Is Orion Properties (ONL) the Most Undervalued Office REIT of 2025?

In a real estate market increasingly defined by bifurcation—where core assets thrive while traditional office spaces languish—Orion Properties Inc. (NYSE: ONL) stands out as a contrarian value proposition. The REIT's recent rejection of a $2.50/share bid, combined with its strong tenant credit quality, alignment with suburban office tailwinds, and sub-NAV pricing, suggests an asymmetric upside for investors willing to look beyond short-term volatility.

The Rejected Bid: A Valuation Floor or Floor?

On July 9, Orion's board rejected a $2.50/share cash offer from Kawa Capital, a 31.5% premium over its $1.90/share price at the time. While the bid was deemed “significantly undervalued,” the 13% discount to Orion's 2025 book value (based on $531.2 million in debt and $227.8 million in liquidity) raises questions. Kawa, already a 10% shareholder, sees value in Orion's portfolio of 68 operating properties and its 20% stake in the Arch Street Joint Venture, which is 100% occupied.

The board's stance, however, hints at a higher intrinsic value. Reginald Gilyard's statement that Orion remains open to “opportunities to enhance shareholder value” implies the company believes its assets are worth more than $2.50/share. This creates a floor for the stock, especially as the REIT continues to optimize its portfolio.

Tenant Credit Quality and Lease Stability: A Contrarian's Best Friend

Orion's portfolio is anchored by 72.3% investment-grade tenants, a critical metric for value investors. This includes long-term leases like the 15.7-year agreement in Parsippany, New Jersey, and a 10-year lease in Buffalo. The weighted average remaining lease term of 5.2 years provides cash flow visibility, while the shift toward dedicated-use assets (31.8% of annualized base rent) insulates Orion from the broader office downturn.

The Arch Street Joint Venture, with a 7.1-year lease term and 40.2% investment-grade tenants, further diversifies risk. These metrics suggest Orion's cash flows are more resilient than peers focused on traditional office spaces.

Suburban Office Tailwinds: A Contrarian's Tailwind

The suburban office market is experiencing a renaissance, driven by hybrid work models and demand for specialized spaces. Orion's focus on flex, lab, and medical properties aligns with this trend. For example, the REIT's 15.7-year lease in Parsippany—a medical facility—reflects the growing need for healthcare infrastructure.

Orion's active leasing pipeline—over 450,000 square feet in 2025—underscores its ability to capitalize on these trends. The company's recent sales of vacant properties for $19.1 million and pending $27.3 million in dispositions also signal a leaner, higher-quality portfolio.

Sub-NAV Pricing: A Mispricing Opportunity

While Orion didn't report a net asset value (NAV), its balance sheet and portfolio suggest a significant gap between market price and intrinsic value. With $227.8 million in liquidity and $531.2 million in total debt, Orion's equity could be valued by appraising its real estate assets. Even conservative estimates—assuming $1.2 billion in appraised value for its 68 properties—would imply a NAV of $3.50/share, a 36% premium to its current price.

The sub-NAV discount is exacerbated by macroeconomic pessimism. Orion's stock has underperformed the FTSE Nareit All Equity REITs Index by 40% in 2025, despite reaffirming its 2025 Core FFO guidance of $0.61–$0.70/share.

Key Risks: A Value Investor's Checklist

1. Interest Rate Volatility: Orion's $355 million in securitized debt maturing in 2027 exposes it to refinancing risks.
2. Economic Downturn: A recession could pressure tenants to renegotiate leases or default.
3. Market Sentiment: The broader REIT sector remains undervalued, and Orion's niche focus may limit liquidity.
4. Arch Street Joint Venture: The 20% stake's performance is tied to the joint venture's ability to execute on its 15% interest rate loan.

Investment Action Plan: A Contrarian's Playbook

1. Buy at Current Levels: Orion's $1.90/share price offers a margin of safety, especially with $2.50/share as a bid floor.
2. Hold for Long-Term Value Realization: The REIT's focus on dedicated-use assets and active portfolio optimization should drive NAV appreciation.
3. Monitor the Bid Process: If Kawa or another suitor revisits, the stock could see a liquidity event.
4. Watch for a Market Rotation: A shift in capital toward real estate, particularly undervalued REITs, could unlock Orion's potential.

Conclusion: A Contrarian's Edge in a Bifurcated Market

Orion Properties is not a glamorous stock. It trades in a sector mired in pessimism and faces headwinds from high interest rates and office demand shifts. But for value investors, the REIT's strong tenant credit quality, alignment with suburban office tailwinds, and sub-NAV pricing present an asymmetric opportunity. The rejected $2.50/share bid is a starting point, not an endpoint. In a bifurcated market, Orion's ability to adapt and focus on resilient real estate sectors could make it the most undervalued office REIT of 2025—and a breakout story for 2026.