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By M. Marin
• Results improve as occupancies climb
• Continued balance sheet improvements
• Negotiations with new and existing customers to secure occupancy as contracts come up for renewal
CoreCivic’s (NYSE:CXW) 3Q21 revenue came in at $471.2 million, up about 1% year-over-year, despite the ongoing impact of the pandemic and CXW's sale of 47 non-core real estate assets over the past several months. The company's vaccination measures contributed to higher overall occupancy rates within its facilities and the revenue improvement.
…As occupancies improve
The Safety segment recorded a 110-basis point year-over-year improvement in occupancy to 73.2% and the Community segment recorded a 180-basis point improvement to 56.4%, contributing to the above-noted revenue improvement. CXW expects occupancies to continue an upward trend, as courts resume operations and COVID-19 restrictions are eased. However, given that active COVID-19 cases could continue to fluctuate in certain markets, in our view, occupancy rates might also fluctuate over the next several quarters.
Total operating expenses were 3% lower compared to 3Q20, in part, reflecting the challenges that many companies currently face regarding filling staffing positions. Adjusted EBITDA of $100.9 million advanced 7% year-over-year. CXW reported EPS of $0.25 compared to CXW reported EPS of $0.25 compared to $0.22 in 3Q20. Adjusted EPS came in at $0.28, equal to $0.28 in 3Q20. Pro forma adjusted 3Q21 FFO per share was $0.48 compared with $0.52.
Balance sheet improvements…
The company has accessed the capital markets to refinance debt and extend maturities. CXW raised $450 million of senior notes that mature in 2026 earlier this year and added a tack-on offering of $225.0 million. The additional notes have an effective yield to maturity of 7.65%. In 3Q21, CXW paid down $187.5 million of debt. Through the end of 3Q21, the company had reduced net debt by $500+ million year-to-date. Subsequently, after the quarter, CXW repaid $90.0 million of the outstanding balance on its term loan B using cash on hand.
CXW had $455.5 million of cash at the end of 3Q21, plus an additional $11.1 million of restricted cash. The company also has $786.1 million available under its revolver, which matures in 2023. CXW’s TTM leverage (net debt to adjusted EBITDA) was 2.7x, down from 4.0x at the end of 3Q20. CXW targets a leverage ratio of 2.25x to 2.75x.
… And Other Expected Shareholder Returns
As the 3Q21 leverage ratio is within the company's targeted range, CXW expects to begin deploying capital in additional ways in the near-term to return value to shareholders, potentially including share buybacks and / or dividends. The company has a history of buying its shares depending on market conditions. For instance, in 2009-2011, prior to the original conversion to a REIT structure, CXW repurchased about $500 million of its shares.
Ongoing discussions for new contracts / renewals …
Heading into 2021, CXW had four contracts with the USMS set to expire during the year. Two have been resolved to CXW’s economic benefit: at the Crossroads Correctional Center in Montana and the Northeast Ohio Correctional Center. Moreover, in the Northeast Ohio Correctional Center, the company secured occupancy with two government agencies.
…And multiple service model could serve as a template
The company continues to engage in discussions with the USMS and other government agencies to secure solutions regarding other contracts expiring near-term and the dual or perhaps even multiple service model could serve as a template for some facilities, we believe. Specifically, earlier in 2021, CXW signed a new contract with Mahoning County, Ohio to utilize up to 990 beds at the company's 2,016-bed Northeast Ohio Correctional Center. The Northeast Ohio Correctional Center also houses about 800 inmates under a management contract with the state of Ohio. CXW continues to operate the correctional facility under both contracts.
The company is engaged in discussions regarding the West Tennessee contract that expired at the end of 3Q21. This facility is important to the local economy, according to regional trade publications, in terms of creating jobs and contributing to the tax base, among other factors. Thus, local regulators are seeking solutions to maintain capacity at this facility. CXW is also in discussions with various government entities regarding the contract at its Leavenworth facility in Kansas, although the contract does not expire until next month.
Separately, CXW recently entered into a new three-year lease agreement for its Northwest New Mexico 596-bed facility, with automatic extension options. The new lease agreement commenced on November 1, 2021 and the company began transitioning the facility to the New Mexico Corrections Department. Moreover, CXW is analyzing and responding to several RFPs (requests for proposal). The company believes that need for many jurisdictions to replace old, outdated facilities with modern ones underscores the condition of prison facilities throughout most of the country and the need for states and federal authorities to access privately run facilities.
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