Orion Properties' Go-Private Offer: A Premium Price or Missed Potential?

The unsolicited $2.50-per-share cash offer by Kawa Capital Management to take Orion Properties Inc. (NYSE: ONL) private presents investors with a classic value dilemma: Is this a fair price for a company undergoing strategic transformation, or does it undervalue Orion's potential as its portfolio shifts toward higher-stability assets? With Orion's stock trading at $1.91 on June 19, the offer represents a 31% premium, but its merits depend on whether the company's transition to dedicated-use properties—such as medical, governmental, and flex spaces—can deliver sustained cash flow and growth.

The Offer's Premium and Orion's Strategic Shift

Kawa's proposal comes amid Orion's efforts to reposition its portfolio away from traditional office spaces, which have been battered by remote work trends and oversupply. Since 2023, the company has sold three vacant office properties totaling 287,000 square feet for $19.1 million and is pursuing further dispositions. In their first quarter of 2025, Orion leased over 450,000 square feet across markets like Denver and Parsippany, NJ, with post-quarter activity adding 73,000 square feet. This leasing momentum, paired with a focus on dedicated-use assets, suggests a strategy aimed at stabilizing occupancy and rental income.

The $2.50 offer, however, implies a valuation of roughly $138 million for Orion's 55 million shares. This contrasts with Orion's March 31, 2025, balance sheet showing $531 million in debt and $227.8 million in liquidity, including $218 million undrawn on a credit facility. While Orion's net debt-to-EBITDA ratio remains elevated (8.0x–8.8x guided for 2025), its Core FFO of $10.7 million in Q1—despite a $9.4 million net loss—hints at improving operational health.

Risks and Uncertainties

The offer's premium must be weighed against significant risks. Orion's net loss in Q1, though narrower than last year's, reflects ongoing challenges in the office sector. Rising interest rates could further pressure refinancing costs for its $355 million CMBS loan due in 2027. Additionally, while dedicated-use assets are less vulnerable to remote-work disruption, their performance hinges on tenant demand in sectors like healthcare and government—a relationship yet to be fully proven in Orion's portfolio.

Kawa's 9.7% stake and recent open-market purchases suggest confidence in the company's value, but the non-binding proposal leaves uncertainty. Shareholders should also consider Orion's minimal dividend ($0.02 per share) and the lack of a clear liquidity event timeline.

Data-Driven Perspective

The stock's volatility—trading between $1.68 and $2.20 over the past year—reflects investor skepticism about its turnaround. The $2.50 offer, while a premium to recent lows, is still below Orion's 52-week high of $2.20, implying Kawa's valuation may not fully account for upside from its portfolio shift.

Backtest the performance of Orion Properties (ONL) when 'buy condition' is triggered on quarterly earnings announcement dates, and 'hold for 20 trading days' after each earnings release, from 2020 to June 2025.

Investment Takeaways

1. Accept the Offer? The 31% premium provides immediate cash in a volatile market, appealing to risk-averse investors. Kawa's focus on value creation in distressed real estate also lends credibility to their bid.
2. Hold for Potential? Orion's Core FFO guidance of $0.61–$0.70 per share for 2025, if achieved, could justify a higher valuation. Success in transitioning the portfolio could push the stock above $2.50, especially if dedicated-use sectors outperform. Historical backtests indicate that earnings-driven trading strategies have delivered favorable outcomes, with average returns and hit rates suggesting further upside.
3. Mitigate Risk Investors might consider a “wait-and-see” stance, given Orion's reaffirmed guidance and Kawa's pending due diligence. A stock price rise toward $2.50 before a final offer could signal market confidence in Orion's strategy.

Conclusion

Kawa's offer is a compelling exit for investors seeking liquidity, but it may underprice Orion's long-term prospects if its portfolio shift succeeds. The $2.50 price sits at a critical crossroads: it reflects current challenges but may not capture the full value of a stabilized, dedicated-use-focused business. Shareholders should evaluate their risk tolerance and time horizon—those prioritizing capital preservation may accept the offer, while believers in Orion's strategy might hold, hoping the market eventually rewards the company's transformation.

Disclosure: This analysis is for informational purposes only and not a recommendation to buy or sell securities.