Slide 1: First Quarter 2016 Investor Presentation
May 2016 First Quarter 2016 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 a 6.5% yield as of May 13, 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 mark
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 reentry 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 correctional, detention and residential reentry facilities in the United States As of April 8, 2016, CCA operated or leased 84 facilities located in 20 states and the District of Columbia » Owned/Controlled and Operated 67 facilities • 47 secu
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 approximately 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 2
Slide 8: National Portfolio with Geographic Diversity
National Portfolio with Geographic Diversity As of April 8, 2016, we had 73 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 Corr
Slide 9: Significant Investment in Residential Reentry
Significant Investment in Residential Reentry Residential reentry facilities provide offenders with the tools and skills necessary to successfully return to the communities without recidivating Today, CCA owns or controls 24 residential reentry properties, representing 4,970 beds 9
Slide 10: Residential Reentry Acquisition History
Residential Reentry Acquisition History Date of # of State(s) of # of Acquisition Acquisition Acquisition Facilities Operation Beds Price Correctional July 2013 2 California 605 $36.5m Alternatives, Inc. Pennsylvania August 2015 4 Pennsylvania 605 $13.8m Portfolio Avalon Oklahoma, Correctional Octob
Slide 11: High Quality, Diverse Customer Base
High Quality, Diverse Customer Base As of March 31, 2016, CCA had more than 100 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 th
Slide 12: 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 13: 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 $75.30 14.4% California $175.00 $12.00 $18
Slide 14: Strong and Stable Cash Flows
Strong and Stable Cash Flows
Slide 15: 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 16: 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 17: Financial Highlights
Financial Highlights For the Three Months For the Twelve Months Ended March 31, Ended December 31, 2016 2015 2015 Adjusted Diluted EPS (1) $0.40 $0.49 $1.93 Normalized FFO per diluted share (1) $0.60 $0.68 $2.69 AFFO per diluted share (1) $0.61 $0.68 $2.62 Debt leverage (1) 3.6x 3.0x 3.5x Fixed char
Slide 18: Corrections Industry Trends
Corrections Industry Trends
Slide 19: 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 20: 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 21: 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 22: 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 23: Criminal Justice Efforts
Criminal Justice Efforts As corrections professionals, CCA shares a deep commitment with our partners to help inmates successfully return to their communities » In August 2014, CCA laid out a series of company-wide commitments to enhance and expand reentry programming » CCA has made significant in
Slide 24: Criminal Justice Proposed Reforms
Criminal Justice Proposed Reforms CCA does not, under longstanding policy, lobby for or against policies or legislation that would determine the basis for, or duration of, an individual's incarceration or detention The federal government is considering additional changes to sentencing guidelines
Slide 25: Potential for Growth
Potential for Growth
Slide 26: Opportunities for Growth & Value Creation
Opportunities for Growth & Value Creation Capital Deployment Strategic Acquisitions Utilize Existing Capacity Build new bed capacity Residential reentry facilities Idle facilities ‐ Expand existing facilities & ‐ Fragmented market ‐ CCA has 6 idle core facilities build to suit development repr
Slide 27: 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 is scheduled to be complete late in the fourth quarter
Slide 28: Recent Strategic Acquisitions
Recent Strategic Acquisitions In the last twelve months CCA completed three acquisitions in the residential reentry market, adding 4,367 beds to our portfolio » In August 2015, acquired four residential reentry facilities for $13.8 million • Acquired 605 beds located in the greater Philadelphia ar
Slide 29: 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 30: Strong Balance Sheet Supports Future Growth
Strong Balance Sheet Supports Future Growth
Slide 31: 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 $779M » $350M Sr. Notes @ 4.625%, due May 2023 $750M » $900M Revolver @ LIBOR + 1.5
Slide 32: 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 33: Operational Overview
Operational Overview
Slide 34: 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 35: 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 36: 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 37: 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 38: Offender Reentry Programming
Offender Reentry 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 volu
Slide 39: Appendix
iti Sel $ Pai
Slide 40: Utilizing Available Capacity Drives Earnings Growth
Utilizing Available Capacity Drives Earnings Growth Estimated Potential Total Beds Available Average Annual Incremental at March 31, 2016 Margin(2) EBITDA Owned and Controlled Vacant Facility Capacity(1) 6,810 $ 24.07 $ 59,829,596 Owned and Controlled beds at Facilities with > 100 beds available 9,7
Slide 41: 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 March 31, December 31, 2016 2015 2015 Net income $ 46,307 $ 57,277 $ 221,854 Special items: Expenses associated with debt refinancing transactions, net - - 698 Expenses
Slide 42: 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 March 31, December 31, 2016 2015 2015 Net income $ 46,307 $ 57,277 $ 221,854 Depreciation of real estate assets 23,337 21,272 90,219 Funds From Operations $ 69,644
Slide 43: Calculation of NOI
Calculation of NOI ($ in thousands) For the Quarter Ended For the Twelve Months Ended March 31, December 31, 2016 2015 2015 Revenue owned and controlled properties $ 396,878 $ 372,122 $ 1,576,938 Operating expenses owned and controlled properties (264,986) (248,706) (1,050,582) Net operating income
Slide 44: Calculation of EBITDA and Adjusted EBITDA
Calculation of EBITDA and Adjusted EBITDA ($ in thousands) For the Quarter Ended For the Twelve Months Ended March 31, December 31, 2016 2015 2015 Net income $ 46,307 $ 57,277 $ 221,854 Interest expense, net 17,544 10,190 49,696 Depreciation and amortization 42,059 28,685 151,514 Income tax expense
Slide 45: 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 $ 215,500 $ 221,854 $ 195,022 $ 300,835 $ 156,761 $ 162,510 $ 157,193 $ 154,954 $ 150,941 $ 133,373 $ 105,239
Slide 46: Reconciliation to 2016 Guidance
Reconciliation to 2016 Guidance ($ in thousands, except per share amounts) Second Quarter 2016 Full-Year 2016 Low High Low High Net income $ 51,500 $ 53,500 $ 212,000 $ 219,000 Expenses associated with mergers and acquisitions, net 500 500 2,000 2,000 Adjusted net income 52,000 54,000 214,000 221,00
Slide 47: 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 48: Financial Modeling Considerations
Financial Modeling Considerations Q1 2016 Weighted Average Cost of Debt (effective rate): 3.97% » $900 million revolver at LIBOR + 1.50% ($394.0 million drawn at March 31, 2016) » $98.8 million Term Loan at LIBOR + 1.75%, decreasing to match the rate of the revolver in Q2 2016 » $325 million, 4.12
Slide 49: 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 50: Comparable REIT Valuations
Comparable REIT Valuations FY16 Dividend Company Ticker FFO Multiple(1) Yield(2) CCA CXW 12.0x 7.0% Healthcare Trust of America HTA 18.0x 3.9% Healthcare Realty Trust HR 18.5x 3.9% Medical Properties Trust MPW 10.5x 6.5% Omega Healthcare OHI 10.3x 6.8% Sabra Health Care REIT SBRA 9.5x 7.7% National
Slide 51: 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 facility •
Slide 52: 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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