Orion S.A.'s Strategic Turnaround: Leveraging DUA Focus, Liquidity, and Leasing Momentum to Drive Long-Term Value

In the ever-shifting landscape of commercial real estate, few companies have demonstrated the discipline and foresight of Orion Properties Inc. (ONL) in 2025. Once known as Orion Office REIT Inc., the company has rebranded and restructured itself to navigate the post-pandemic downturn in traditional office markets. By pivoting toward Dedicated Use Assets (DUAs)—properties tailored for sectors like healthcare, research, and logistics—Orion has not only stabilized its cash flows but also positioned itself to outperform in a market where traditional office landlords are struggling.

A Strategic Reimagining: From Office to DUA

Orion's transformation began with a clear-eyed assessment of the real estate market's structural challenges. Hybrid work models, soaring vacancies, and declining tenant demand for generic office space have eroded the value of traditional assets. Orion's leadership, under CEO Paul McDowell, recognized that the future lies in properties with inherent demand, such as medical offices, R&D facilities, and industrial flex spaces. As of June 30, 2025, DUAs accounted for 32.2% of Orion's annualized base rent—a figure the company is actively working to increase.

This shift is not merely tactical but existential. DUAs offer longer lease terms, higher tenant credit quality, and lower turnover compared to traditional office properties. For example, Orion secured a 15.7-year lease in Parsippany, New Jersey, and a 7.6-year lease in Plano, Texas, during the second quarter of 2025. These long-term commitments provide a buffer against short-term market volatility and align with secular trends like the decentralization of healthcare services and the rise of remote R&D operations.

Capital Allocation: Selling the Old, Buying the New

Orion's capital allocation strategy has been equally disciplined. The company has aggressively monetized non-core assets, selling four vacant properties in Q2 2025 for $26.9 million and securing agreements to sell five more traditional office properties for $56.9 million. These proceeds are being reinvested into DUAs and used to reduce leverage. As of June 30, 2025, Orion's net debt-to-adjusted EBITDA ratio improved to 7.3x–8.3x from 8.0x–8.8x, reflecting stronger balance sheet flexibility.

The company's liquidity position is equally robust, with $257.7 million in available capital, including $240 million in credit facility revolver capacity. This liquidity allows Orion to fund tenant improvements, acquire high-quality DUAs, and navigate refinancing challenges. For instance, the company acquired a 97,000-square-foot flex/laboratory/R&D property in San Ramon, California, for $34.6 million in late 2024, signaling its intent to expand its DUA footprint.

Operational Efficiency: Streamlining for Growth

Operational improvements have further bolstered Orion's turnaround. The company has streamlined its production and asset management processes, discontinuing operations at three to five carbon black lines (a reference to its industrial roots) to focus on core competencies. Sequential improvements in plant performance and cost management have helped Orion maintain its free cash flow guidance of $40 million to $70 million for 2025, despite macroeconomic headwinds.

The results are evident in Orion's financial metrics. Core FFO per share guidance for 2025 was revised upward to $0.67–$0.71, and the company's occupancy rate rose to 77.4% in Q2 2025. These figures underscore the effectiveness of Orion's strategy in converting its portfolio into a more resilient and cash-generative asset base.

Risks and Opportunities

While Orion's strategy is compelling, risks remain. The company's reliance on long-term leases exposes it to potential tenant defaults or early terminations, particularly in sectors like healthcare, where reimbursement pressures could strain tenants. Additionally, Orion's CMBS loan maturities in 2027 will require proactive refinancing in a high-interest-rate environment.

However, these risks are mitigated by Orion's strong liquidity and its focus on investment-grade tenants. The company's 68.5% of annualized base rent derived from investment-grade tenants provides a layer of credit protection. Moreover, Orion's proactive approach to asset sales and debt reduction has created a buffer to weather refinancing challenges.

Investment Implications

For investors, Orion's strategic pivot offers a compelling case study in disciplined capital allocation and operational resilience. The company's focus on DUAs aligns with long-term trends in real estate, where specialized assets are outperforming traditional ones. Its improved liquidity and debt metrics suggest a path to sustainable growth, even in a challenging macroeconomic environment.

Orion's 2025 guidance—Core FFO of $0.67–$0.71 per share and a net debt-to-EBITDA range of 7.3x–8.3x—provides a clear roadmap for value creation. The company's ability to execute on its DUA strategy, coupled with its strong balance sheet, positions it as a potential outperformer in the REIT sector.

In conclusion, Orion Properties Inc. has transformed itself from a struggling office REIT into a resilient DUA-focused company. Its disciplined approach to capital allocation, asset transformation, and operational efficiency offers a blueprint for navigating the restructured real estate market. For investors seeking exposure to a company that is not only surviving but thriving in this new era, Orion's turnaround strategy is worth a closer look.