities	5,365		5,403
Total liabilities	173,099		250,925
Commitments and contingencies (Note 4)
Net parent investment	1,169,789		1,160,246
Non-controlling interest	1,147		1,188
Total equity	1,170,936		1,161,434
Total liabilities and equity	$	1,344,035	$	1,412,359

The accompanying notes are an integral part of this statement.

12

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands) (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Rental revenue (including reimbursable)	$	40,494	$	42,370	$	121,389	$	128,583
Fee income from unconsolidated joint venture	161		102		601		462
Total revenues	40,655		42,472		121,990		129,045
Operating expenses:
Property operating (including reimbursable)	9,997		11,991		30,811		34,567
General and administrative	1,483		1,635		5,058		5,271
Depreciation and amortization	14,790		15,122		44,234		47,375
Impairments	6,440		—		28,064		199
Total operating expenses	32,710		28,748		108,167		87,412
Other (expenses) income:
Interest expense	(1,706)		(2,440)		(5,522)		(7,412)
(Loss) gain on disposition of real estate assets, net	—		(1,653)		—		9,781
Loss on extinguishment of debt, net	(5)		—		(85)		(1,686)
Equity in income of unconsolidated joint venture	211		182		621		381
Other income, net	95		11		146		28
Total other (expenses) income, net	(1,405)		(3,900)		(4,840)		1,092
Income before taxes	6,540		9,824		8,983		42,725
Provision for income taxes	(156)		(159)		(469)		(480)
Net income	6,384		9,665		8,514		42,245
Net loss attributable to non-controlling interest	10		15		41		29
Net income attributable to VEREIT Office Assets	$	6,394	$	9,680	$	8,555	$	42,274

The accompanying notes are an integral part of this statement.

13

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF EQUITY

(In thousands) (Unaudited)

	Total Equity
Balance, January 1, 2020	$	1,310,129
Distributions, net	(69,624)
Net income	20,837
Balance, March 31, 2020	1,261,342
Distributions, net	(31,163)
Net income	11,743
Balance, June 30, 2020	1,241,922
Distributions, net	(58,436)
Net income	9,665
Balance, September 30, 2020	$	1,193,151
Balance, January 1, 2021	$	1,161,434
Contributions, net	18,927
Net loss	(9,866)
Balance, March 31, 2021	1,170,495
Distributions, net	(4,395)
Net income	11,996
Balance, June 30, 2021	1,178,096
Distributions, net	(13,544)
Net income	6,384
Balance, September 30, 2021	$	1,170,936

The accompanying notes are an integral part of this statement.

14

VEREIT OFFICE ASSETS

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	8,514	$	42,245
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44,167		46,993
Impairments	28,064		199
Gain on disposition of real estate assets, net	—		(9,781)
Loss on extinguishment of debt, net	85		1,686
Equity in income of unconsolidated joint venture	(621)		(381)
Distributions from unconsolidated joint venture	621		371
Changes in assets and liabilities:
Rents and tenant receivables, operating lease right-of-use and other assets, net	1,214		196
Accounts payable and accrued expenses	(3,276)		651
Deferred rent, operating lease and other liabilities	550		(2,002)
Net cash provided by operating activities	79,318		80,177
Cash flows from investing activities:
Capital expenditures and leasing costs	(4,531)		(6,373)
Real estate developments	(240)		(1,280)
Proceeds from disposition of real estate	—		116,376
Investments in unconsolidated joint venture	(2,180)		(2,669)
Return of investment from unconsolidated joint venture	1,026		370
Proceeds from the settlement of property-related insurance claims	70		10
Net cash (used in) provided by by investing activities	(5,855)		106,434
Cash flows from financing activities:
Proceeds from mortgage notes payable	—		1,032
Payments on mortgage notes payable	(74,600)		(27,719)
Payments of deferred financing costs	—		(326)
Refunds of deferred financing costs	280		—
Net contributions (distributions) to parent	989		(159,223)
Net cash used in financing activities	(73,331)		(186,236)
Net change in cash and cash equivalents and restricted cash	132		375
Cash and cash equivalents and restricted cash, beginning of period	3,414		2,891
Cash and cash equivalents and restricted cash, end of period	$	3,546	$	3,266
Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalent at the beginning of the period	$	400	$	190
Restricted cash at the beginning of the period	3,014		2,701
Cash and cash equivalents and restricted cash at the beginning of the period	$	3,414	$	2,891
Cash and cash equivalent at the end of the period	$	176	$	610
Restricted cash at the end of the period	3,370		2,656
Cash and cash equivalents and restricted cash at the end of the period	$	3,546	$	3,266
Supplemental disclosures:
Cash paid for interest	$	5,886	$	7,930
Non-cash investing and financing activities:
Real estate contributions to unconsolidated joint venture	$	—	$	17,240
Accrued capital expenditures and real estate developments	$	926	$	(1,719)

The accompanying notes are an integral part of this statement.

15

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies

Organization

On April 29, 2021, Realty Income Corporation (“Realty Income”) entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with VEREIT, Inc. (“VEREIT”), its operating partnership, VEREIT Operating Partnership, L.P. (“VEREIT OP”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”). On November 1, 2021, pursuant to the Merger Agreement, Merger Sub 2 merged with and into VEREIT OP, with VEREIT OP continuing as the surviving partnership, and immediately thereafter, VEREIT merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (together, the “Mergers”, and such effective time of the Mergers, the “Merger Effective Time”). Following the Merger Effective Time, in accordance with the Merger Agreement, Realty Income contributed the portion of the combined business comprising certain office real properties and related assets previously owned by subsidiaries of Realty Income (collectively, “Realty Income Office Assets”) and certain office real properties and related assets previously owned by subsidiaries of VEREIT (collectively, “VEREIT Office Assets”) (the “Separation”) to Orion Office REIT Inc. (the “Company”) and its operating partnership, Orion Office REIT LP (“Orion OP”). On November 12, 2021, following the Separation, in accordance with the Merger Agreement and that certain Separation and Distribution Agreement, Realty Income effected a special distribution to its stockholders (including the former holders of VEREIT common stock and certain former VEREIT OP common unitholders prior to the Mergers) of all of the outstanding shares of common stock of the Company (the “Distribution”). Following the Distribution, Orion operates as a separate, publicly-traded company and intends to qualify and elect to be taxed as a REIT, commencing with the Company’s initial taxable year ending December 31, 2021. VEREIT Office Assets includes the combined accounts related to certain of the office properties of VEREIT, historically operated through subsidiaries of VEREIT, and contains certain corporate costs.

As of September 30, 2021, VEREIT Office Assets had one reportable segment which owned 52 properties, including one property owned by a consolidated joint venture, totaling approximately 7.5 million leasable square feet located in 25 U.S. states and Puerto Rico, and an investment in one unconsolidated joint venture that owns five office properties totaling approximately 0.8 million leasable square feet located within five states. As of September 30, 2021, VEREIT Office Assets had not conducted any business as a separate legal entity and had no other material assets or liabilities.

Summary of Significant Accounting Policies

Principles of Combination and Basis of Accounting and Presentation

The accompanying combined and consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of VEREIT Office Assets on a combined and consolidated basis as the ownership interests were under common control and ownership of VEREIT, including a consolidated joint venture. Any applicable intercompany accounts and transactions have been eliminated in consolidation and combination. The portion of the consolidated joint venture not previously owned by VEREIT, is presented as non-controlling interest in VEREIT Office Assets’ combined and consolidated balances sheets and statements of operations. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results for the entire year or any subsequent interim period. These combined and consolidated financial statements should be read in conjunction with the audited combined and consolidated financial statements of VEREIT Office Assets and notes thereto as of and for the year ended December 31, 2020, included in the Information Statement. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC and GAAP.

16

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

For legal entities being evaluated for consolidation, VEREIT Office Assets must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. VEREIT Office Assets’ evaluation includes consideration of fees paid to VEREIT Office Assets where VEREIT’s management, on behalf of VEREIT Office Assets, acts as a decision maker or service provider to the entity being evaluated. If VEREIT Office Assets determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. VEREIT Office Assets consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.

VEREIT Office Assets then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, VEREIT Office Assets’ ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. VEREIT Office Assets consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to VEREIT Office Assets’ combined and consolidated financial statements. VEREIT Office Assets continually evaluates the need to consolidate these VIEs based on standards set forth in GAAP.

These combined and consolidated financial statements were derived from the books and records of VEREIT and were carved out from VEREIT at a carrying value reflective of historical cost in such VEREIT records. VEREIT Office Assets’ historical balance sheets reflect amounts for goodwill based on its proportion of the cost basis of the real estate assets as of December 31, 2018. VEREIT Office Assets’ historical financial results reflect charges for certain corporate costs and, we believe such charges are reasonable. Costs of the services that were charged to VEREIT Office Assets were based on either actual costs incurred or a proportion of costs estimated to be applicable to this entity, based on VEREIT Office Assets’ pro rata share of VEREIT’s annualized rental income. Annualized rental income is rental revenue on a straight-line basis, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any adjustments to rental income due to changes in the collectability assessment, contingent rent, such as percentage rent, and operating expense reimbursements. The historical combined and consolidated financial information presented may therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if there had been an independent, stand-alone public company during the periods presented or of Orion’s future performance as an independent, stand-alone company.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Real Estate Investments

Real estate and related assets acquired are recorded at cost and accumulated depreciation and amortization are assessed based on the period of future benefit of the asset. Depreciation and amortization are computed using a straight-line method over the estimated useful life of 40 years for buildings and building improvements, 15 years for land improvements and the remaining lease term for tenant improvements and intangible lease assets.

VEREIT management performed quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. Impairment indicators that VEREIT management considered included, but were not limited to, decrease in operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants or a significant decrease in a property’s revenues due to lease terminations, vacancies or reduced lease rates.

17

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, VEREIT management assessed the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. GAAP required VEREIT Office Assets to utilize the expected holding period of its properties when assessing recoverability. In the event that such expected undiscounted future cash flows did not exceed the carrying value, the real estate assets have been adjusted to their respective fair values and an impairment loss has been recognized. There are inherent uncertainties in making estimates of expected future cash flows such as market conditions and performance and sustainability of the tenants.

Investment in Unconsolidated Joint Venture

As of September 30, 2021 and December 31, 2020, VEREIT Office Assets owned a 20% ownership interest in an unconsolidated joint venture that owned five and four properties, respectively, with total real estate investments, at cost, of $196.1 million and $169.3 million, respectively, and total debt outstanding of $118.4 million and $102.6 million, respectively, which was non-recourse to VEREIT Office Assets.

VEREIT Office Assets accounted for its investment in the unconsolidated joint venture using the equity method of accounting as VEREIT Office Assets had the ability to exercise significant influence, but not control, over operating and financing policies of the joint venture. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for VEREIT Office Assets’ share of equity in the joint venture’s earnings and distributions. VEREIT Office Assets recorded its proportionate share of net income (loss) from the unconsolidated joint venture in equity in income of unconsolidated joint venture in the combined and consolidated statements of operations.

VEREIT Office Assets was required to determine whether an event or change in circumstances had occurred that may have had a significant adverse effect on the fair value of its investment in the unconsolidated joint venture. If an event or change in circumstance had occurred, VEREIT Office Assets’ management was required to evaluate its investment in the unconsolidated joint venture for potential impairment and determine if the carrying value of its investment exceeded its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, VEREIT Office Assets’ management considered whether it had the ability and intent to hold the investment until the carrying value is fully recovered. The evaluation of an investment in an unconsolidated joint venture for potential impairment required VEREIT Office Assets’ management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No impairments were identified during the three and nine months ended September 30, 2021 and 2020.

Goodwill Impairment

VEREIT evaluated goodwill for impairment annually or more frequently when an event occurred or circumstances changed that indicated the carrying value may not be recoverable. To determine whether it was necessary to perform a quantitative goodwill impairment test, VEREIT first assessed qualitative factors, including, but not limited to macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or sustained decrease in VEREIT’s stock price on either an absolute basis or relative to peers. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no quantitative testing is required. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount, the provisions of guidance require that the fair value be compared to the carrying value. Goodwill is considered impaired if the carrying value exceeds the fair value. No impairments of VEREIT’s goodwill were recorded during the three and nine months ended September 30, 2021 and 2020. The results of the VEREIT impairment tests carry over to VEREIT Office Assets, therefore no impairments were recorded in the accompanying combined and consolidated statements of operations.

Cash and Cash Equivalents

VEREIT Office Assets considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. VEREIT Office Assets considers investments in highly liquid money market accounts to be cash equivalents.

18

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

Restricted Cash

As of September 30, 2021 and December 31, 2020, restricted cash included $3.4 million and $3.0 million, respectively, in lender reserves. Reserves relate to lease expirations, as well as maintenance, structural and debt service reserves.

Rent and Tenant Receivables and Other Assets, Net

Rent and tenant receivables and other assets, net primarily includes amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries due from tenants. Prepaid expenses as of the balance sheet date relate to future periods and will be expensed or reclassified to another account during the period to which the costs relate. Any amounts with no future economic benefit are charged to earnings when identified.

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. Deferred financing costs are presented on the combined and consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed.

Leases - Lessor

At the inception of a new lease arrangement, including new leases that arise from amendments, the terms and conditions are assessed to determine the proper lease classification. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease. When a lease does not effectively transfer control of the underlying asset to the lessee, but a guarantee is obtained for the value of the asset from a third party, the lease is classified as a direct financing lease. All other leases are classified as operating leases. As of September 30, 2021 and December 31, 2020, no leases were classified as sales-type or direct financing leases.

For operating leases with minimum scheduled rent increases, rental revenue is recognized on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments is probable. Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

VEREIT Office Assets adopted Accounting Standards Codification Topic 842, Leases effective as of January 1, 2019. Two separate lease components were identified as follows: (i) land lease component and (ii) single property lease component comprised of building, land improvements and tenant improvements. The leases also contain provisions for tenants to reimburse VEREIT Office Assets for real estate taxes and insurance, which are considered noncomponents of the lease, and maintenance and other property operating expenses, which are considered to be non-lease components. VEREIT Office Assets elected the practical expedient to combine lease and non-lease components and the non-lease components will be included with the single property lease component as the predominant component.

VEREIT Office Assets continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received. All changes in the collectability assessment for an operating lease are recognized as an adjustment to rental income.

19

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

During the year ended December 31, 2020, there was a global outbreak of a new strain of coronavirus, COVID-19. The global and domestic response to the COVID-19 outbreak continues to evolve. Federal, state, and local authorities have responded in a variety of ways, including temporary closure of or imposed limitations on the operations of certain non-essential businesses. Since the COVID-19 outbreak began, each of VEREIT Office Assets’ tenants has almost entirely continued to meet its payment obligations under its respective lease. In consideration of each tenant’s payment history, among other factors, there have been no changes in the collectability assessment for any of VEREIT Office Assets’ operating leases. Though the COVID-19 outbreak did not have a material impact on VEREIT Office Assets’ results of operations, cash flows or financial condition for the three and nine months ended September 30, 2021 and 2020, it could negatively impact tenant operations at VEREIT Office Assets’ properties in the future, which could result in a material impact to VEREIT Office Assets’ future results of operations, cash flows and financial condition.

Leases - Lessee

To account for leases for which VEREIT Office Assets is the lessee, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures are performed at the lease commencement date.

The lease liability is initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the lessee’s incremental borrowing rate is used. The incremental borrowing rate is determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The lease term is the noncancelable period of the lease and includes any renewal and termination options VEREIT Office Assets is reasonably certain to exercise. The lease liability balance is amortized using the effective interest method. The lease liability is remeasured when the contract is modified, upon the resolution of a contingency such that variable payments become fixed or if the assessment of exercising an extension, termination or purchase option changes.

The operating lease right-of-use (“ROU”) asset balance is initially measured as the lease liability amount, adjusted for any lease payments made prior to the commencement date, initial direct costs, estimated costs to dismantle, remove, or restore the underlying asset and incentives received.

Income Taxes

As of September 30, 2021, VEREIT Office Assets was owned by VEREIT, which had elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2011. VEREIT believed it was organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ending December 31, 2021. As a REIT, VEREIT was generally not subject to federal income tax on taxable income that it distributed to its stockholders so long as it distributed annually at least 90% of its REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). Accordingly, no provision has been made for federal income taxes in the accompanying combined and consolidated financial statements of VEREIT Office Assets.

During each of the three months ended September 30, 2021 and 2020 and each of the nine months ended September 30, 2021 and 2020, VEREIT Office Assets recognized state and local income and franchise tax expense of approximately $0.2 million and $0.5 million, respectively. Amounts are included in provision for income taxes in the accompanying combined and consolidated statements of operations.

VEREIT Office Assets had no unrecognized tax benefits as of or during the three and nine months ended September 30, 2021 and 2020. Any interest and penalties related to unrecognized tax benefits would be recognized in provision for income taxes in the accompanying combined and consolidated statements of operations. As of September 30, 2021, VEREIT Office Assets had no material uncertain income tax positions.

Recent Accounting Pronouncements

During the first quarter of 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. VEREIT Office Assets continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

20

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

Note 2 – Real Estate Investments and Related Intangibles

Property Dispositions

During the nine months ended September 30, 2020, VEREIT Office Assets disposed of three properties, selling them to the unconsolidated joint venture for an aggregate net sales price of $135.5 million. The dispositions resulted in proceeds of $116.4 million after closing costs and VEREIT Office Assets recorded a net gain of $9.8 million related to the dispositions, which is included in gain on disposition of real estate assets, net in the accompanying combined and consolidated statements of operations.

Intangible Lease Assets

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

	Weighted-Average Useful Life (Years)	September 30, 2021		December 31, 2020
Intangible lease assets:
In-place leases, net of accumulated amortization of $118,576 and $118,093, respectively	10.4	$	30,120	$	40,622
Leasing commissions, net of accumulated amortization of $5,519 and $4,211, respectively	9.0	8,904		7,974
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $14,605 and $12,974, respectively	11.5	6,836		8,417
Total intangible lease assets, net		$	45,860	$	57,013
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $18,335 and $17,553, respectively	10.3	$	5,477	$	7,188

The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net increase to rental revenue was $70,000 for the three months ended September 30, 2021. The aggregate amount included as a net decrease to rental revenue was $31,000 for the three months ended September 30, 2020 and $12,000 and $35,000 for the nine months ended September 30, 2021 and 2020, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $4.1 million and $4.0 million for the three months ended September 30, 2021 and 2020, respectively, and $11.8 million and $13.7 million for the nine months ended September 30, 2021 and 2020, 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 September 30, 2021 (amounts in thousands):

	Remainder of 2021		2022		2023		2024		2025
In-place leases:
Total projected to be included in amortization expense	$	3,286	$	10,475	$	9,142	$	5,512	$	1,156
Leasing commissions:
Total projected to be included in amortization expense	$	433	$	1,692	$	1,290	$	1,201	$	1,020
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue	$	559	$	2,223	$	2,186	$	1,104	$	354
Below-market lease liabilities:
Total projected to be included in rental revenue	$	518	$	2,003	$	1,878	$	854	$	208

21

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

Consolidated Joint Venture

VEREIT Office Assets had an interest in one consolidated joint venture that owned one property as of September 30, 2021 and December 31, 2020. As of September 30, 2021 and December 31, 2020, the consolidated joint venture had total assets of $30.7 million and $33.0 million, respectively, of which $27.8 million and $29.1 million, respectively, were real estate investments, net of accumulated depreciation and amortization at each of the respective dates. The property was secured by a mortgage note payable, which was non-recourse to VEREIT Office Assets and had a net balance of $14.8 million as of December 31, 2020. During the nine months ended September 30, 2021, VEREIT, on behalf of VEREIT Office Assets, repaid the balance in full and there were no amounts outstanding as of September 30, 2021. VEREIT Office Assets had the ability to control operating and financing policies of the consolidated joint venture. There were restrictions on the use of these assets as VEREIT Office Assets was generally required to obtain the approval of the joint venture partner in accordance with the joint venture agreement for any major transactions. VEREIT Office Assets and the joint venture partner were subject to the provisions of the joint venture agreement, which included provisions for when additional contributions may be required to fund certain cash shortfalls.

Impairments

VEREIT management performed quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment and right of use assets, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.

As part of VEREIT management’s quarterly impairment review procedures, net real estate assets representing three and four properties of VEREIT Office Assets were deemed to be impaired resulting in impairment charges of $6.4 million and $28.1 million during the three and nine months ended September 30, 2021, respectively. During each of the three and nine months ended September 30, 2020, net real estate assets related to one property, were deemed to be impaired resulting in impairment charges of $0.2 million. The impairment charges related to properties that VEREIT management identified for potential sale or were determined, based on discussions with the current tenants, would not be re-leased by the tenant and VEREIT management believed the property would not be leased to another tenant at a rental rate that supports the current book value.

VEREIT estimated fair values using Level 3 inputs and used a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment required VEREIT’s management to exercise significant judgment and make certain key assumptions, including, but not limited to, the following: (1) capitalization rate; (2) discount rates; (3) number of years property will be held; (4) property operating expenses; and (5) re-leasing assumptions including number of months to re-lease, market rental revenue and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of VEREIT Office Assets’ tenants. For VEREIT’s impairment tests for the real estate assets during the three months ended September 30, 2021, VEREIT used a weighted-average discount rate of 9.7% and a weighted-average capitalization rate of 9.2%. For VEREIT’s impairment tests for the real estate assets during the nine months ended September 30, 2021, VEREIT used a weighted-average discount rate of 9.0% and a weighted-average capitalization rate of 8.5%. For VEREIT’s impairment tests for the real estate assets during the three and nine months ended September 30, 2020, discount rates and capitalization rates were not applicable as VEREIT determined the fair value of the real estate assets of VEREIT Office Assets based on sale scenarios and the properties had leases expiring within 12 months of the impairment analysis.

22

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

Note 3 – Mortgage Notes Payable, Net

As of September 30, 2021, VEREIT Office Assets had mortgage notes payable of $143.3 million, including net discounts of $0.2 million and deferred financing costs of $41,000, with a weighted-average years to maturity of 1.1 years and a weighted-average interest rate of 4.43%. As of December 31, 2020, VEREIT Office Assets had mortgage notes payable, net of $217.6 million including net premiums of $14,000 and net deferred financing costs of $0.3 million with a weighted-average years to maturity of 1.4 years and a weighted-average interest rate of 4.64%. The weighted average interest rate for fixed rate loans is computed using the interest rate in effect until the anticipated repayment date and the weighted average interest rate for the variable rate loan is computed using the interest rate in effect as of September 30, 2021. As of September 30, 2021, the mortgage notes were secured by nine properties with a net carrying value of $224.7 million. As of September 30, 2021, the estimated fair value of the mortgage notes payable was $146.5 million and was estimated by discounting the expected cash flows based on estimated borrowing rates available as of the measurement date. VEREIT Office Assets classified the mortgage notes payable as Level 2 under the fair value hierarchy, which includes using inputs that are observable or can be corroborated with observable market data for substantially the entire contractual term.

The mortgage loan agreements require the maintenance of certain financial ratios. Failure to maintain such ratios could result in restrictions on the use of cash associated with the establishment of certain lender reserves. At September 30, 2021, there were no cash restrictions due to failure to maintain financial ratios.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to September 30, 2021 (in thousands):

	Total
October 1, 2021 - December 31, 2021	$	178
2022	60,875
2023	82,451
Total	$	143,504

Note 4 – Commitments and Contingencies

Litigation

VEREIT Office Assets is party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business. VEREIT Office Assets does not believe that any of these outstanding claims against it are expected to have a material adverse effect upon its consolidated financial position or results of operations.

Environmental Matters

In connection with the ownership and operation of real estate, VEREIT Office Assets may potentially be liable for costs and damages related to environmental matters. VEREIT Office Assets has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect upon its results of operations.

Note 5 – Leases

Lessor

As of September 30, 2021, VEREIT Office Assets is the lessor for its 52 office properties. VEREIT Office Assets’ operating leases have non-cancelable lease terms ranging from 0.08 years to 11.67 years as of September 30, 2021 and 0.2 years to 8.75 years as of December 31, 2020, respectively. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying assets. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index or LIBOR). VEREIT Office Assets believes the residual value risk is not a primary risk because of the long-lived nature of the assets.

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VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

The components of rental revenue from VEREIT Office Assets’ operating leases were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Fixed:
Cash rent	$	32,431	$	32,840	$	96,855	$	100,181
Straight-line rent	(165)		(272)		(1,624)		(309)
Lease intangible amortization	70		(31)		(12)		(35)
Property operating cost reimbursements	1,004		996		2,925		2,848
Total fixed	33,340		33,533		98,144		102,685
Variable (1)	7,154		8,837		23,245		25,898
Total rental revenue	$	40,494	$	42,370	$	121,389	$	128,583

____________________________________

(1)Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent.

The following table presents future minimum operating lease payments due to VEREIT Office Assets over the next five years and thereafter as of September 30, 2021 (in thousands).

	Future Minimum Operating Lease Payments
October 1, 2021 - December 31, 2021	$	24,188
2022	109,604
2023	92,259
2024	69,414
2025	35,956
2026	26,847
Thereafter	30,409
Total	$	388,677

Lessee

VEREIT Office Assets is the lessee under one ground lease arrangement, which meets the criteria of an operating lease. As of September 30, 2021, VEREIT Office Assets’ lease has a remaining lease term of 35.9 years, which includes options to extend. Under the ground lease arrangement, VEREIT Office Assets pays variable costs, including property operating expenses and common area maintenance. The discount rate for VEREIT Office Assets’ operating lease was 5.17% as of September 30, 2021. As VEREIT Office Assets’ lease does not provide an implicit rate, VEREIT Office Assets used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.

Operating lease costs for each of three months ended September 30, 2021 and 2020 and for each of the nine months ended September 30, 2021 and 2020 was $0.1 million and $0.2 million, respectively. No cash paid for operating lease liabilities was capitalized.

24

VEREIT OFFICE ASSETS

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 (Unaudited) - (Continued)

The following table reflects the maturity analysis of payments due from VEREIT Office Assets over the next five years and thereafter for ground lease obligations as of September 30, 2021 (in thousands).

	Future Minimum Lease Payments
October 1, 2021 - December 31, 2021	$	82
2022	329
2023	329
2024	329
2025	329
2026	329
Thereafter	10,064
Total	11,791
Less: imputed interest	6,426
Total	$	5,365

Note 6 – Subsequent Events

VEREIT Office Assets evaluated subsequent events and no items have come to the attention of management that require recognition or disclosure, except as set forth below.

In October 2021, each of the outstanding mortgage notes of VEREIT Office Assets were repaid in full by VEREIT on behalf of VEREIT Office Assets.

On November 1, 2021, the Mergers were completed. Following the Merger Effective Time, the Separation was completed. On November 12, 2021, following the Separation, the Distribution was completed.

25

REALTY INCOME OFFICE ASSETS

COMBINED BALANCE SHEETS

(In thousands) (Unaudited)

	September 30, 2021		December 31, 2020
ASSETS
Real estate held for investment, at cost
Land	$	71,191	$	71,191
Buildings and improvements	562,942		562,828
Total real estate held for investment, at cost	634,133		634,019
Less accumulated depreciation and amortization	149,229		136,143
Real estate held for investment, net	484,904		497,876
Accounts receivable, net	7,840		8,078
Lease intangible assets, net	23,496		28,680
Other assets, net	8,757		11,797
Total assets	$	524,997	$	546,431
LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	1,896	$	848
Lease intangible liabilities, net	6,008		7,221
Other liabilities	4,783		4,192
Mortgages payable, net	9,656		37,052
Total liabilities	$	22,343	$	49,313
Equity	$	502,654	$	497,118
Total liabilities and equity	$	524,997	$	546,431

The accompanying notes are an integral part of this statement.

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REALTY INCOME OFFICE ASSETS

COMBINED STATEMENTS OF OPERATIONS

(In thousands) (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
REVENUE
Rental revenue (including reimbursable)	$	13,315	$	13,256	$	38,930	$	40,175
EXPENSES
Depreciation and amortization	5,912		6,528		17,855		19,671
Property (including reimbursable)	1,660		1,433		4,611		4,400
General and administrative	594		485		1,665		1,579
Interest	276		736		1,080		2,370
Provisions for impairment	—		18,671		—		18,671
TOTAL EXPENSES	8,442		27,853		25,211		46,691
Loss on extinguishment of debt, net	(3,499)		—		(3,499)		—
TOTAL NET INCOME (LOSS)	$	1,374	$	(14,597)	$	10,220	$	(6,516)

The accompanying notes are an integral part of this statement.

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REALTY INCOME OFFICE ASSETS

COMBINED STATEMENTS OF STOCKHOLDER’S EQUITY

(In thousands) (Unaudited)

Three Months Ended September 30, 2021 and 2020	Equity
Balance, June 30, 2021	$	495,589
Net income	1,374
Contributions from Realty Income Corporation, net	5,691
Balance, September 30, 2021	$	502,654
Balance, June 30, 2020	$	495,347
Net loss	(14,597)
Distributions to Realty Income Corporation, net	(2,312)
Balance, September 30, 2020	$	478,438
Nine Months Ended September 30, 2021 and 2020	Equity
Balance, December 31, 2020	$	497,118
Net income	10,220
Distributions to Realty Income Corporation, net	(4,684)
Balance, September 30, 2021	$	502,654
Balance, December 31, 2019	$	508,006
Net loss	(6,516)
Distributions to Realty Income Corporation, net	(23,052)
Balance, September 30, 2020	$	478,438

The accompanying notes are an integral part of this statement.

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REALTY INCOME OFFICE ASSETS

COMBINED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	10,220	$	(6,516)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	17,855		19,671
Non-cash revenue adjustments	(583)		(376)
Loss on extinguishment of debt	3,499		—
Amortization of net premiums on mortgages payable	(60)		(337)
Provisions for impairment on real estate	—		18,671
Change in assets and liabilities
Accounts receivable and other assets	(288)		481
Accounts payable, accrued expenses and other liabilities	1,652		1,648
Net cash provided by operating activities	32,295		33,242
CASH FLOWS USED IN INVESTING ACTIVITIES
Cash flows used in investing activities - additions to PP&E	(160)		(417)
CASH FLOWS USED IN FINANCING ACTIVITIES
Distributions to Realty Income Corporation, net	(4,684)		(23,052)
Principal payments on mortgages payable	(26,851)		(9,203)
Payments upon extinguishment of debt	(3,984)		—
Net cash used in financing activities	(35,519)		(32,255)
Net (decrease) increase in restricted cash	(3,384)		570
Restricted cash, beginning of period	3,915		3,719
Restricted cash, end of period	$	531	$	4,289

The accompanying notes are an integral part of this statement.

29

REALTY INCOME OFFICE ASSETS

NOTES TO COMBINED FINANCIAL STATEMENTS