Slide 1: Fourth Quarter 2015 Investor Presentation
February 2016 Fourth 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 ≈7.6% yield as of February 9, 2016 Only 10% of the $80B U.S. corrections market is privatized(1) » Market penetration has increased from 7% in 2002 to 10% in 2014(2) » Opportunity to gain m
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 December 31, 2015, CCA operated or leased 77 facilities located in 20 states and the District of Columbia » Owned/Controlled and Operated 60 facilities • 47 secure facilities, 67,5
Slide 7: Clear Industry Leader
Clear Industry Leader CCA is the clear leader of the private corrections market, at about 42% of the United States market and over 59% of all privately owned/controlled corrections and detention beds in the United States. Partnership Corrections Market Share 100,000 80,000 60,000 40,000 20,000 - C
Slide 8: National Portfolio with Geographic Diversity
National Portfolio with Geographic Diversity As of December 31, 2015, we had 66 owned/controlled facilities and 11 managed-only facilities located in 20 states and the District of Columbia We currently have a facility expansion underway in Arizona to increase the design capacity of our Red Rock
Slide 9: Avalon Correctional Services Portfolio
Avalon Correctional Services Portfolio On October 28, 2015, CCA closed on the acquisition of Avalon Correctional Services, a leading provider of community corrections services, drug and alcohol treatment services and residential re-entry services for $157.5 million Avalon operates 11 residential
Slide 10: High Quality, Diverse Customer Base
High Quality, Diverse Customer Base As of December 31, 2015, CCA had 108 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 Feder
Slide 11: CCA Value Proposition
CCA Value Proposition Near-Term Benefits Long-Term Benefits Cost Benefits: Cost Benefits: RFP/competitive bidding process Opportunity to reduce long-term pension Capital investment off government balance obligations sheets » State and local pension plans are underfunded by an estimated $4.7 tr
Slide 12: CCA Value Proposition
CCA Value Proposition Cost savings are achieved through: 1. Operational Cost Savings Operating Cost Per Total Day in Government Real Estate Government-Run CCA Average Percent Facility(1) Cost Per Day Cost Per Day Per Diem(2) Savings BOP $76.00 $12.00 $88.00 $72.76 17.3% California $175.00 $12.00 $18
Slide 13: Strong and Stable Cash Flows
Strong and Stable Cash Flows
Slide 14: Significant Cash Flow Generation
Significant Cash Flow Generation Strong AFFO growth while maintaining modest leverage Difficult to replace real estate assets = high contract retention and high barriers to entry » Difficult permitting and zoning, long development lead times, unique knowledge and experience requirements and high
Slide 15: High Dividend Return for Shareholders
High Dividend Return for Shareholders Since converting to a REIT in 2013, CCA has maintained a consistent dividend allocation policy of returning approximately 80% of AFFO per share Dividend payout reviewed quarterly to evaluate growth outlook for AFFO Annual Dividends Per Share $2.20 $2.16 $2.1
Slide 16: Financial Highlights
Financial Highlights For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2015 2014 2015 2014 Adjusted Diluted EPS (1) $0.43 $0.49 $1.93 $1.92 Normalized FFO per diluted share (1) $0.63 $0.67 $2.69 $2.65 AFFO per diluted share (1) $0.58 $0.65 $2.62 $2.57 Debt leverage (1)
Slide 17: Corrections Industry Trends
Corrections Industry Trends
Slide 18: Public Prisons are Overcrowded
Public Prisons are Overcrowded At December 31, 2014, 28 states and the federal government were operating at 100% or more of capacity(1) » Overcrowding produces unsafe conditions; poor inmate quality of life • No meaningful public sector prison development in recent years » Reduced rehabilitation o
Slide 19: Public Prisons are Aging, Costly and Unsafe
Public Prisons are Aging, Costly and Unsafe > 200,000 public prison beds are > 75 years old(1) 150,000 120,659 beds 94,956 beds 100,000 50,000 - 75 - 100 years 100 or more years Outdated prison infrastructure creates unnecessary taxpayer costs » Inefficient design for staffing leads to higher op
Slide 20: Public Prisons are Aging, Costly and Unsafe
Public Prisons are Aging, Costly and Unsafe Replacing old public prisons provides operational cost savings & improves safety and living conditions » CCA provides capital allowing government to fund other public works projects » States have shuttered old public facilities, saving taxpayer money, by
Slide 21: Increasing Market Penetration
Increasing Market Penetration Compelling value proposition has driven privatized market penetration higher Percentage 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 2014 (1) Bureau of Justice Stati
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 » In August 2014, CCA laid out a series of company-wide commitments to enhance and expand re-entry programming » CCA has made significant investments
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 additional change
Slide 24: Potential for Growth
Potential for Growth
Slide 25: 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 & build to ‐ Fragmented market suit development ‐ Opportunity to develop operational Acquire existing public facilities effic
Slide 26: Recent Capital Deployment Opportunities
Recent Capital Deployment Opportunities Expect to generate 5% to 7% average annual earnings growth over next 3 to 5 years » Facility Development • Red Rock Correctional Center (AZ) – Expansion of existing facility from 1,596 beds to 2,024 beds, scheduled to be complete late third-quarter to early
Slide 27: Recent Strategic Acquisitions
Recent Strategic Acquisitions In 2015, CCA announced two acquisitions in the residential re-entry market » In August, CCA acquired four residential re-entry facilities for $13.8 million • Acquired 605 beds located in the greater Philadelphia area • Leased to Community Education Centers who operate
Slide 28: Market-Driven Growth
Market-Driven Growth Market Dynamics 1 2 3 4 5 Improving economy & Budget cuts during the Public works projects Municipal credit ratings Large portfolio of government tax recession impacted lack capital funding and pressure and limited outdated and inefficient revenues turnover at public prison faci
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 Debt Maturity Schedule » $325M Sr. Notes @ 4.125%, due Apr. 2020 $1000M » $250M Sr. Notes @ 5.000%, due Oct. 2022 $824M » $350M Sr. Notes @ 4.625%, due May 2023 $750M » $900M Revolver @ LIBOR + 1.5
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 Evaluate dividend quart
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 necessary job skills and education. In an effort to improve the ability of ex-offenders to successfully transition back to their communities, CCA offers an array of programs: » A variety of inmate services are offered by CCA and/or many of the vol
Slide 38: Appendix
Appendix
Slide 39: Utilizing Available Capacity Drives Earnings Growth
Utilizing Available Capacity Drives Earnings Growth Estimated Potential Total Beds Available Average Annual Incremental at December 31, 2015 Margin(2) EBITDA Owned and Controlled Vacant Facility Capacity(1) 9,450 $ 24.61 $ 84,886,043 Owned and Controlled beds at Facilities with > 100 beds available
Slide 40: Reconciliation to Adjusted Diluted EPS
Reconciliation to Adjusted Diluted EPS ($ in thousands, except per share amounts) For the Quarter Ended For the Twelve Months Ended December 31, December 31, 2015 2014 2015 2014 Net income $ 48,598 $ 30,006 $ 221,854 $ 195,022 Special items: Expenses associated with debt refinancing transactions, ne
Slide 41: 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 Twelve Months Ended December 31, December 31, 2015 2014 2015 2014 Net income $ 48,598 $ 30,006 $ 221,854 $ 195,022 Depreciation of real estate assets 24,195 21,640 90,219 85,560 Impai
Slide 42: Calculation of NOI
Calculation of NOI ($ in thousands) For the Quarter Ended For the Twelve Months Ended December 31, December 31, 2015 2014 2015 2014 Revenue owned and controlled properties $ 396,371 $ 368,087 $ 1,576,938 $ 1,409,597 Operating expenses owned and controlled properties (264,250) (246,943) (1,050,582) (
Slide 43: Calculation of EBITDA and Adjusted EBITDA
Calculation of EBITDA and Adjusted EBITDA ($ in thousands) For the Quarter Ended For the Twelve Months Ended December 31, December 31, 2015 2014 2015 2014 Net income $ 48,598 $ 30,006 $ 221,854 $ 195,022 Interest expense, net 15,981 10,447 49,696 39,535 Depreciation and amortization 43,199 28,512 15
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) 2016 (Midpoint of Guidance) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net income $ 213,750 $ 221,854 $ 195,022 $ 300,835 $ 156,761 $ 162,510 $ 157,193 $ 154,954 $ 150,941 $ 133,373 $ 105,239
Slide 45: Reconciliation to 2016 Guidance
Reconciliation to 2016 Guidance ($ in thousands, except per share amounts) First Quarter 2016 Full-Year 2016 Low High Low High Net income $ 44,000 $ 46,500 $ 209,000 $ 218,500 Depreciation of real estate assets 23,000 23,000 92,000 92,000 Funds from Operations $ 67,000 $ 69,500 $ 301,000 $ 310,500 O
Slide 46: Financial Modeling Considerations
Financial Modeling Considerations Prison 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 b
Slide 47: Financial Modeling Considerations
Financial Modeling Considerations Q4 2015 Weighted Average Cost of Debt (effective rate): 3.88% » $900 million revolver at LIBOR + 1.50% ($439.0 million drawn at December 31, 2015) » $100 million Term Loan at LIBOR + 1.75% » $325 million, 4.125% senior notes due 2020 » $250 million, 5.000% senior
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 FY16 Dividend Company Ticker FFO Multiple(1) Yield(2) CCA CXW 11.6x 7.3% Healthcare Trust of America HTA 16.5x 4.3% Healthcare Realty Trust HR 17.0x 4.3% Medical Properties Trust MPW 8.2x 8.2% Omega Healthcare OHI 9.3x 7.5% Sabra Health Care REIT SBRA 7.6x 9.7% National He
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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