Annual report pursuant to Section 13 and 15(d)

Orion Office REIT, Real Estate Investments and Related Intangibles

v3.22.1
Orion Office REIT, Real Estate Investments and Related Intangibles
 12 Months Ended
Dec. 31, 2021
Real Estate [Abstract]  
Real Estate Investments and Related Intangibles
Note 3 – Real Estate Investments and Related Intangibles
Property Acquisitions
During the years ended December 31, 2021, 2020 and 2019, the Company had no acquisitions.
Intangible Lease Assets
Intangible lease assets consisted of the following (amounts in thousands, except weighted-average useful life):
Weighted-Average Useful Life (Years) December 31, 2021 December 31, 2020
Intangible lease assets:
In-place leases, net of accumulated amortization of $65,247 and $71,633, respectively
 4.8 $ 272,743  $ 25,800 
Leasing commissions, net of accumulated amortization of $456
 13.4 10,349  — 
Above-market lease assets, net of accumulated amortization of $6,239 and $7,166, respectively
 5.0 15,015  2,880 
Total intangible lease assets, net $ 298,107  $ 28,680 
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $14,459 and $13,482, respectively
 7.5 $ 20,609  $ 7,221 
The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $1.0 million, $0.8 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $23.1 million for the year ended December 31, 2021, and $7.9 million and $8.7 million for the years ended December 31, 2020 and 2019, respectively.
The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of December 31, 2021 (amounts in thousands):
2022 2023 2024 2025 2026
In-place leases:
Total projected to be included in amortization expense $ 94,659  $ 73,859  $ 49,213  $ 21,652  $ 15,499 
Leasing commissions:
Total projected to be included in amortization expense $ 850  $ 850  $ 841  $ 836  $ 836 
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue $ 5,171  $ 4,791  $ 2,998  $ 860  $ 682 
Below-market lease liabilities:
Total projected to be added to rental revenue $ 6,443  $ 6,091  $ 3,786  $ 1,036  $ 817 
Consolidated Joint Venture
The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2021. As of December 31, 2021, the consolidated joint venture had total assets of $27.4 million, of which $26.1 million were real estate investments, net of accumulated depreciation and amortization. The joint venture partner is the managing member of the joint venture. However, in accordance with the joint venture agreement, the Company has the ability to control the operating and financing policies of the consolidated joint venture and the joint venture partner must obtain the Company’s approval for any major transactions. The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.
Investment in Unconsolidated Entity
The following is a summary of the Company’s investment in one unconsolidated entity, Arch Street Joint Venture, as of December 31, 2021 and for the year ended December 31, 2021 (dollar amounts in thousands):
Ownership % (1)
Number of Properties Carrying Amount of
Investment		 Equity in Income
Year Ended (2)
Investment December 31, 2021 December 31, 2021 December 31, 2021
Arch Street Joint Venture (3) (4)
20% 6 $ 18,631  $ (56)
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(1)The Company’s ownership interest reflects its legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest in the listed properties because of various provisions in certain joint venture agreements regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.
(2)The interest in the Arch Street Joint Venture was acquired by Realty Income as part of the Mergers, and was transferred to the Company upon the consummation of the Distribution. Therefore, the Company’s equity in income reflects operations following the Merger Effective Time.
(3)During year ended December 31, 2021, the Arch Street Joint Venture acquired one property from a third party for a purchase price of $30.5 million.
(4)The total carrying amount of the Company’s investment in the unconsolidated joint venture was greater than the underlying equity in net assets by $2.1 million as of December 31, 2021. This difference related to a step up in the fair value of the investment in the unconsolidated joint venture in connection with the Mergers. The step up in fair value was allocated to the Company’s investment in the unconsolidated joint venture and is amortized in accordance with the Company’s depreciation policy.