Update
Yesterday Orion came out with Q4 2021 results and they were disappointing to say the least. The quarter was a bit complex as October only consisted of Realty Income assets and from November to December the results included VEREIT assets as well. Due to this we have really only gotten about 2 months of data about Orion as a new company. Nonetheless I wanted to quickly discus the earnings report.
The numbers
Guidance for 2022 was also provided between $1.66 and $1.74 core FFO per share.
This leads to a 94 million to 99 million Core FFO range which was significantly below my (and analyst) expectations.
The quarter itself was bad but not terrible as a simple extrapolation of the numbers presented in the quarter (the Nov-Dec to a full quarter x4) would lead to a core FFO of 141 million (1.5x23.526x4), or even extrapolating the full quarter of which one month was without VEREIT assets leads to 107 million (26.806x4). Both below my expectations but still significantly above guidance given yesterday.
The earnings in the quarter themselves missed but that’s not the main issue here as it was a short quarter with many post spin off variables in it. The issue is that management issued guidance significantly under everyone’s expectations. If earnings would continue to be like the two months of income from the new company (Oct. still was only Realty and not merged yet with VEREIT) one wouldn’t be too disappointed but it seems that rent negotiations and lease extensions are expected to end up significantly decreasing FFO.
Management has noted in the earnings call that the focus was on getting the average lease term up and realigning the portfolio. Some properties would be sold while they are expanding through their JV. For the properties that they do decide to keep it could be necessary to make sizable one time investments to get the tenants to stay or keep the current rent levels.
If we keep the updated guidance in mind for FFO, the after hours drop and 4 years of annual 2% FFO declines (perpetuity 1% growth) I get to the following IRRs for the stock:
I significantly downgraded expectations in this newer model as the income achieved in 2020/2021 seems to be way higher than what we will see going forward. Its a bit tricky to make expectations just based on guidance, two months of full company data and the overall challenges they will face in a back to office/work from home year.
At close yesterday about 1.3% of my total portfolio was invested in Orion so its a significant position but looking at the numbers I will hold on and if results indeed do not hold up to Q4 2021 I will most likely sell out.