Slide 1: Third Quarter 2014 Investor Presentation
Third Quarter 2014 Investor Presentation November 2014
Slide 2: Forward-Looking Statements
Forward-Looking Statements As defined within the Private Securities Litigation Reform Act of 1995, certain statements herein may be considered forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Factors
Slide 3: Attractive Investment Characteristics
Attractive Investment Characteristics Attractive dividend ― $0.51 quarterly dividend; $2.04 annualized, or ≈5.6% as of October 31, 2014 ― Increased quarterly dividend rate in Q1 2014 by 6.25% from Q4 2013 Stable cash flows ― Cash flows grew throughout economic crisis and subsequent downturn On
Slide 4: About CCA
About CCA 4
Slide 5: Who We Are
Who We Are Established in 1983, CCA owns and operates minimum, medium and maximum- security level correctional facilities as well as residential re-entry facilities Converted to a REIT effective January 1, 2013 ― Real Estate is an essential core of our business • Over 14 million square feet in 5
Slide 6: Who We Are
Who We Are Fifth largest correctional system in the United States – Public or Private ― Largest private owner & operator in U.S. Currently 64 facilities located in 19 states and the District of Columbia ― Owned/Controlled and Operate 49 facilities ― Operate 12 facilities owned by our government
Slide 7: Clear Industry Leader
Clear Industry Leader CCA is the clear leader of private prisons, with about 41% of the private corrections market in the United States and nearly 60% of all privately owned/controlled corrections and detention beds in the United States. 90,000 40.8% 80,000 70,000 31.6% 60,000 50,000 40,000 69,222 1
Slide 8: National Portfolio with Geographic Diversity
National Portfolio with Geographic Diversity We have 52 Owned/controlled facilities and 12 managed-only facilities located in 19 states and the District of Columbia We currently have 3 facilities under development with design capacity for 6,444 additional beds Portfolio as of September 30, 2014.
Slide 9: High Quality, Diverse Customer Base
High Quality, Diverse Customer Base ≈ 85 agreements with federal, state, and local agencies ― Further diversification within federal agency customers: • > 100 potential customers within federal agencies: 94 U.S. Marshal districts; 24 ICE field offices; and the Federal Bureau of Prisons • Staggered
Slide 10: The Value CCA Provides to Government Partners and Taxpayers
The Value CCA Provides to Government Partners and Taxpayers Prison Break – A New Approach to Public Cost and Safety, a recent Policy Report indicates short- and long-term savings by governments can be achieved by contracting with the private sector without sacrificing quality (1) ― Savings can fun
Slide 11: The Value CCA Provides to Government Partners and Taxpayers
The Value CCA Provides to Government Partners and Taxpayers Cost savings are achieved through: Operational Cost Savings Operating Cost Per Total CCA Average Day in Government Real Estate Government-Run Owned Per Percent Facility(1) Cost Per Day Cost Per Day Diem(2) Savings BOP $73.00 $12.00 $85.00
Slide 12: Strong and Stable Cash Flows
Strong and Stable Cash Flows 12
Slide 13: Recession Resilient Cash Flows
Recession Resilient Cash Flows Strong AFFO growth with modest leverage Durable cash flow during economic downturns ― CCA repurchased stock during great recession : ≈20% of shares outstanding $3.50 7.0 Proforma AFFO per diluted share (1) AFFO Per Diluted Share $3.00 Leverage 6.0 $2.49 $2.56 Lever
Slide 14: Recession Resilient Cash Flows
Recession Resilient Cash Flows Because of the unique nature of CCA's asset class, in the depth of the recession, as other REITs were issuing equity under duress, CCA's strong and stable cash flow supported a substantial stock repurchase program Value of Stock Average % of Shares Year-end Year Repu
Slide 15: Recession Resilient Cash Flows
Recession Resilient Cash Flows From 2006 to YTD Q3 2014 Per Diems grew 18.3% 12% CAGR in Pro forma Adjusted EPS from 2006 to 2014 (1) Difficult-to-replace real estate assets = high contract retention and high barriers to entry ― Difficult permitting and zoning, long development lead times, uni
Slide 16: High Dividend Return for Shareholders
High Dividend Return for Shareholders C-Corp REIT $2.50 $2.04 $2.00 $1.92 $1.50 R $1.00 $0.80 E I $0.50 T $- 2012 (1) 2013 (2) 2014 (1) CCA initiated a quarterly dividend of $0.20 per share in the second quarter of 2012 (2) Adjusted to exclude the effects of a special dividend paid in 2013 16
Slide 17: Financial Highlights
Financial Highlights For the Three Months Ended For the Nine Months Ended September 30, September 30, 2014 2013 2014 2013 Adjusted Diluted EPS (1) $0.49 $0.46 $1.43 $1.48 Pro Forma Adjusted Diluted EPS (2) $0.49 $0.46 $1.43 $1.39 Normalized FFO per diluted share (1) $0.67 $0.63 $1.97 $2.03 Pro Forma
Slide 18: Correctional Industry Trends
Correctional Industry Trends 18
Slide 19: Public Prisons are Overcrowded
Public Prisons are Overcrowded At December 31, 2013, 27 states and the federal government were operating at 100% or more of capacity (1) ‒ Unsafe conditions; poor inmate quality of life ‒ Reduced rehabilitation opportunities; increased recidivism No meaningful public sector prison development in
Slide 20: Many Public Prisons are Old, Unsafe & Costly
Many Public Prisons are Old, Unsafe & Costly > 200,000 public prison beds are > 75 years old(1) 140,000 120,659 120,000 94,956 100,000 80,000 60,000 40,000 20,000 0 75 -100 years 100 or more years Replacing old public prisons provides operational cost savings & improves safety and living conditi
Slide 21: Increasing Market Penetration
Increasing Market Penetration Compelling value proposition has driven privatized market penetration higher 11% 10% 9% 8% 7% 6% 5% 4% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % Market Share for Private Operators Source: Bureau of Justice Statistics, Prisoners in 2013 & US Ma
Slide 22: Criminal Justice Efforts
Criminal Justice Efforts As corrections professionals, CCA shares a deep commitment with our partners to helping inmates successfully re-enter society Recently published research from BJS found that approximately 68% of released prisoners were arrested for a new crime within 3 years, and approxi
Slide 23: Criminal Justice Proposed Reforms
Criminal Justice Proposed Reforms As a matter of longstanding corporate policy, CCA does not lobby, oppose or endorse any legislation that affect sentencing or sentencing guidelines. The federal government is considering changes to sentencing guidelines primarily for drug-related offenses (1) ―
Slide 24: Potential for Growth
Potential for Growth 24
Slide 25: Opportunities for Growth & Value Creation
Opportunities for Growth & Value Creation Growth potential without the need to raise new capital ― 5% to 7% average annual earnings growth potential over next 3 to 5 years • Construction and new contract at the Trousdale Correctional Center expected to add $0.10 to $0.12 of EPS. Initial ramp expec
Slide 26: Opportunities for Growth & Value Creation
Opportunities for Growth & Value Creation Strategic Acquisitions ― Residential Re-entry facilities ― Other complimentary business acquisitions Invest undistributed cash flow & new capital ― Build & fill new beds • Expand existing facilities; greenfield development ― Acquire facilities: Own & Ope
Slide 27: Growth Through Facility Acquisitions
Growth Through Facility Acquisitions In 2011, CCA purchased and assumed operations of the state-owned Lake Erie, Ohio facility, an industry first. ― Each successive transaction should result in increased interest from others ― In 2012, GEO announced the acquisition of a facility owned by Montgomer
Slide 28: Growth Through Strategic Acquisitions
Growth Through Strategic Acquisitions In 2013 CCA acquired Correctional Alternatives, Inc. ("CAI"), for approximately $36.5 million ― Private owner-operator of community correctional facilities in California with excellent reputation ― Fully annualized, adds ≈ $14 million in revenues, ≈ $5 million
Slide 29: Macro Environment Provides Growth Opportunities
Macro Environment Provides Growth Opportunities ISSUE CCA's SOLUTION Improving economy & tax Vacant beds available at lower collections should increase operational cost, avoids need for funding for law enforcement, large capital investment by corrections and rehabilitation government ‐ Public pr
Slide 30: Growth Scenario A: Economy Continues to Improve
Growth Scenario A: Economy Continues to Improve Increased tax collections fund budget increases for law enforcement and corrections; inmate populations increase; desire for cost savings & capital to fund public works projects; need to reduce unfunded pensions Utilizing available bed capacity (adds
Slide 31: Growth Scenario B: Economy Stalls or Double Dips
Growth Scenario B: Economy Stalls or Double Dips Prison overcrowding; desire for cost savings & capital to fund public works; need to reduce unfunded pensions Utilize available bed capacity Acquire existing government owned facilities Replace old, unsafe & inefficient public prisons Grow com
Slide 32: Strong Balance Sheet Supports Growth
Strong Balance Sheet Supports Growth 32
Slide 33: Strong Balance Sheet and Simple Capital Structure
Strong Balance Sheet and Simple Capital Structure ≈33% Low Cost of Capital Competitive Advantage Debt/Undepreciated $350 million senior notes at 4 5/8% maturing May 2023 Fixed Assets $325 million senior notes at 4 1/8% maturing April 2020 3.2x $900 million revolver @ LIBOR + 1.75% maturing Dec
Slide 34: Capital Allocation Policy
Capital Allocation Policy Maintain Ample Liquidity and Solid Balance Sheet Maximum 4x Debt Leverage Payout ≈ 80% AFFO in Dividends (1) Invest ≈ 20% AFFO in Growth Paid out of internally generated Invest in facility acquisitions and cash flow development to grow earnings Revisit payout ratio an
Slide 35: Operational Overview
Operational Overview 35
Slide 36: Operational Philosophy
Operational Philosophy CCA integrates several Correctional Components: Safety & Security is our First priority Perform quality services for our government partners and the offenders entrusted in our care Provide effective programs such as drug treatment, education and vocational options to red
Slide 37: Professional Services with Significant Oversight
Professional Services with Significant Oversight Detailed contracts specify services required to be provided ▪ Detailed prescriptive statement of work specifies all services required to be provided ― Including meeting jurisdiction's guidelines and correctional standards In addition, CCA facilities a
Slide 38: Quality Assurance
Quality Assurance Quality, in the form of Operational Excellence, is a core value and essential guiding principle for CCA CCA's Quality Assurance Division is independent of company operations and resides within the Legal Department and reports to the General Counsel of CCA CCA Audit tools contai
Slide 39: Quality Assurance
Quality Assurance CCA conducts Unannounced Audits of each facility at least once annually The Quality Assurance process requires timely corrective action plans that address root causes of deficiencies and monitors progress in correcting deficiencies In addition to a comprehensive Quality Assur
Slide 40: Programming and Helping Inmates with Successful Re-Entry
Programming and Helping Inmates with Successful Re-Entry Offenders often lack skills and education. In an effort to reduce recidivism, CCA offers an array of programs: A variety of inmate services are offered by CCA and/or many of the volunteer organizations throughout our system ― Academic Educat
Slide 41: Appendix
Appendix
Slide 42: Utilizing Available Capacity Drives Earnings Growth
Utilizing Available Capacity Drives Earnings Growth ($ in thousands) Total Beds Available Estimated Potential at September 30, Average Annual Incremental 2014 Margin (2) EBITDA Owned and Controlled Vacant Facility Capacity(1) 5,994 $23.03 $ 50,385,264 Owned and Controlled beds at Facilities with > 1
Slide 43: Reconciliation to Adjusted Diluted EPS
Reconciliation to Adjusted Diluted EPS ($ in thousands, except per share amounts) For the Quarter Ended For the Nine Month Ended September 30, September 30, 2014 2013 2014 2013 Net income $ 57,546 $ 51,843 $ 165,016 $ 253,364 Special items: Expenses associated with debt refinancing transactions, net
Slide 44: Calculation of FFO, Normalized FFO and AFFO
Calculation of FFO, Normalized FFO and AFFO ($ in thousands, except per share amounts) For the Quarter Ended For the Nine Month Ended September 30, September 30, 2014 2013 2014 2013 Net income $ 57,546 $ 51,843 $ 165,016 $ 253,364 Depreciation of real estate assets 21,412 20,454 63,920 60,016 Deprec
Slide 45: Calculation of NOI
Calculation of NOI ($ in thousands) For the Quarter Ended For the Nine Month Ended September 30, September 30, 2014 2013 2014 2013 Revenue owned and controlled properties $ 353,784 $ 344,431 $ 1,041,510 $ 1,035,094 Operating expenses owned and controlled properties (231,420) (232,996) (686,274) (697
Slide 46: Calculation of EBITDA and Adjusted EBITDA
Calculation of EBITDA and Adjusted EBITDA ($ in thousands) For the Quarter Ended For the Nine Month Ended September 30, September 30, 2014 2013 2014 2013 Net income $ 57,546 $ 51,843 $ 165,016 $ 253,364 Interest expense, net 10,376 10,378 29,088 34,856 Depreciation and amortization 28,277 28,151 85,
Slide 47: Reconciliation to Pro-forma AFFO Per Diluted Share
Reconciliation to Pro-forma AFFO Per Diluted Share ($ amounts in thousands, except per share amounts) 2014E 2013 2012 2011 2010 2009 2008 2007 2006 Net income $ 221,000 $ 300,835 $ 156,761 $ 162,510 $ 157,193 $ 154,954 $ 150,941 $ 133,373 $ 105,239 Depreciation of real estate assets 85,000 80,990 78
Slide 48: Reconciliation to 2014 Guidance
Reconciliation to 2014 Guidance $ in thousands, except per share amounts Fourth Quarter 2014 Full-Year 2014 Low High Low High Adjusted earnings per diluted share $ 0.46 $ 0.49 $ 1.88 $ 1.91 Net income $ 54,000 $ 57,000 $ 218,765 $ 221,765 Asset impairments, net - - 2,235 2,235 Adjusted net income $
Slide 49: Financial Modeling Considerations
Financial Modeling Considerations Facilities are comprised of multiple housing units • E.G.: 1,500-bed facility may be comprised of five 300-bed housing units • Individual housing units may be mothballed until populations are available to fill • Cash operating expenses of a vacant bed ≈ $1,000 per
Slide 50: Financial Modeling Considerations
Financial Modeling Considerations Q3 2014 Weighted average cost of debt (effective rate): 3.7% ― $900 million revolver at LIBOR = 1.75% ($565.0 million drawn at September 30, 2014) ― $350 million, 4.625% senior notes due 2023 ― $325 million, 4.125% senior notes due 2020 Weighted Average Diluted
Slide 51: Comparable REITS
Comparable REITS Sector Companies Rationale Hospitals • Medical Properties Trust • High operational component • Obsolescence risk associated with the real estate • Exposed to government payors • High barriers to entry Skilled Nursing • Omega Healthcare • High exposure to government payors • Sabra He
Slide 52: Comparable REIT Valuations
Comparable REIT Valuations Dividend Company Ticker FFO Multiple Yield CCA CXW 13.7x 5.7% Medical Properties Trust MPW 12.4x 6.4% Omega Healthcare OHI 13.7x 5.4% Sabra Health Care SBRA 11.9x 5.6% National Health Investors NHI 15.0x 4.9% Senior Housing Properties SNH 12.6x 7.1% LTC Properties LTC 15.5
Slide 53: Contracting Process and Terms
Contracting Process and Terms Compensated per inmate, per day – "Per Diem" ― Some contracts (approximately one-third) provide occupancy guarantees to ensure customer access to beds Three contract types: ― Owned/Controlled: CCA owns/controls and operates prison • Single, consolidated per diem inc
Slide 54: Contracting Process and Terms
Contracting Process and Terms Procurements typically involve competitive bid process ― Per diems set through contract-by-contract competitive bids & negotiation • Unlike healthcare industry – No national reimbursement rate structure ― Bed availability often key requirement • Short execution period
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