Orion Office REIT: A Shaky Low Conviction Hold

Orion Office REIT (ONL) is a low conviction hold for Clark Street Value due to merger-spin dynamics and sector challenges. The company's average lease term is under 3.5 years, raising concerns for the sector. However, investors may see potential near-term catalysts.

Orion Properties (NYSE: ONL), an office Real Estate Investment Trust (REIT), saw its stock trading lower after the company's board unanimously rejected an unsolicited acquisition offer from Kawa Capital Management. The offer, valued at $2.50 per share, was made on June 20 and represented a 6.8% premium over the stock's closing price on July 7, 2025 [2].

The rejection by the Orion board was based on the belief that the offer significantly undervalues the company and is not in the best interests of Orion stockholders. Non-Executive Chairman Reginald Gilyard stated, "After careful consideration, the Orion board of directors determined that Kawa Capital's proposed transaction significantly undervalues the company and is not in the best interests of Orion stockholders" [1].

Orion Properties specializes in single-tenant net leases for mission-critical office buildings, which minimizes vacancies and provides predictable cash flows. This business model is seen as an asset in today's volatile real estate market. The company's consistent dividend of $0.02 per share, paid on March 31 and June 30, 2025, also underscores its commitment to returns [2].

The rejection of Kawa's bid has sparked debate over whether the office REIT is undervalued or if management is overlooking strategic opportunities. Orion's stock has shown resilience around the $2.30–$2.40 range since late June, suggesting a floor buyers are willing to defend. However, the bid's narrow premium hints at undervaluation risks [2].

Investors should remain cautious. Orion's low trading volume and narrow trading range reflect limited liquidity and a lack of catalysts. However, three opportunities stand out: sector rotation, strategic initiatives, and takeover contests. If office demand rebounds due to hybrid work models requiring physical spaces, Orion's properties could see rent increases or higher occupancy. Management could also unlock value by refinancing debt, selling non-core assets, or expanding into adjacent markets like healthcare or logistics. A rejected bid often invites competing offers, and Orion's stock could rise if another buyer emerges [2].

In rejecting Kawa's bid, Orion's management has signaled confidence in its long-term narrative. The market may yet catch up. Orion's average lease term of under 3.5 years raises concerns for the sector, but investors with a 3–5 year horizon should view dips below $2.30 as buying opportunities, particularly if dividends remain intact [2].

References:
[1] https://seekingalpha.com/news/4466293-orion-board-rejects-kawas-acquisition-offer
[2] https://www.ainvest.com/news/orion-properties-rejected-offer-highlights-undervaluation-strategic-potential-2507/