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Corporate Office Properties Trust (NYSE:OFC)
Q2 2021 Earnings Call
Jul 30, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Corporate Office Properties Trust Second Quarter 2021 Results Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Krewson-Kelly, COPT's Vice President of Investor Relations, Ms. Krewson-Kelly, please go ahead.

Stephanie Krewson-Kelly -- Vice President, Investor Relations

Thank you, Cherry. Good afternoon and welcome to COPT's conference call to discuss second quarter 2021 results and updated full year guidance. With me today are Steve Budorick, President and CEO; Todd Hartman, Executive Vice President and COO; and Anthony Mifsud, EVP and CFO. Reconciliations of GAAP and non-GAAP measures that management discusses are available on our website in the results press release and presentation, and in our supplemental information package. As a reminder, forward-looking statements made during this call are subject to risks and uncertainties, which are discussed at length in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve?

Stephen E. Budorick -- President & Chief Executive Officer

Good afternoon and thank you for joining us. Our unique investment strategy of clustering assets or our newest defense installation supporting national security activities continues to generate strong high-quality earnings. Second quarter FFO per share as adjusted for comparability of $0.58 exceeded the high end of guidance by a $0.01. It was driven primarily by same property results. Additionally, NOI from real estate operations in the quarter was up 8% and AFFO increased 17% from a year ago. Through the second quarter, we completed total leasing of 1.7 million square feet, which included 815,000 square feet of renewals, 205,000 square feet of vacancy leasing and 641,000 square feet of development leasing.

So far in the third quarter we've executed 53,000 square feet of development leasing and we are in advanced negotiations on another 250,000 square feet that should close this quarter. Based on this activity we're highly confident we will achieve our 1 million square foot growth for the year. Regarding our large renewal at DC-6, we have not finalized the lease yet. We reached agreement on business terms in June and expected documentation would follow quickly. The tenant is controlling the pace and progress of the actual lease document preparation and that process continues to labor.

Based on their deployment, power usage and the nature of other activities, we are conducting with them we have every confidence they will remain in our building. During the quarter, we placed 197,000 square feet of development projects in the service including Project EL, 107,000 square foot specialized facility we built for a defense contractor in San Antonio. We completed this project full quarter earlier than forecasted and we expect to deliver two additional projects ahead of schedule later in the year thereby accelerating lease commencements.

We expect to deliver NoVA C in 610 Guardian Way earlier than planned, which combined with Project EL are adding nearly $0.03 to this year's FFO per share. Stronger same property operations and accelerated development completions drivers that once again increased the midpoint of our full year guidance for FFO per share as adjusted for comparability. The $2.26 midpoint of updated 2021 guidance is $0.07 above our original midpoint and 6.6% higher than 2020 results.

With that, I'll turn the call over to Todd.

Todd Hartman -- Executive Vice President and Chief Operating Officer

Thank you, Steve. Metrics and trends in our Defense IT Locations exhibit strength and we continue to capture strong demand as shown in our lease accomplishment to-date. In the second quarter, we leased 1.4 million square feet including 661,000 square feet of renewals for a very strong retention rate of 89%. Cash rents on renewals rolled up 0.1% and annual escalations averaged 2.6%. For the 6-month period, we completed 815,000 square feet of renewal leasing with a 78% retention rate and average lease term of 4.3 years and cash rents rolling down 0.2%.

Late in the quarter, we learned that a tenant at Redstone Gateway did not win the recompete of a large contract and at the end of the year will vacate RG 1200, a 121,000 square feet building. This will be our first opportunity in 10 years to demonstrate the strength of demand for second-generation space at the park. We already have strong interest from multiple defense contractors looking to move to Redstone Gateway, including two that have 2022 occupancy requirements and want to gain control of the full building. The strength of demand we continue to see demonstrates Redstone Gateway's position in the market as the essential location for serving government customers on Redstone Arsenal.

In terms of vacancy leasing, we completed 111,000 square feet in the quarter, representing 10% of our available space at the beginning of the period. For the first half of the year, we completed 205,000 square feet of vacancy leasing. Our leasing activity ratio is 105%, the highest level since well before the pandemic demonstrating continued growth in demand across our portfolio. As such, we expect to accomplish healthy volumes of vacancy leasing in the remainder of this year. Regarding development leasing, second quarter achievement was a robust 630,000 square feet and consisted of a 265,000 square foot data center shell in Northern Virginia for our cloud computing customer and 179,000 square feet at Redstone Gateway in the form of two major pre-leases with KBRwyle.

We also executed a 183,000 square foot build-to-suit at the National Business Park. The tenant is a Fortune 100 company and an important defense contractor that provides secure infrastructure, artificial intelligence and cloud computing services to U.S. Defense and Intelligence agencies. Their selection of the National Business Park for their local headquarters further reinforces the dominance of our location for serving the missions at Fort Meade. So far in the third quarter we have executed a 53,000 square foot lease in 8000 Rideout Road with i3, a defense contractor that specializes in software engineering, systems integration and IT.

As a result, that project is now 73% leased and we are in advanced negotiations on leases that will stabilize the building. Lastly, we are in advanced negotiations with a defense contractor for a two-building campus at Redstone Gateway for 250,000 square feet. These leases would bring our total development leasing for the year to 950,000 square feet. Based on the 1.8 million square feet of opportunities in our development leasing pipeline, we are highly confident we will meet our 2021 development leasing goal.

With that, I'll turn the call over to Anthony.

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

Thanks, Todd. Second quarter FFO per share as adjusted for comparability of $0.58 exceeded the high end of guidance by $0.01 driven primarily by stronger same property results. Lower operating costs due to effective expense management and the timing of R&M projects boosted second quarter same property cash NOI by nearly $0.02 above our second quarter forecast. We expect to complete these R&M projects in the third and fourth quarters, which will impact quarterly same property cash NOI and FFO per share as shown on page 18 of the results deck. That being said, for the second consecutive quarter, operating savings and better than expected leasing outcomes are pushing our same property cash NOI forecast higher.

We now expect same property cash NOI for the year to either be flat or increase as much as 1%, which at the midpoint is a 150 basis point increase relative to our original guidance. We are maintaining our full year occupancy guidance of 90% to 92%, which continues to incorporate the negative impact of joint venturing fully occupied wholly owned datacenter shells to raise equity as well as the unexpected vacancy of the 121,000 square foot contractor building at Redstone Gateway in December. In early June, we sold two data center shells to a new 90%/10% joint venture with Blackstone Real Estate, which generated proceeds of $107 million.

The assets were valued at $119 million, which represented a 48% profit and demonstrated the value we create through development. Including three properties under development, we wholly own 10 data center shells that we estimate represent more than $750 million of equity value we can monetize to fund the equity component of future development. Lastly, and for reasons already discussed, we are increasing our full year guidance from a previously elevated range of $2.19 to $2.25 to a new range of $2.24 to $2.28. Our updated guidance range implies 5.7% to 7.5% growth over 2020 results and 6.6% at the midpoint.

It is important to note that early development deliveries are driving most of the increase to guidance and that the NOI from these developments expected in 2022 remains unchanged. For the third and fourth quarters we are establishing ranges for FFO per share guidance as adjusted for comparability of $0.54 to $0.56 and $0.56 to $0.58 respectively. The $0.55 midpoint in the third quarter reflects a full quarter's dilution from the two data center shells we joint ventured in June and executing additional R&M projects.

With that, I'll turn the call back to Steve.

Stephen E. Budorick -- President & Chief Executive Officer

Thank you. At mid-year, our FFO achievement has outperformed our business plan significantly. This quarter's FFO result is the fifth time in the past six quarters that we exceeded our plan and the third time in which we elevated full-year FFO guidance. Our key performance metrics such as vacancy leasing and development leasing are tracking at or above plan. Clearly our strategy of concentrating investments adjacent to priority Department of Defense missions and creating value through low risk developments at these locations is delivering FFO growth and lowering our cost of capital.

Our strategy continues to provide over a million square feet of new development opportunities annually and by expansion, high value Defense IT assets that benefit our shareholders long term. This year, our development capability excellence is not only delivering projects on budget and on time, in several instances we're completing projects ahead of schedule and accelerating our bottom line results.

Our property operations excellence is ringing out additional performance from our portfolio and improving our same property results. Our highly durable operating portfolio, strong balance sheet and reliable, low-risk development program combined to create the very visible growth we are delivering. We have a strong set of development and leasing opportunities before us and the balance sheet and access to capital to seize upon them.

With that, operator, please open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Emmanuel Korchman from Citi. Your line is open.

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

Hey, everyone. Good afternoon. You guys spoke about the demand at Redstone Gateway especially for backfilling the space is going to be vacated. Do you think that that excess demand is going to lead to new developments there as well or are you just more confident refilling the space that you didn't expect to get back [Indecipherable]?

Stephen E. Budorick -- President & Chief Executive Officer

Well, as Todd mentioned, we have two contractors vying to replace that tenant in RG 1200. Only one of them is going to fit. So by extension, yes, we think we take the other one to a new development.

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

I guess the question is more were you already in development conversations with them and now one of those is going to get satisfied by this existing building backfill or you've just -- are you in new conversations with them since the tenant vacated?

Stephen E. Budorick -- President & Chief Executive Officer

These are pretty fast breaking opportunities, so we had not planned the development for them. It may have recurred had this not happened. But certainly with the inventory, they see an attractive opportunity to make a move quicker.

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

And then back to our favorite topic, DC-6, it sounds like you're frustrated with the process. Investors are certainly frustrated with the process. Is there anything else here that may change from within your conversations or is it literally just waiting for some of the pick up the pen and finalize the deal?

Stephen E. Budorick -- President & Chief Executive Officer

It's really waiting for the point of contact to put some time and effort in finalizing the documents.

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

Are you offering a new best guess as to when that gets done or are you going to stay away from that?

Stephen E. Budorick -- President & Chief Executive Officer

I'm out of that business. I've been wrong too many times in a row. Manny, in June, we're pretty excited that we thought we'd wrap it up and literally nothing happened through July, so we continue to wait.

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

Are they being responsive, Steve? Are they -- is it literally just silence?

Stephen E. Budorick -- President & Chief Executive Officer

How will I say it? They pretend to be responsive but then they fail to deliver.

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

Thanks very much.

Operator

Your next question comes from the line of Craig Mailman from KeyBanc. Your line is open.

Stephen E. Budorick -- President & Chief Executive Officer

Hello Craig.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

How are you? I guess we'll continue to beat the dead horse of DC-6 for a second. You guys had said down 10 to 15 on rent. Is that still kind of the expectation? And also have these guys tried to get any like early outs from you guys or anything that could potentially kind of impact scalability if you guys go to bring this to market eventually?

Stephen E. Budorick -- President & Chief Executive Officer

So we've reached -- we believe we've reached business terms back in June. And I don't want to reveal all the elements of their lease. But I would say the structure is almost identical to the original lease we had.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And is that mark-to-market still pretty much in the ballpark?

Stephen E. Budorick -- President & Chief Executive Officer

Yes.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And they didn't have any early outs in the first lease, right?

Stephen E. Budorick -- President & Chief Executive Officer

Well, they had a right to terminate early but there is significant penalty associated with it.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And then just on I guess development in general, you guys are signing a lot of leases. Are you guys having any trouble getting materials given kind of the shortages of different building products going on or do you guys feel like you can maintain the similar pace of deliveries that you guys have historically done?

Stephen E. Budorick -- President & Chief Executive Officer

Well, as our comments pointed out we're finishing a couple of these projects earlier than we thought. We have had no problem getting the materials and the labor we needed to deliver. Two of those projects were just signed last year. So the bulk of the development progressed through that period of time when there is a lot of narrative about shortages. We've had no issue.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And then just last one from me, update on 310 NBP. I think you guys have said part of it would be leased by 2Q and the rest end of the year. Kind of what's the updated timing on that one?

Stephen E. Budorick -- President & Chief Executive Officer

Okay. And then just last one from me, update on 310 NBP. I think you guys have said part of it would be leased by 2Q and the rest end of the year. Kind of what's the updated timing on that one?

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. Is that still the expected timing?

Stephen E. Budorick -- President & Chief Executive Officer

It is.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay, great. Thank you, guys.

Stephen E. Budorick -- President & Chief Executive Officer

Thanks, Craig.

Operator

Your next question comes from the line of Steve Sakwa of Evercore ISI. Your line is open.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Anthony, I was wondering if you could just help us think through the same store occupancy target of 90% to 92%. I appreciate the RG 1200 project that put some additional vacancy into the portfolio. And I can kind of see maybe where the high-end or midpoint could come into play, but can you help us think through how the low end would come into play at this point given that we're kind of sitting here in August or just about August?

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

Well, that the low end is -- contemplates the impact of one to two transactions or additional data center shell sales that are in our results for 6/30 as 100% leased transactions. If each of those transactions has about a 20 basis point impact on same office -- year-end same office occupancy results, so to the extent we execute both of those or sort of managing each based on the timing of our development capital needs. So it's really the question as to whether we execute the second of those data center shell sales.

Steve Sakwa -- Evercore ISI -- Analyst

And I realize you don't provide kind of overall kind of occupancy trends. But if you were to just think about where your overall occupancy is today, any sense for kind of maybe where that bottoms and when do you think -- is the bottom kind of put in after Transamerica is out or how do you sort of think about overall occupancy?

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

The bottom on a total occupancy basis is probably the end of the first quarter of next year when Transamerica will have moved out and we'll have the impact of the non-renewal at Redstone. The total occupancy number just so you're -- just you're aware for the second quarter versus the first quarter were impacted by us placing the balance of 2100 L into service that was formerly not part of the denominator. So now that it was 12 months from its place and service date that 81,000 square feet was placed into service during the quarter, second quarter.

Steve Sakwa -- Evercore ISI -- Analyst

Got it. And then maybe just last question, since you mentioned 2100 L any -- just kind of update on the leasing? And sort of what are your thoughts around monetizing that asset maybe once you lease it up?

Stephen E. Budorick -- President & Chief Executive Officer

Well, Todd, why don't you handle the leasing?

Todd Hartman -- Executive Vice President and Chief Operating Officer

Sure. DC was hit particularly hard during the pandemic and it's emerging slowly. But we have seen an increase in activity in tours and have about 100,000 square feet for the -- of active prospects for the 80,000 square feet of vacancy. Several of those are in proposal stage and several of those are -- the proposals are being drafted so increase in activity. We feel good that we're seeing more people and expect some leasing to emerge.

Stephen E. Budorick -- President & Chief Executive Officer

Regarding our thoughts, we fully intend when we've delivered the value we expect it to, to take that asset to market, recycle it.

Steve Sakwa -- Evercore ISI -- Analyst

Got it, thanks.

Operator

Your next question comes from the line of Jamie Feldman of Bank of America. Your line is open.

Jamie Feldman -- Bank of America Securities -- Analyst

Great, thank you very much. I'm just curious if you have a sense of any kind of price discovery on where cap rates are for your different products -- different markets -- for your products in different markets?

Stephen E. Budorick -- President & Chief Executive Officer

So we have a whole research piece on that and I'd recommend rather than trying to remember exactly what's in that piece on the call that we follow up with you with Stephanie -- kind of, we give you some support on those cap rates.

Jamie Feldman -- Bank of America Securities -- Analyst

Okay, sounds good. And then can you talk about the Baltimore office market just what your thoughts are on backfilling in the space you're getting back early next year and just what that pipeline looks like?

Stephen E. Budorick -- President & Chief Executive Officer

Sure. Well, Todd, my analyst.

Todd Hartman -- Executive Vice President and Chief Operating Officer

Sure. Well, since the market became aware of the impending vacancy at 100 Light, the response has been very favorable. We have about 120,000 feet of active prospects for that vacancy with about 80,000 of it needing a 2020 occupancy. So, we've been pretty encouraged by the market's reception to that space. It's a pretty unique space being the highest in the market. So we feel encouraged by the activity so far.

Jamie Feldman -- Bank of America Securities -- Analyst

Okay. Great, thank you.

Stephen E. Budorick -- President & Chief Executive Officer

Thank you.

Operator

Our next question is from the line of Anthony Paolone from J.P. Morgan. Your line is now open.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay, thank you. Maybe for Anthony -- you have guidance out there with like -- looks like year ending run rate about $0.57 at the midpoint. And you talked about [Technical Issues].

Stephen E. Budorick -- President & Chief Executive Officer

Hello. Anybody there?

Anthony Paolone -- J.P. Morgan -- Analyst

It's Tony Paolone. I'm here. You can hear me.

Stephen E. Budorick -- President & Chief Executive Officer

Tony, we lost you right after you got started. So why don't you take it from the top?

Anthony Paolone -- J.P. Morgan -- Analyst

Yeah, sure, thanks. So, it's for Anthony and the question surrounds just run rate going into '22 which is supposed to be your fourth quarter, looks like about $0.57 midpoint in terms of ending the year but you've got more visibility now on some leases that are occurring or not, the roll outs going into next year. Just any way to bottom line kind of like what the step down may be starting Jan 1 given what you know to that run rate?

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

Yeah, I think, well, the impact for the two large non-renewals in the first quarter. Their annual revenue totals about $8 million. So on a quarterly basis that would be about $0.02 per share. Assuming that there is no -- because those happen at the beginning of the year we're not assuming any backfill for those spaces. But then we also get the benefit of a full quarter's development placed in service from the fourth quarter. So it might be a penny or two lower than the run rate at the end of -- the number at the end of the fourth quarter.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay, got it, thanks. And then just can you talk about the data center shell pipeline as we start to look out to the next 18 months, roughly?

Stephen E. Budorick -- President & Chief Executive Officer

Sure. We have land positions that will accommodate roughly another million square feet. We do expect leasing next year. The timing of that leasing has really been driven by the availability of critical power as the market really -- the availability in the market got consumed over the last couple of year's robust development. But in total, it's about 1 million in what we own today and potentially more thereafter.

Anthony Paolone -- J.P. Morgan -- Analyst

Do you think there is any sensitivity on yields on those types of projects just given where cap rates seem to have gone and also just materials costs and so forth.

Stephen E. Budorick -- President & Chief Executive Officer

Well, it's more of the cap rate than the material cost. The structure of the deals is a yield on cost. So when costs go up the rent will go up with them. It's more pressure on the negotiated yield given that the cap rates have continued to compress.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. And then just last one from me, just you have been able to raise guidance and you put up growth, any thoughts on the dividend and when maybe we could see a change there at some point?

Stephen E. Budorick -- President & Chief Executive Officer

Go ahead.

Todd Hartman -- Executive Vice President and Chief Operating Officer

Yeah. We continue to view the dividend as a capital allocation decision and since our development opportunities continue to remain very robust, and we have no sort of tax structure need to increase the dividend right now, we're using that additional net operating cash flow to just manage the amount of equity that we need to raise each year for capitalizing the development pipeline. So at this point our dividend -- our payout ratio is incredibly strong and we have room to move it up when we either need to from a tax standpoint or we believe that there is -- where we don't have the development opportunities to invest in.

Anthony Paolone -- J.P. Morgan -- Analyst

Got it. Okay, thank you.

Operator

Next question is from the line of Dave Rodgers from Baird. Your line is now open.

Dave Rodgers -- Robert W. Baird & Co. -- Analyst

Yeah. Hey, good morning or good afternoon. You guys have answered a lot already. But maybe Steve, can you talk about the more recent JEDI announcement and the impact or the reaction in the defense community and whether that opens or closes any doors for you guys in the near term that you previously planned on?

Stephen E. Budorick -- President & Chief Executive Officer

Well, I have to say that there is not great visibility into that space yet. But all along we really did that believe JEDI was going to be a material boost to our company because our data center shell customer have not really talked about the impact of it. It's our belief that with a multi-vendor opportunity our potential opportunity set would be higher based on some of the great locations that we have. But it's pretty early yet to see a clear path.

Dave Rodgers -- Robert W. Baird & Co. -- Analyst

That's helpful, Steve. I appreciate that. And then maybe one for Anthony, if you had addressed this earlier and I missed it, just let me know. The impact of the lease in Baltimore that you'll get back in the space in the third quarter of '22 but it looks like you will reset the gap rent in the third quarter of '21, any meaningful impact from that that we should think about?

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

That rent's rolling down about 10% from the current rent and that would start the month after we execute the renewal with the tenant. So right now we're forecast -- our current forecast and guidance has that effective as of September 1.

Dave Rodgers -- Robert W. Baird & Co. -- Analyst

Okay. Thanks everyone.

Operator

Next is Bill Crow from Raymond James. Your line is now open.

Bill Crow -- Raymond James Financial Inc. -- Analyst

Hey, good afternoon, thanks. Steve, maybe it's just my perception but my thought was that you viewed a million square feet of development leasing as readily achievable and maybe even a low bar. And I'm just wondering whether and again, maybe that's just misperception on my part, but your confidence level in maybe doing much better than a million square feet this year?

Stephen E. Budorick -- President & Chief Executive Officer

It's timing issue, Bill. There are several projects that we expect to win that could occur by the end of the year, which would push us above -- materially above, but the timing is -- and I have enough confidence to the timing to put that into a forward-looking statement.

Bill Crow -- Raymond James Financial Inc. -- Analyst

Alright, understood. Appreciate that. And then one quick question on -- I apologize, on DC-6 but what are market rents doing over the past year in competitive projects?

Stephen E. Budorick -- President & Chief Executive Officer

So our renewal rate is in line with other large deployment renewals that have occurred in the last, call it six to 12 months. New leasing, those rates are materially lower maybe as much as $15 a kilowatt a month. But the renewals we're right in the range of the market.

Bill Crow -- Raymond James Financial Inc. -- Analyst

And the reason for the new lease roll downs on pricing is just too much space, not enough demand, cheaper to build the competitive nature. What's driving the rents down?

Stephen E. Budorick -- President & Chief Executive Officer

Well, I think it's a speculative development that needs to put some income into those assets.

Bill Crow -- Raymond James Financial Inc. -- Analyst

Yeah, OK. Appreciate it. Thank you.

Stephen E. Budorick -- President & Chief Executive Officer

Sure, Bill.

Operator

Next is Tom Catherwood from BTIG. Your line is now open.

Thomas Catherwood -- BTIG -- Analyst

Excellent, thank you and good afternoon everyone. Todd, in your prepared remarks, you mentioned leasing activity ratio of 105%, which I think you said was a high for the company. How does that compare to prior periods -- maybe last quarter or a year ago? And then do you also track the time it takes for the leases to go from kind of initial activity and interest through documentation and then to execution because the period seems like it's been taking longer and longer over recent years?

Todd Hartman -- Executive Vice President and Chief Operating Officer

Well, the ratio -- is obviously affected during the pandemic. We're at levels now that approximate pre-pandemic levels but throughout the pandemic it dropped and it has been steadily increasing since late last year and now post pandemic. I don't know that it's at an all-time high but it's a high that we haven't seen in at least 18 months I'll say. But as far as the time of leasing we don't track that officially but in conversations with our leasing teams and our asset managers, it's clear that the deal cycles have extended something that might have been a four-month cycle before is now five or six. And six months might be eight. It's a function of tenants having a lot of opportunity where they're looking at a lot of different spaces and taking their time to make their decision. So the good news is people are moving through the pipeline. It just seems to be taking a little bit longer than it used to.

Thomas Catherwood -- BTIG -- Analyst

Understood. And then it was good to see the pickup of obviously leasing across the board this quarter, but you also had a pickup in Northern Virginia and that's a market that seems like it's been a little slower over recent years. Can you kind of comment on recent activity there and is there an expectation you get some more vacancy leasing there in the near term?

Todd Hartman -- Executive Vice President and Chief Operating Officer

Well, it is one of the markets where we have seen a recent uptick in activity. Activity ratio is very strong and it's been coming on strong over the last three months. Again, we would anticipate closing some of that activity, but can't really comment on when that would happen.

Thomas Catherwood -- BTIG -- Analyst

Got it. Thanks, Todd. And then last one for me, maybe for Steve. You've mentioned, finishing the project early in San Antonio. You have a handful of assets there around Lackland. Obviously, they've all been fully leased for years. What kind of opportunity do you have to maybe expand your portfolio down there? Anything else in the near term?

Stephen E. Budorick -- President & Chief Executive Officer

I wouldn't expect anything in the near term. We've not consumed all the land that we've held on our balance sheet. And ultimately, we do expect the mission to continue to grow and we have capacity inside defense to accommodate the government. And as opportunity presents with contractors, we'll have to source some new land, but I wouldn't expect anything in the next 12 to 18 months.

Thomas Catherwood -- BTIG -- Analyst

Got it. That's it from me. Thanks everyone.

Operator

Next is Chris Lucas from Capital One Securities. Your line is now open.

Chris Lucas -- Capital One Securities -- Analyst

Good afternoon, everybody. Hey Steve, just wanted to follow up on your comment about the perspective development leasing deals in Redstone. I'm just curious as to whether those deals would be part of the outside defense land or inside defense or is it some combination thereof?

Stephen E. Budorick -- President & Chief Executive Officer

So the things we're working to close now and a start that we contemplate we might add are all outside defense. There is longer term opportunity inside defense.

Chris Lucas -- Capital One Securities -- Analyst

Okay. And then Anthony, I guess on the data shell capital raises, I think you had -- I think earlier in the year you had suggested you would see a series of deals done second quarter, third quarter, fourth quarter. It doesn't sound like you're as confident or maybe that the -- all of the deals that you had previously guided to necessarily have to close this year. Can you give us your latest thinking on the data shell JV process?

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

Sure. Our current forecast assumes that we execute another joint venture by the end of the third quarter and at least based on our current thinking and really driven by the fact that we have sort of incremental EBITDA from the operations of the portfolio to maintain our overall leverage levels. At this point we don't think we need that additional transaction in the fourth quarter. So right now we would contemplate a JV on potentially two data center shells by the end of the third quarter and that would be the balance -- that would be all for the balance of the year.

Chris Lucas -- Capital One Securities -- Analyst

Okay. Thank you. That's all I had.

Stephen E. Budorick -- President & Chief Executive Officer

Thanks, Chris.

Operator

[Operator Instructions] No further questions. I will now turn the call back to Mr. Budorick for closing remarks.

Stephen E. Budorick -- President & Chief Executive Officer

Thank you all for joining our call today. We will be in our offices this afternoon. So please coordinate through Stephanie if you'd like a follow-up call.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Stephanie Krewson-Kelly -- Vice President, Investor Relations

Stephen E. Budorick -- President & Chief Executive Officer

Todd Hartman -- Executive Vice President and Chief Operating Officer

Anthony Mifsud -- Executive Vice President and Chief Financial Officer

Emmanuel Korchman -- Citigroup Global Markets -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Jamie Feldman -- Bank of America Securities -- Analyst

Anthony Paolone -- J.P. Morgan -- Analyst

Dave Rodgers -- Robert W. Baird & Co. -- Analyst

Bill Crow -- Raymond James Financial Inc. -- Analyst

Thomas Catherwood -- BTIG -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

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