Apr 26, 2012
Executives
Michelle Layne - IR Roger Waesche - President and CEO Steve Riffee - EVP and CFO Steve Budorick - EVP and COO
Analysts
Craig Mailman – KeyBanc Capital Markets Michael Knott – Green Street Advisors Brock Stevenson - Macquarie Rich Anderson - BMO Capital Markets Young Hu - Wells Fargo George Auerbach - ISI Group
Operator
Welcome to the Corporate Office Properties Trust First Quarter 2012 Earnings Conference Call. As a reminder, today's call is being recorded.
At this time, I will turn the call over to Michelle Layne of the COPT's Investor Relations. Ms.
Layne, please go ahead.
Michelle Layne
Thank you, Stephanie. Good morning and welcome to COPT's conference call to discuss the Company's first quarter 2012 results.
With me today are Roger Waesche, President and CEO; Steve Riffee, Executive Vice President and CFO; Steve Budorick, Executive Vice President and COO; and Wayne Lingafelter, Executive Vice President of Development & Construction. As management discusses guidance for GAAP and non-GAAP measures, you will find a reconciliation of such financial measures in the press release issued earlier this morning, and under the Investor Relations section of our website.
At the conclusion of management's remarks, the call will be opened up for your questions. Before turning the call over to management, let me remind all of you that certain statements made during this call regarding anticipated operating results and future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Although such statements and projections are based upon what we believe to be reasonable assumptions, actual results may differ from those projected. Factors that could cause actual results to differ materially include, without limitation, the ability to renew or re-lease space under favorable terms, regulatory changes, changes in the economy, the successful and timely completion of dispositions, acquisitions and development projects, changes in interest rates, and other risks associated with the commercial real estate business, as detailed in our filings with the SEC.
I would now like to turn the call over to Roger for his formal remarks.
Roger Waesche
Thank you Michelle and good morning. 2012 is starting off well as evidenced by our better than expected quarterly results.
Our FFO per share as adjusted for comparability for the first quarter was $0.53, which is $0.02 above our guidance range and $0.04 above the $0.49 we achieved in 2011. The quarter's modest outperformance was primarily driven by lower than budget property operating expenses associated with the mild winter in the Mid Atlantic state and higher than excepted development fee income.
We are reaffirming our 2012 annual FFO guidance of $2.02 to $2.18 per share. The fact that existing and potential strategic tenant in the government and defense IT industries have been operating this fiscal year with a budget rather than other under a continuing resolution as modestly increased leasing activity.
We are tracking over 300,000 square feet of potential development leasing activity at the National Business Park area, Patriot Ridge and Red Stone Gateway that we expect to result in further leasing during 2012. This is in addition to 86,000 square feet of development space leased in the first quarter and 60,000 square feet already started in this quarter that Steve Budorick will provide additional color.
That said, we believe the potential federal budget cut in fiscal year 2013 generated by the possible application of (inaudible) cuts to the defense budget under the Budget Control Act is causing agencies and some contractors to be more deliberate about making long term large scale space commitment. Compounding this uncertainty is the increasing likelihood that the fiscal 2013 defense budget will not be passed before the November elections.
Ultimately we expect to see our markets benefit by continued growth in support of cyber and priority programs as well as the remaining contractor tail following the recent government BRAC moves. In the meantime we will keep working hard for every deal in each of our markets.
The good news is that everything we hear regarding potential budget cuts to defense in fiscal 2013 indicates the primary affected areas will be large weapon systems and force structure. Program cuts to intelligence activities are expected to be minimal by comparison and we believe cyber initiatives will grow.
We expect the agencies that have moved to locations near our parks as a result of BRAC to create a trail of contractors that will follow them through to 2014. While the defense pie is likely to modestly shrink in 2013 our tenants portion is likely to grow.
Additional a potential slowdown in DOD building acquisitions and construction or mil con ultimately may lead to additional leasing demand by the government. Our piece of dispositions through the Strategic Reallocation Plan or SRP we launched in April 2011 is in line with our expectation.
First quarter sales totaled $63 million gross and $61 million after closing cost. These sales were comprised of 7 stabilized operating properties at a weighted average cap rate of 7.4% for net proceeds of $23 million.
These buildings contained 63 leases and were 80% leased. We also sold two non-revenue producing building at Century Gateway and San Antonio in Candlewood and Hanover, Maryland and some land in San Antonio for net proceeds of $38 million.
Since announcing the $562 million SRP we have executed $139 million or property sales which is approximately 25% of the overall plan. The sales included $100 million of operating properties at an average exit cap rate of 7.8% with the balance comprised of non-operating property.
Net proceeds received on these sales totaled approximately $131 million. Total assets sold to date aggregate 1 million square feet of operational space, 500,000 of which was not income producing at the time of sale.
From a property management perspective, the operating property still contained 20% of total leases that were in place in March 2011 but represented only 5% of our consolidated square footage. The shedding of these smaller more management intensive properties should translate into higher NOI margins as we move forward.
We have another $71 million of assets under contract and are marketing in excess of $100 million of additional assets. We are pleased for the progress we've made to date and our own target for the year.
If we can still assess more quickly and exceed our plan we will. During the first quarter we also sold all of our remaining shares of KYW or approximately $14 million, slightly above our year end basis.
With that let me hand the call over to Steve Riffee to discuss our first quarter results and provide guidance for the second quarter of 2012. Steve?
Steve Riffee
Thanks Roger. Good morning everyone.
Before I discuss the quarter's results I'd like to point out a couple of presentation changes we've made. We've refined our segments to include development assets and land and the carrying expenses associated with land have been reclassified from property operating expenses to new business in the land carrying cost.
Accordingly our reported NOI now relates solely to our operating properties. These changes are reflected in all periods presented.
We hope that this provides additional clarity and to the operations of our property and helps the analysts and investors more clearly understand our operating portfolio. We've also refined our definition of FFO as adjusted for comparability.
Because we have previously excluded impairment losses or non-depreciable real estate, we are excluding gains on these types of assets. Now turning to our results, FFO as adjusted for comparability for the quarter was $45.3 million or $0.53 per share, representing an 8% on a per share basis from the $0.49 per share or $39.6 million of FFO as adjusted for comparability for the first quarter of 2011.
FFO per share as defined by NAREIT was $0.54 for the quarter as compared $0.13 in the first quarter of 2011. Our 2012 FFO per share includes a $600,000 gain net of tax resulting from the sale of Candlewood which was a non-depreciable asset held in a taxable subsidiary.
Our 2011 FFO per share included a $28 million or $0.39 per share non cash impairment share on un-depreciated real estate of Port Richey and the land sale gains of $2.7 million or $0.04 per share. Moving to same office results, cash NOI was favorable to our expectations as a result of lower operating expenses related to mild winter in the mid-Atlantic state.
Our same office portfolio excludes properties included in the strategic reallocation plan which represents 16% of consolidated square footage or approximately 10% of NOI. Each year we reset the same office poll and report each period presented using the new same office poll.
As of March 31st, the same office of assets consisted of 169 properties and represented 79% of our consolidated square footage and 84% of NOI. Excluding gross lease determination fee, same office cash NOI grew by $4.1 million or 7% from the first quarter of 2011.
Including gross lease termination fees same office cash NOI grew by $4.5 million or 7.7% in 2011. The growth in same office cash NOI compared to the first quarter of 2011 was due primarily to rent bumps in existing leases and lower seasonal operating expenses partially offset by slightly lower occupancy.
Same office cash NOI including termination fees declined $1.7 million compared to the fourth quarter 2011 primarily because we received a $1.5 million prepayment of rent in the fourth quarter. Same office occupancy averaged 89.5% for the first quarter of 2012, compared to 90.1% for the first and fourth quarters of 2011.
Turning to the balance sheet, on March 31st, the company had a total market cap of $4.4 billion with $2.4 billion of debt outstanding or debt to total market capitalization ratio of 55%. One of our key credit metrics is debt to gross asset value ratio as calculated according to our bank loan covenant.
As of March 31st, this ratio was 49.2%. Additionally 80% of our total debt was at fixed interest rates and our weighted average cost of debt for the first quarter was 4.4%.
For the quarter ended March 31st, adjusted EBITDA to interest expense coverage ratio was 3.2 times. Adjusted EBITDA fixed charge coverage ratio was 2.7 times and our adjusted debt to adjusted EBITDA ratio was 6.7 times.
The debt maturities are very manageable with only $63 million of debt maturing during the remainder of 2012 and $169 million maturing in 2013. During the quarter we borrowed $250 million or five year term debt from our bank group which is currently priced at 190 basis points over LIBOR, the proceeds of which we use to pay down our line of credit, leaving us with $590 million of capacity on our $1 billion line of credit.
Now turning to guidance. As Rodger said, we are reaffirming our annual 2012 FFO per share guidance range of $2.02 to $2.18 and we are initiating second quarter FFO per share guidance in the range of $0.48 to $0.52.
The second quarter midpoint is lower than the first quarter actual result due to lower expected development fees and the impact of completed and contracted dispositions. We expect G&A cost to decline after the second quarter as executive transition costs will be complete.
With that I will now turn the call over to Steve Budorick.
Steve Budorick
Thank you Steve. Our office portfolio was 87% occupied and 89% leased at quarter end, up 80% and 70% basis points respectively from the prior quarter.
Our same office portfolio occupancy was 89.5% at the end of the first quarter 2012, down very modestly from 89.6% at the end of 2011. During the first quarter we leased a total of 570,000 square feet of which 320,000 square feet were renewals, 121,000 square feet were re-tenanted, 86,000 square feet related to development and re-development projects and 43,000 square feet represented other first generation space, leased properties we acquired with existing vacancy.
Based on leasing today, revenue at risk required to meet our mid-point of guidance has been reduced from approximately $15 million to just $9 million. We have leasing in progress which would reduce this revenue at risk to under $3 million.
For the first quarter we had a renewal rate of 59% and an average cost of $7.52 per square foot. Print and renewals increased 2% on a straight line basis and decreased 8% on a cash basis.
For renewed and re-tenanted base, total rent increased 1% on a straight line basis, and decreased 9% on a cash basis. Our average capital commitment on second generation leases was $10.17 per square foot.
We expect really spreads to tighten because our leasing plans for the rest of the year include a higher percentage of renewals and are more concentrated at our strategic properties. The commercial office market to Maryland, Washington DC and Northern Virginia continue to be challenged by the uncertainty around the 2012 and 2013 federal budget, the upcoming election the restraint in GSA leasing.
Overall vacancies hover in the 15% to 16% range and first quarter absorption was flat and negative 1% in the quarter comparing by market to submarket. Job growth in Northern Virginia and Baltimore region of 26,000 jobs on a year-over-year basis, have not yet produced positive movement in the office market statistic.
Large defense contractors continue to trim budgets right size program and increase efficiencies by a consolidating offices. And GSA leasing is offered this period, both of which have contributed to the increased vacancies in these markets.
But despite these overall market conditions in the region we are experiencing moderate to healthy demand in our property adjacent to government demand drivers. Reaffirming our investment strategy, to concentrate on serving the Department of Defense elements that conduct intelligence and cyber activities.
Our construction projects are 31% lease and we are in various stages of discussion with strategic customers for another 45% of the rentable area been constructed. Near Fort Meade, in the heart of the Baltimore Washington corner we are pleased to report some significant leasing at 7740 Milestone Parkway in Arundel Preserve.
Subsequent to quarter end we leased 61,000 square feet in this building through a defense IT contractor who will take occupancy in phases in the second half of 2012. With this transaction the building is now 100% leased.
We are encouraged that this leasing validates our belief that the Arundel Preserve project will serve this and its contractors at the Northwest Gate of Fort Meade and much the same way that NBP serves other agencies and their contractors at the North South Gate. We also have negotiations and progress for virtually all available inventory in the National Business Park and we are contemplating new development starts for government and contractor building, later in 2012.
Our Columbia gateway property have experienced stronger demand from both the defense and commercial segments and we are making good progress, leasing stubborn vacancies in this portfolio. We continue to optimistic about the improving activity in the park and we are observing and increase in the number of tenant expanding relative to contractions.
In Haynesville, Alabama we completed our first building 1000 red zone gateway during the quarter and we have good market activity on the asset. We are in various levels of discussions with users collectively representing about a 150% of the space in the property.
Similar in Springfield, Virginia we have already released 44% of Partridge 1 (ph) and our current activity in leasing represents another 40% of the property. We are confident we will complete additional prereleasing during the year.
Turning to Colorado Springs, activity across our portfolio has improved with organic growth from existing tenant emerging as well as new users entering the market. We currently have good visibility on prospect to meet 100% of our leasing objective for 2012.
Our more challenging projects our North Gate Business Park in Aberdeen, Maryland and our Power Loft wholesale data center in Manassas, Virginia. In Aberdeen the contractor associated with the C4 ISR relocation has not been robust thus far.
We continue to monitor contractor activity and we are not planning any new development until significant off base contractor demand materializes. Regarding Power Loft we are confident that it is a high quality facility.
There has been a demand low in the marketplace for high density, high capacity turnkey users. Our views that demand will outstrip supply overtime.
We are carefully working multiple market channels to attract high density and high capacity users from both our existing customer base and other enterprise users. The demand has improved modestly over the past quarter and we are tracking leasing opportunities for roughly 50% of our available built out capacity.
These opportunities to have late 2012 or early 2013 commencement. Though we expect our 2012 progress to continue to be slow.
We are pleased to learn that one of our tenants successfully procured a significant federal colocation contract during the quarter gratifying power loss appeal to federal secured data users. With that I will turn the call back to Roger.
Roger Waesche
Thanks Steve. In summary, the 2012 economic and operating environment will continue to be challenging.
The company is performing well as indicated by our first quarter result and remains focused during this year of transition on executing along four major strategic lines, leasing space, executing the sale of non-strategic properties and land, allocating capital prudently and strengthening our balance sheet. With that operator please open up the call for questions.
Operator
(Operator Instructions). Your first question comes from the line of Craig Mailman, KeyBanc Capital Markets.
Please proceed.
Craig Mailman – KeyBanc Capital Markets
Maybe if you can just start of Power Lofts where you guys kind of ended your comments, I know you guys have gotten the question in the past a lot whether you guys are opening it up to more traditional internet type tenants just curious what the marketing strategy has been there particularly in light of the activity that one of your competitors focused data center guys just announced last night.
Roger Waesche
Currently we are marketing the property over multiple channel. We have a pretty intense marketing effort directed at our core customer base which is directly linked to the federal government and much of the difficulty in making progress with that program really is associated with the budget situation in Washington but similarly we have expanded our marketing team and our marketing channels and we are focused on enterprise, large enterprise user from the commercial segment as well as the smaller deals that kind of predominate the market currently.
Craig Mailman – KeyBanc Capital Markets
Was it been about the asset that’s been for you guys to get traction with more traditional sense, is it just because it's a Manassas and sort of closure to Ashburn or is it just that you guys have been really holding back that space?
Roger Waesche
Well there is a couple of factors, one factor is that remember we built the partially constructed and so through parts of 2011 some of the demand that was actually in the market exceeded our built out capacity. But as we moved in the fourth quarter of 2011 we now have a significant amount of capacity immediately available.
And there is certainly a segment of the market that prefers to be an Ashburn for reasons that help their business, our assets really setup for large high density enterprise. Users that value the kind of Tier 3 characteristics we have and the unique security element that we can provide.
Craig Mailman – KeyBanc Capital Markets
That’s helpful then just sort of on in a more traditional tenant base, sounds like you guys are starting to see a pretty good pickup in demand from the contractor base and sort of your intelligent tenants. Can you maybe just give us some more color on the 300,000 square feet pipeline sort of how much of that is the private contractors versus your intelligence agencies that you guys lease to and if there has been any shift in sentiment among the contractors, are they solely waiting till a contract assign to take space or they have been taking space ahead of contracts that they think are sort of really in bad for them.
Roger Waesche
Regarding the composition, I would say the contractor element is probably three parts and the one part core government customer. With regard to the viewpoint of the contractors it's really very specific and contract elements of their business and it varies across Arakan region, so it's very much associated with the business activity of the ultimate core customer once they released it.
Steve Riffee
The one place we have seen speculative spaces on cyber a lot of people are opening up cyber operations in close proximity to Fort Meade because of the standup of U.S. cyber command, they are in the fall 2010, beyond that people are being more deliberate about taking space.
Craig Mailman – KeyBanc Capital Markets
Okay then just one last quick one, looks like you guys reversed some earlier impairment on asset. Do you think that’s just the function of these assets that were in sort of the first or earlier rounds, you got better pricing and do you see that trends serve a bathing order.
Are we going to see more and more of these impairments reversed just given the better sales environment?
Steve Riffee
Well the big reversal was related to the Candlewood property that we sold and that is a property that was converted industrial in to office condos. So we did realize ultimately a little bit better value than what we assumed at the time we put it into our SRP plan.
And because we had taken impairment while it was in held for sale, the gain had to be recorded as a recovery of the fire impairment. I don't think that's going to be necessarily typical of the broader sale.
Roger Waesche
All right, so to the extent that we had gained otherwise, they would just run to the gain on sale line on the income statement.
Operator
Your next question comes from the line of Michael Knott with Green Street Advisors. Please proceed.
Michael Knott – Green Street Advisors
Just curious if the rent roll down number I think was a blended minus nine on a cash basis for the quarter. Just curious if that was a little worse than you expected or kind of as expected and if it has any sort of signal for the market or how you thought about that?
Roger Waesche
Michael couple of things, first we did have one tenant skew the numbers a little bit. We had one renewal that had quite a substantial rollback for particular circumstances on that tenant and building.
Beyond that, the characteristic of the tenant that we renewed or re-tenanted in the first quarter were largely in locations that were not as strategic as our other locations. So we would expect that as the year goes on and the renewals and the re-tenanting which we expect to be located near our demand drivers that pricing would be much more favorable than the first quarter.
Michael Knott – Green Street Advisors
Okay that's helpful and then Roger, let's say if we look forward to when you are done with SRP, do you feel like the remaining portfolio that you'll generally garner lease terms that are longer than three to four years which you've spent signing in a lot of the last several quarters as I recall?
Roger Waesche
I think so. We're going to have a little bit of a transition period with some contractors who are going to want to some of which will want to go shorter term to have some flexibility which the budget uncertainties get walkthrough but longer-term we should get back to a higher average year life on our leases.
Michael Knott – Green Street Advisors
And I guess this one would be for Steve Riffee, same store on life of the year, I think guidance was plus 1 to 2%. That's unchanged, I take it given the FFO guidance?
Steve Riffee
Correct.
Michael Knott – Green Street Advisors
Okay and then what kind of expense number is baked in for the year. It looked like you were minus 5% for 1Q.
I am just curious that given that you were much better than you expected or little better than you expected for 1Q because of the expense side that moved. That seems like it would move the year number a little bit but maybe not enough to change the range.
Steve Riffee
We're not ready to change the range. We'll probably update the range after we get a better feel for how we're doing at the mid-year point Michael.
Michael Knott – Green Street Advisors
Okay. But any color on what kind of expense number for the year you had in there compared to the 5% decline for 1Q.
Steve Riffee
We clearly benefited in the first quarter to lower heating costs and lower snow removal etcetera, but we also adjusted our cam recoveries and all. So we have more seasonal R&M and those kinds of expenses in the next couple of quarters and then we'll see how hot the summer is in terms of utilities.
But we'll give an updated guidance range as we get just a little bit more feel for how the expenses will play out for the year.
Michael Knott – Green Street Advisors
Okay. And then just on the dispositions.
How are you feeling about the buyer pool and their ability to finance these acquisitions. I presume and I think you said before that most of the buyers release are smaller buyers reliant on local bank financing potentially.
Roger Waesche
Well our sales in the second quarter were one to a user, two an institution and three to a private equity firm all of which obviously had great access to capital and I would say everybody that we're currently dealing within the pipeline has access to capital that wouldn’t be a consideration for our deals not moving forward so far.
Operator
Your next question comes from the line of Brock Stevenson with Macquarie, please proceed.
Brock Stevenson - Macquarie
Just to follow up on the last question, did I miss it or did you guys talk about what the cap rate was on the first quarter sales and what you thought you were going to be able to achieve on the stuff that you have under contract?
Roger Waesche
Well there were two parts to the first quarter sales. There was $38 million that were assets that really did not have tenancy and so obviously the cap rate was probably a minus number because we were incurring operating expenses.
On the assets that were in service and were 80% occupied, we had a 7.9% cap rate. And looking out, with under contract and other deals that we're working on, we're still comfortable with the 8% range for the balance of the program.
Brock Stevenson - Macquarie
Okay, and then one other question, can you talk about how conversations have been going with CSC which I believe is your fourth largest tenant given that you are inside two years now on their lease term on renewals?
Roger Waesche
Well we have CSC in four different locations and varying groups. We have them in Huntsville, we have them are around (inaudible) we have them in North of Virginia and we have them in DC and its different groups, different programs and I think we're in pretty good shape on the majority of the CSC space.
We'll see we're due to meet with them in the next couple of weeks and get more clarity on their specific locations.
Brock Stevenson - Macquarie
Okay, but nothing as of yet would suggest that they are going to be giving back significant space over time here.
Roger Waesche
That's correct.
Operator
The next question comes from the line of Joshua Attie with Citi. Please proceed.
Unidentified Analyst
For the rest of your plan assets sales for the year, what portion of those are landholdings or other non-operating assets?
Roger Waesche
Everything else is in the queue to sell for the balance of the year is in operating assets. We are slowly working on some land transactions but it's nothing that we are willing put an absolute timeframe on at this point.
So everything else should sell, either be a cap rate sale and sell again in the 8% range.
Unidentified Analyst
Okay and I know you guys talked a little bit about development leasing subsequent to quarter end. I don't know if you have a specific target in mind for leasing for the end of the year?
Roger Waesche
Well back one and two quarters ago we talked about 400,000 square feet of development leasing for the year. We've done 86,000 in the first quarter.
Steve mentioned we did 60,000 square feet so far this quarter. So that brings us right around to 150,000 square feet which then suggests another 250,000 square feet for the balance of the year.
Right now we have deals in the works that if executed would allow us to get to that number.
Unidentified Analyst
Okay and I know about a year ago there was a lot of talk about government consolidating their data centers and how that would benefit you guys. I don't know what the status is on those consolidations and have you seen any impact from that?
Roger Waesche
I think there is still a lot of discussion and a lot of analysis going on there. I don't think it's anything that's going to happen in the next six to 12 months.
It is project that the government's working on at various different agencies and depending on who the agency is; the timing will either be quicker or slower. But I don't think it's anything that we can count on in terms of our business plan for the next 12 months.
Unidentified Analyst
Thanks. And just one more for your G&A.
It was a little bit higher than usual this quarter. I don't know if there were any one time items in there and what you should sort of expect going forward.
Roger Waesche
We had guided before that we would have some executive transition costs. That made it a little bit higher.
I had expected in the second quarter as we complete those costs to be in the $6.5 to $7 million range and then our run rate for the third and fourth quarter will be around 5.5 million now. So the timing is a little different than perhaps you would have seen.
Operator
Your next question comes from the line of Rich Anderson with BMO Capital Markets. Please proceed.
Rich Anderson - BMO Capital Markets
Hey Roger you mentioned when you are talking about the (inaudible) if you could do more faster you will if possible. How much more is more?
Roger Waesche
Well for this year, we had projected $206 million in our guidance and so year-to-date we've done the 63 million and as we mentioned, we have another 71 million under contract and then we we're working on other deals and to the extent that we could do a big deal to accelerate the plan we consider doing that. So I think at max we could be another $50 to $100 million over the plan for the year.
Rich Anderson - BMO Capital Markets
Okay, but that's not relative to 562. The 562 is identified and you don't think it will be more than that in terms of the overall plan.
Roger Waesche
Right, we have a plan that's 562 million. I do think that it will be continual recycler of capital going forward but that plan is supposed to end at the end of 2013.
Rich Anderson - BMO Capital Markets
Okay, when you talk about contractors being deliberate and all the rest, what about some of those wavers that are out there that have the clock ticking and then they have to move eventually. I mean how does that play into your expectations in terms of leasing in the contract retail?
Roger Waesche
I think it does, it's just we can't exactly frame up the exact timing, when it's going to happen. So there is a proximate requirement to settle for response time in those contracts and then beyond that our customers collaborate as part of their business solutions.
So our customers by their nature want to be closer to their customers so the prime contractors want to be close to the government and the sub-contractors want to be close to the prime contractors and all that will fall in place, it's just that it's going to take a lot to happen, we’ve experienced this before with (inaudible) experienced it in other locations where the government gets ramped up and its obviously frustrating for us that it's not going faster but we do believe that the combination of the contract requirements and just the co-location that's important for their business model will get us to where we want to get over time.
Rich Anderson - BMO Capital Markets
Is the term revenue at risk a new one for you guys? I like it, I like it.
Don't get me wrong.
Roger Waesche
Internally it's been something we’ve always focused on. We just thought we would communicate that to the public's people to get comfortable with our guidance for the balance of the year.
Rich Anderson - BMO Capital Markets
Yes, I think it's good. So is that the main swing factor or I know there is other factors to get to your guidance for the year but how substantial is capturing that 9 million of remaining revenue risk relative to other factors in getting to your guidance.
Is that like the biggest one?
Roger Waesche
It is if you take the 9 million and divide by 76 million shares outstanding that's $0.12 a share. Now Steve Budorick mentioned in his comments that we're working on deals of $6 million so two-thirds of the nine are active deals that we think have a high likelihood of getting done.
The other wildcard which is something you touched on earlier is accelerated sales and would impact that would have on loss NOI and with the proceeds going to pay down debt if we were to accelerate sales.
Operator
(Operator Instructions). Your next question comes from the line of Young Hu, Wells Fargo.
Please proceed.
Young Hu - Wells Fargo
Probably just quick questions from me. In terms of your occupancy level, it's around 87% now but it was as high as close to 95%.
How high do you think that occupancy can get and how long do you think it will take to materialize?
Roger Waesche
I think for long term modeling, we’re thinking in terms of 92-93%. I think when your portfolio gets to a certain size and you have lots of moving parts, when you are dealing with one or two buildings or even a portfolio of 20-30 buildings, the 95 sort of convention for stabilized occupancy I think is a factor or maybe if you are in a really high barrier market but I think the nature of our business is that if we can get to 92-93 we would be happy with that.
We would consider that structural occupancy of structural vacancy depending on how you want to look at it. And I think in terms of timing that we are looking at 13 and early 14 to get to that kind of stabilization.
Young Hu - Wells Fargo
And you sold a couple vacant assets in the quarter, but just wondering how many other vacant assets in terms of gross dollar amount was square footage? Is that still in your portfolio today and how much of that is premium SRP?
Roger Waesche
Right now we have one vacant building that is in the SRP that may lease before we sell it but generally speaking the majority of the assets. Again, all the assets really in the SRP except that one building or whatever we call it cap rate sales.
Operator
Your next question comes from the line of George Auerbach with ISI Group. Please proceed.
George Auerbach - ISI Group
Just a quick question on leverage. The supplemental shows net debt to EBITDA or adjusted EBITDA at 6.7 times.
I think your number is a little bit higher than that, but maybe just thinking through longer-term balance sheet. That 6.7 times, first as that assumes a full lease of development assets and or further asset sales.
And two, where would you want to see that number over the medium to longer term?
Roger Waesche
Well the way we actually compute is rather than make and project lease up in timing is, we adjust the debt and exclude the construction in progress say that it works dollar per dollar. That's how we do it.
I think long-term as we lease up the portfolio to the 92-93% levels that Roger talked about and in development is likely not to be quite as high a percentage of the overall portfolios that may have entered its peak. We think that we'll start to approach, get better than that and start to approach what we seeing the adjusted debt to EBITDA.
We again use our adjusted to growth assets as our key metric. We reported to have 49.2.
I think we said, our longer-term vision knowing that our best source of capital today are the SRP assets to take that ratio down to the low to mid 40s.
George Auerbach - ISI Group
Sorry if I missed it, but can you talk a bit about capital costs for lease transactions, put us down in DC and it sounded like the metro DC market leasing cost had really moved to the upside over the past six months. Maybe if you talk about what you're seeing both in the more commodity market as well as your expense market?
Roger Waesche
George I think it's some market to some market and obviously the higher your percentage of renewals to retaining the better, the lower your CapEx costs are. We experienced for the last two years now about $11 per square foot for renewals and retaining this quarter we were a little over $10 and I think that sort of a number that we're focused on for the balance of the year.
I don't think we've seen where CapEx pushing by (inaudible) is that extreme in most of the markets that we're in. I think we'll see a little bit of that in Virginia depending on how much leasing we do there this year.
But up in the BW Carter where things are a little more in balance , we're not seeing that push.
Operator
With no further questions in queue. I will now turn the call back to Mr.
Waesche for closing remarks.
Roger Waesche
Thank you all again for joining us today. If your questions did not get answered on this call, we are in our offices and available to speak with you later today.
Thank you.
Operator
Thank you for your participation today in the Corporate Office Properties Trust first quarter 2012 earnings conference call. This concludes the presentation.
You may now disconnect. Great day.