We came across a bullish thesis on Orion Properties Inc. (ONL) on Substack by Waterboy Investing. In this article, we will summarize the bulls’ thesis on ONL. Orion Properties Inc. (ONL)’s share was trading at $1.7 as of April 7th.
An aerial view of a REIT operated commercial building.
Orion Properties (formerly Orion Office REIT) has become a compelling deep-value opportunity after a punishing spin-off from Realty Income (O) in 2021. Initially created to house O’s office assets, ONL was spun to shareholders in a 10:1 ratio, but market sentiment swiftly turned negative. Shares fell from $25 to $17, and more recently collapsed to $2 following an 80% dividend cut and the removal of “office” from its name—symbolic of the broader rejection of suburban single-tenant office REITs. Despite this, the capitulation has created a highly levered equity with asymmetrical upside potential. With a market cap of $103.8 million and enterprise value of $606.1 million, Orion trades at an implied cap rate of 14.2% and $74.70 per square foot, indicating deep distress pricing.
Orion’s portfolio spans over 8.1 million rentable square feet across 69 operating and six JV properties, but occupancy stands at just 73.7%. Its largest tenant is the U.S. General Services Administration (GSA), contributing 16.3% of base rent—raising concerns around lease stability. Yet, ONL also boasts a “tenderloin” core of 25 properties totaling 2.8 million square feet leased to credit tenants like Bank of America, T-Mobile, and Cigna, producing $54.5 million in rent. At a conservative 10% cap rate, this core alone could be worth $450 million. That would imply the rest of the portfolio—dubbed the “flank steak”—is being valued at just $27.51/sq. ft., assuming a conservative land valuation of $10.3 million. This suggests the market is pricing in near-total vacancy for the remaining 5.3 million square feet, an unlikely doomsday scenario.
Leverage is high at 7.57x net debt to EBITDA, and equity holders could be wiped out if asset values fall below $500 million. But with comps like Net Lease Office Properties trading at 12% cap rates and $100+/sq. ft., a modest re-rating could double or triple ONL’s stock. Importantly, management is making savvy, shareholder-friendly moves—cutting the dividend to preserve $17.9 million annually, addressing the $19.3 million drag from vacant properties, and pivoting toward “dedicated-use assets” like medical, lab, and R&D facilities. CEO Paul McDowell has a strong track record from Caplease, and his disciplined focus on rationalizing ONL’s portfolio bodes well. In a sector plagued by sentiment-driven mispricing, Orion offers a classic contrarian setup: a distressed asset, ignored by Wall Street, but quietly pivoting toward stability, with multiple levers—asset sales, re-leasing, and valuation rerating—that could deliver substantial returns for patient investors.
Orion Properties Inc. (ONL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held ONL at the end of the fourth quarter which was 14 in the previous quarter. While we acknowledge the risk and potential of ONL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ONL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.