Slide 1: First Quarter 2015 Investor Presentation
May 2015 First Quarter 2015 Investor Presentation
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 » $0.54 quarterly dividend, $2.16 annualized, or ≈6.3% yield as of May 11, 2015 » Increased quarterly dividend rate by 5.9% in 1Q15 Only 10% of the $80B U.S. corrections market is privatized(1) » Market penetration has increased from 7% i
Slide 4: About CCA
About CCA
Slide 5: Who We Are
Who We Are Established in 1983, CCA owns and operates minimum, medium and maximum-security level correctional facilities, federal detention and residential facilities as well as residential re-entry facilities Operate as a Real Estate Investment Trust (REIT) » Real Estate is an essential core of
Slide 6: Who We Are
Who We Are The nation's largest owner of partnership correction and detention facilities in the United States As of March 31, 2015, CCA operated or leased 62 facilities located in 19 states and the District of Columbia » Owned/Controlled and Operated 47 facilities » Operated 12 facilities owned
Slide 7: Clear Industry Leader
Clear Industry Leader CCA is the clear leader of the private corrections market, at about 40% of the United States market and nearly 57% of all privately owned/controlled corrections, detention and residential beds in the United States. Partnership Corrections Market Share 90,000 80,000 70,000 60,
Slide 8: National Portfolio with Geographic Diversity
National Portfolio with Geographic Diversity We have 50 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 4,810 net additional beds Portfolio as of March 31, 2015
Slide 9: High Quality, Diverse Customer Base
High Quality, Diverse Customer Base 86 agreements with federal, state and local agencies » Further diversification within federal agency customers: • > 100 potential customers within federal agencies: 94 U.S. Marshals districts; 24 ICE field offices; and the Federal Bureau of Prisons • Staggered c
Slide 10: CCA Value Proposition
CCA Value Proposition Near-Term Benefits Long-Term Benefits Cost Benefits: Cost Benefits: RFP/competitive bidding process Reduced impact on long-term pension obligations Capital investment for facilities are off government » State and local pension plans are underfunded by an balance sheets es
Slide 11: CCA Value Proposition
CCA Value Proposition Cost savings are achieved through: 1. 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 $76.00 $12.00 $88.00 $74.84 15% California $175.00 $12.00
Slide 12: Strong and Stable Cash Flows
Strong and Stable Cash Flows
Slide 13: Recession Resilient Cash Flows
Recession Resilient Cash Flows Strong AFFO growth while maintaining modest leverage Durable cash flows during significant economic downturn » CCA repurchased approximately 20% of its outstanding shares from 2008-2011 $3.50 7.0x AFFO Per Diluted Share $3.00 6.0x $2.57 $2.61 $2.49 Leverage Ratio $
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 2014, per diem rates have increased 20.5% in aggregate 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 develo
Slide 16: High Dividend Return for Shareholders
High Dividend Return for Shareholders Since converting to a REIT in 2013, CCA has consistently increased its dividend return due to the expansion of AFFO per share: Annual Dividends Per Share $2.30 $2.20 $2.16 $2.10 $2.04 $2.00 $1.92 $1.90 $1.80 $1.70 $1.60 (1) 2013 2014 2015(2) (1) Adjusted to ex
Slide 17: Financial Highlights
Financial Highlights For the Three Months For the Full-Year Ended March 31, Ended December 31, 2015 2014 2014 Adjusted Diluted EPS (1) $0.49 $0.44 $1.92 Normalized FFO per diluted share (1) $0.68 $0.62 $2.65 AFFO per diluted share (1) $0.68 $0.58 $2.57 Debt leverage (1) 3.1x 3.3x 3.1x Fixed charge c
Slide 18: Corrections Industry Trends
Corrections Industry Trends
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) » Overcrowding produces unsafe conditions; poor inmate quality of life » Reduced rehabilitation opportunities; increased recidivism No meaningful public sector
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 - 75 - 100 years 100 or more years Replacing old public prisons provides operational cost savings & improves safety and living condit
Slide 21: Increasing Market Penetration
Increasing Market Penetration Compelling value proposition has driven privatized market penetration higher % of Market Share for Private Operators(1) 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (1) Bureau of Justice Statistics, Prisone
Slide 22: Criminal Justice Efforts
Criminal Justice Efforts As corrections professionals, CCA shares a deep commitment with our partners to help 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 approximat
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 policies or legislation that would determine the basis for or duration of an individual's incarceration or detention The federal government is considering changes to sentenci
Slide 24: Potential for Growth
Potential for Growth
Slide 25: Opportunities for Growth & Value Creation
Opportunities for Growth & Value Creation Expect to generate 5% to 7% average annual earnings growth over next 3 to 5 years with minimal new capital » Facility Development • Trousdale Turner Correctional Center (TN) – 2,552 bed facility for Tennessee with an initial ramp expected to begin in the f
Slide 26: Opportunities for Growth & Value Creation
Opportunities for Growth & Value Creation Capital Deployment Strategic Acquisitions Build and fill new beds Residential re-entry facilities ‐ Expand existing facilities & ‐ Fragmented market greenfield development ‐ Opportunity to develop operational Acquire existing public facilities efficien
Slide 27: Growth Through Strategic Acquisitions
Growth Through Strategic Acquisitions In 2013, CCA acquired Correctional Alternatives, Inc. ("CAI") for $36.5 million » Private owner-operator of community correctional facilities in California with excellent reputation » Annual run-rate at the time of acquisition was ≈ $14 million in revenues, ≈
Slide 28: Market-Driven Growth
Market-Driven Growth Market Dynamics 1 2 3 4 5 Improving Need to improve Public works Large portfolio of Municipal credit economy & tax cost efficiency of projects lack outdated and ratings pressure revenues (federal government capital funding inefficient public and limited debt & state) operations
Slide 29: Strong Balance Sheet Supports Future Growth
Strong Balance Sheet Supports Future Growth
Slide 30: Strong Balance Sheet and Simple Capital Structure
Strong Balance Sheet and Simple Capital Structure Our low cost of capital is a competitive advantage Staggered Debt Maturities $700M » $325M Sr. Notes @ 4.125%, due April $565M $600M 2020 $500M » $350M Sr. Notes @ 4.625%, due May 2023 $400M $325M $350M » $900M Revolver @ LIBOR + 1.75%, $300M matur
Slide 31: 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 32: Operational Overview
Operational Overview
Slide 33: 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 r
Slide 34: Professional Services with Significant Oversight
Professional Services with Significant Oversight Detailed contracts specify services to be provided » Detailed, prescriptive statement of work which specifies all services required to be provided • Including meeting jurisdictional guidelines and correctional standards CCA facilities are subject
Slide 35: 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 cont
Slide 36: 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 37: Offender Re-Entry Programming
Offender Re-Entry Programming 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 systems • Academic education & high school equiva
Slide 38: Appendix
Appendix
Slide 39: Utilizing Available Capacity Drives Earnings Growth
Utilizing Available Capacity Drives Earnings Growth ($ in thousands) Estimated Potential Total Beds Available Average Annual Incremental at March 31, 2015 Margin(2) EBITDA Owned and Controlled Vacant Facility Capacity(1) 5,994 $ 25.76 $ 56,357,986 Owned and Controlled beds at Facilities with > 100 b
Slide 40: Reconciliation to Adjusted Diluted EPS
Reconciliation to Adjusted Diluted EPS ($ in thousands, except per share amounts) For the Twelve For the Quarter Ended Months Ended March 31, December 31, 2015 2014 2014 Net income $ 57,277 $ 51,738 $ 195,022 Special items: Asset impairments, net of taxes 955 - 29,962 Diluted adjusted net income $ 5
Slide 41: Calculation of FFO, Normalized FFO and AFFO
Calculation of FFO, Normalized FFO and AFFO ($ in thousands, except per share amounts) For the Twelve For the Quarter Ended Months Ended March 31, December 31, 2015 2014 2014 Net income $ 57,277 $ 51,738 $ 195,022 Depreciation of real estate assets 21,272 21,077 85,560 Impairment of real estate asse
Slide 42: Calculation of NOI
Calculation of NOI ($ in thousands) For the Twelve For the Quarter Ended Months Ended March 31, December 31, 2015 2014 2014 Revenue owned and controlled properties $ 372,122 $ 339,169 $ 1,409,597 Operating expenses owned and controlled properties (248,706) (225,219) (933,217) Net operating income ow
Slide 43: Calculation of EBITDA and Adjusted EBITDA
Calculation of EBITDA and Adjusted EBITDA ($ in thousands) For the Twelve For the Quarter Ended Months Ended March 31, December 31, 2015 2014 2014 Net income $ 57,277 $ 51,738 $ 195,022 Interest expense, net 10,190 10,348 39,535 Depreciation and amortization 28,685 28,384 113,925 Income tax expense
Slide 44: Reconciliation to Pro-Forma AFFO Per Diluted Share
Reconciliation to Pro-Forma AFFO Per Diluted Share ($ amounts in thousands, except per share amounts) 2015 (Low-End of Guidance) 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net income $ 222,045 $ 195,022 $ 300,835 $ 156,761 $ 162,510 $ 157,193 $ 154,954 $ 150,941 $ 133,373 $ 105,239 Depreciation of
Slide 45: Reconciliation to 2015 Guidance
Reconciliation to 2015 Guidance ($ in thousands, except per share amounts) Second Quarter 2015 Full-Year 2015 Low High Low High Net income $ 58,000 $ 60,000 $ 222,045 $ 231,045 Asset impairment, net - - 955 955 Adjusted net income $ 58,000 $ 60,000 $ 223,000 $ 232,000 Depreciation of real estate ass
Slide 46: 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 an idle facility bed ≈ $1
Slide 47: Financial Modeling Considerations
Financial Modeling Considerations Q1 2015 Weighted Average Cost of Debt (effective rate): 3.64% » $900 million revolver at LIBOR + 1.75% ($565.0 million drawn at March 31, 2015) » $325 million, 4.125% senior notes due 2020 » $350 million, 4.625% senior notes due 2023 Weighted Average Diluted Sha
Slide 48: Comparable REITs
Comparable REITs Sector Companies Rationale Medical Office • Healthcare Trust of America • Obsolescence risk associated with the real estate • Healthcare Realty Trust • Specialized build-out required Hospitals • Medical Properties Trust • High operational component • Obsolescence risk associated wit
Slide 49: Comparable REIT Valuations
Comparable REIT Valuations FY15 Dividend Company Ticker FFO Multiple Yield CCA CXW 12.9x 6.3% Healthcare Trust of America HTA 16.1x 4.6% Healthcare Realty Trust HR 15.8x 4.8% Medical Properties Trust MPW 10.8x 6.5% Omega Healthcare OHI 12.2x 4.0% Sabra Health Care REIT SBRA 12.0x 5.7% National Healt
Slide 50: Contracting Process and Terms
Contracting Process and Terms Compensated per inmate, per day – "Per Diem" » Some contracts (approximately one-third) provide occupancy guarantees or have fixed payment terms to ensure customer access to beds Three contract types: » Owned/Controlled: CCA owns/controls and operates the prison • S
Slide 51: 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 a key requirement • Short execution peri
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