Corecivic, Inc. · NYSE:CXW
Corecivic — Corrections Corporation of America — Investor Day (October 2013)
64 slides from Corecivic's investor day presentation, Oct 2, 2013
Slide 1: 2013 Analyst Day
2013 Analyst Day Durable Earnings and Significant Growth Potential October 2, 2013 1
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: Today's Agenda
Today's Agenda Company & Industry Overview Damon Hininger, President and CEO Financial Overview Todd Mullenger, CFO Operational Overview Harley Lappin, CCO Break Growth Strategy Damon Hininger, President and CEO Closing Comments and Q&A 3
Slide 4: Contacts and Equity Research Coverage
Contacts and Equity Research Coverage Analyst Phone Number Avondale Partners Kevin Campbell (615) 467‐3521 Barclays Capital Manav Patnaik (212) 526‐2983 Macquarie Research Kevin McVeigh (212) 231‐6191 SunTrust Robinson Humphrey Tobey Sommer (404) 926‐9009 CCA Investor Relations: Karin Demler Phone (
Slide 5: Company & Industry Overview
Company & Industry Overview Damon Hininger, President and CEO
Slide 6: Attractive Investment Characteristics
Attractive Investment Characteristics REIT conversion now finalized ― $0.48 quarterly dividend; $1.92 annualized Only 10% of the $74 billion U.S. corrections market is privatized ― Market penetration has increased: ≈ 7% in 2002 to ≈ 10% in 2011 ― Potential to increase further Significant growt
Slide 7: Who We Are
Who We Are CCA is America's leader in Private Corrections Established in 1983, CCA owns and operates minimum, medium and maximum‐level security correctional facilities as well as residential re‐entry facilities Converted to a REIT effective January 1, 2013 ― Real Estate is an essential core of o
Slide 8: Difficult to Replace Real Estate
Difficult to Replace Real Estate Attractive real estate portfolio: ― 53 owned or controlled properties with 68,578 beds and over 14 million square feet ― > 90% of net operating income generated by owned properties ― 75+ year economic useful life • Young and well maintained portfolio: 16 year media
Slide 9: Difficult to Replace Real Estate
Difficult to Replace Real Estate Difficult‐to‐replace assets = high contract retention & high barriers to entry ― Difficult permitting and zoning, long development lead times, unique knowledge and experience requirements and high capital investment ― ≈ 90% contract renewal rate on owned facilities
Slide 10: Clear Industry Leader
Clear Industry Leader CCA is the clear leader of private prisons, controlling 43% of the private corrections and detention beds in the United States. 100,000 43% 90,000 80,000 70,000 29% 60,000 50,000 40,000 68,578 15% 13% 30,000 20,000 40,765 10,000 976 5,773 ‐ CCA GEO MTC All Others Owned/Controll
Slide 11: National Portfolio with Geographic Diversity
National Portfolio with Geographic Diversity 53 Owned and controlled facilities located in 16 states and the District of Columbia (50 owned; 3 controlled via lease), 16 managed‐only facilities located in 6 states Portfolio as of September 1, 2013 11
Slide 12: High Quality, Diverse Customer Base
High Quality, Diverse Customer Base ≈ 90 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 13: Public Prisons are Overcrowded
Public Prisons are Overcrowded At December 31, 2011, 24 states were operating at 100% or more of capacity (1) ‒ Unsafe conditions; poor inmate quality of life ‒ Reduced rehabilitation opportunities; increased recividism The Federal prison system (BOP) is operating at ≈ 136% of capacity. (2) − BO
Slide 14: Many Public Prisons are Old, Unsafe & Costly
Many Public Prisons are Old, Unsafe & Costly > 200,000 public prison beds are > 75 years old. 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 condition
Slide 15: The Value CCA Provides to Government Partners and Taxpayers
The Value CCA Provides to Government Partners and Taxpayers Annual costs savings of 12% or more substantiated by Temple University study(1) ― Savings can fund programs to reduce population growth and recidivism ― Pre‐K, primary education, drug rehab, education & vocational, re‐entry Avoid large
Slide 16: Increasing Market Penetration
Increasing Market Penetration Compelling value proposition has driven privatized market penetration higher 10% 9% 8% 7% 6% 5% 4% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % Private Capture of Incremental Inmate Populations Source: Bureau of Justice Statistics & US Marshals Service (Fe
Slide 17: Economic Recovery Improves Funding for Corrections and Other Related Agencies
Economic Recovery Improves Funding for Corrections and Other Related Agencies Generally, U.S. inmate populations grow in line with total U.S. population growth ― From 2002 – 2007 state inmate populations grew ≈ 2% or about 23,000 annually Historically, recessions interrupt inmate population grow
Slide 18: Economic Recovery Improves Funding for Corrections and Other Related Agencies
Economic Recovery Improves Funding for Corrections and Other Related Agencies As tax collections continue to increase from their bottom in 2009/2010, funding for corrections, rehabilitation and law enforcement should improve $0.99 Adjusted EPS Increase 2002‐2007 $0.49 EPS Increase 2007‐2012 27,660
Slide 19: Financial Overview
Financial Overview Todd Mullenger, Chief Financial Officer
Slide 20: Financial Highlights
Financial Highlights Full‐year Adjusted EPS guidance of $1.95 to $1.99 (1) (2) Full‐year Normalized FFO Guidance of $2.65 to $2.69 (1) (2) $0.48 regular quarterly cash dividend, $1.92 annually ― ≈75% AFFO payout ratio For the Three Months For the Six Months Ended June 30, Ended June 30, 2013 2
Slide 21: Q2 2013 Net Operating Income Breakdown
Q2 2013 Net Operating Income Breakdown > 90% of NOI derived from owned and controlled properties Owned and Q2 2013 Net Operating Income Breakdown Controlled Properties, (in thousands) 95% Net Operating Income by Segment Q2 2013 Owned or Controlled Properties $ 113,986 Managed‐only and Other 5,718
Slide 22: Strong Historical Cash Flow Growth
Strong Historical Cash Flow Growth Strong AFFO growth with modest leverage Durable cash flow during economic downturns ― CCA repurchased stock during great recession : ≈20% of shares outstanding $4.00 7.0 Proforma AFFO per diluted share Leverage AFFO Per Diluted Share $3.50 6.0 $3.00 Leverage Ra
Slide 23: Capital Allocation Policy
Capital Allocation Policy Maintain Ample Liquidity and Solid Balance Sheet Maximum 4x Debt Leverage Payout ≈ 75% AFFO in Dividends Invest ≈ 25% AFFO in Growth Paid out of internally generated Invest in facility acquisitions and cash flow development to grow earnings Revisit payout ratio annual
Slide 24: Strong Balance Sheet Supports Growth
Strong Balance Sheet Supports Growth Low Cost of Capital Competitive Advantage 30% Q2 2013 issued $675 million 7‐10 year senior notes Debt/Undepreciated at 4 1/8% & 4 5/8% Assets $900 million revolver @ LIBOR + 1.50% 3.0x ≈$438 million in liquidity at June 30, 2013 Debt‐to‐EBITDA S&P: BB+
Slide 25: Contracting Process and Terms
Contracting Process and Terms Compensated per inmate, per day – "Per Diem" ― Some contracts provide occupancy guarantees to ensure customer access to beds Two segments ― Owned & Controlled: CCA owns/controls and operates prison ― Managed Only: Government owns prison & CCA operates the prison ― P
Slide 26: 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
Slide 27: Financial Modeling Considerations
Financial Modeling Considerations Separate quarterly "Supplemental Financial Information" report posted on website ― Supplemental financial data useful for analysis and forecasting purposes (cca.com; investors; financial information; supplemental financial data) Glossary of unique CCA/prison ter
Slide 28: Financial Modeling Considerations
Financial Modeling Considerations Per Diem Pricing Development – Bottoms‐up process ― Owned & Controlled Facilities • Begin with facility EBITDA required to meet ROI target @ 95% occupancy • Add: Operating Costs • Provides total revenues required • Then convert into a per diem (total revenues/tota
Slide 29: Financial Modeling Considerations
Financial Modeling Considerations Operating Costs – broken out between fixed & variable ― Fixed/semi‐fixed • Salaries & Benefits ≈ 2/3 of total operating costs ‒ Security staff: increases with activation of each housing unit • Other Fixed ≈ 10% of total operating costs ‒ Utilities & Repairs and ma
Slide 30: Financial Modeling Considerations
Financial Modeling Considerations Facility Occupancy Ramp‐up ― Individual facility EBITDA break‐even typically reached at ≈ 50% occupancy ― All fixed costs typically in place at ≈ 85% occupancy • Incremental margins per man‐day very high once fixed costs in place ‒ Per diem less variable cost per
Slide 31: Financial Modeling Considerations
Financial Modeling Considerations Facilities are comprised of multiple house 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 b
Slide 32: Financial Modeling Considerations
Financial Modeling Considerations Weighted average cost of debt (effective rate): 3.6% ― $900 million revolver at LIBOR = 1.75% ($475 million drawn) ― $350 million, 4.625% senior notes due 2023 ― $325 million, 4.125% senior notes due 2020 Diluted Shares Outstanding ― ≈ 117 mm both Q3 and Q4 2013
Slide 33: 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 34: Comparable REITS Valuations
Comparable REITS Valuations FFO Dividend Company Ticker Multiple Yield CCA CXW 13.3x 5.4% Medical Properties Trust MPW 12.5x 6.4% Omega Healthcare OHI 11.9x 6.3% Sabra Health Care SBRA N/A 5.8% National Health Investors NHI 16.5x 5.1% Senior Housing Properties SNH N/A 6.7% LTC Properties LTC N/A 4.9
Slide 35: Operational Overview
Operational Overview Harley Lappin, Chief Corrections Officer
Slide 36: Correctional Facility Basics
Correctional Facility Basics What is a correctional facility? ― Correctional facilities are comprised of concrete and steel structures that typically house between 1,000 and 1,500 inmates ― Services are provided to inmates which include education, programming, rehabilitation, religious services, h
Slide 37: Operational Philosophy
Operational Philosophy CCA integrates several Correctional Components: Safety & Security – Job 1 Focus on Re‐entry ‒ Preparing inmates to successfully reenter communities Deliver Returns on Invested Capital 37
Slide 38: Safety is our Number One Priority
Safety is our Number One Priority ▪ Proactive Well Trained Staff ▪ Effective Communication / Unit Management ▪ Fair, Firm Consistent ▪ Standardize Policy, Procedures, Emergency Preparedness, Facility Design ▪ Safe and Secure ▪ Credible Discipline Program / Ability to Grieve ▪ Manage Discipline Group
Slide 39: Maintaining Secure Operations
Maintaining Secure Operations Prototypical design to reflect management philosophy: ▪ Larger Housing Units ▪ Direct Supervision and Unit Management ▪ Centralized Dining Hall vs. Satellite Feeding ▪ Use of Technology ▪ Optimal balance between: ― meeting or exceeding customer and ACA quality standards
Slide 40: Correctional Facility
Correctional Facility Rec Programs 360 G.P. 360 G.P. Segregation 360 G.P. Female Rec Rec Rec Rec Programs Support 360 G.P. Female Housing M Service Yard Visit Admin Water Treatment Parking 40
Slide 41: Housing Unit/Unit Management
Housing Unit/Unit Management Unit Office Space E Program Space SE Video Visitation M Medical T Group Showers Program Space 3 ea. 120 Bed Dayrooms Double Cells 41
Slide 42: 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: Upon entry each inmate undergoes a Skill Assessment A variety of education, vocation, addiction treatment programs, faith‐based a
Slide 43: Focus on Re-Entry
Focus on Re‐Entry Thousands of CCA inmates are engaged daily in purposeful programmed activities. For example, during 2012: ― Approximately 24,000 inmates received educational, vocational and Addictions Treatment Programs each day in CCA Facilities ― Nearly 7,500 inmates received GED's or Certific
Slide 44: 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 conta
Slide 45: Quality Assurance
Quality Assurance Audits are typically conducted for each facility annually; more frequently if necessary Auditors conduct Unannounced Audits – depict facility operations as they routinely occur The Quality Assurance process requires timely corrective action plans that addresses root causes of
Slide 46: Returns on Invested Capital
Returns on Invested Capital Meet or exceed industry and customer standards while supporting financial goals through optimizing occupancy and efficiencies that improve revenues and operating costs ― Safety is #1 priority Drive accountability and continuous improvement ― Annual budgeting and goal
Slide 47: Returns on Invested Capital
Returns on Invested Capital "Replacement Cost" Facility ROI metric used to evaluate opportunity for improvement ‐ are we meeting our targeted returns? Optimize occupancy Raise per diem Replace customer Expand facility 47
Slide 48: How CCA Provides Value to Our Government Partners and Taxpayers
How CCA Provides Value to Our Government Partners and Taxpayers Government oversight provides independent quality assurance combined with private sector innovation and operating efficiency Competitive wage and benefit rate – driven by local labor market Primarily non-union labor More efficie
Slide 49: Potential for Growth
Potential for Growth Damon Hininger, President and CEO
Slide 50: Significant Opportunities for Earnings Growth & Value Creation
Significant Opportunities for Earnings Growth & Value Creation Significant growth potential without the need to raise new capital ― 5% to 7% annual earnings growth potential over next 3 to 5 years, while maintaining ≈3x debt leverage • Utilizing available bed capacity up to standard operating capa
Slide 51: 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 funding for corrections and for large capital investment by rehabilitation government (Filling vacant ― Public pri
Slide 52: 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 ― Recently GEO announced the acquisition of a facility owned by Montgomer
Slide 53: Growth Through Strategic Acquisitions
Growth Through Strategic Acquisitions 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, ≈ $5 million EBITDA
Slide 54: Growth Scenario A: Economy Continues to Improve
Growth Scenario A: Economy Continues to Improve Increased tax collections fund budget increases for law enforcement and corrections; inmate populations increase; desire for cost savings & capital to fund public works projects; need to reduce unfunded pensions Utilizing available bed capacity (adds
Slide 55: Growth Scenario B: Economy Stalls or Double Dips
Growth Scenario B: Economy Stalls or Double Dips Prison overcrowding; desire for cost savings & capital to fund public works; need to reduce unfunded pensions Utilize available bed capacity Acquire existing government owned facilities Replace old, unsafe & inefficient public prisons Grow com
Slide 56: Appendix Section
Appendix Section
Slide 57: Glossary of Terms
Glossary of Terms • Available Beds – Beds that aren't occupied and marketable throughout CCA's system (100 or more beds in a facility) • Mandays: – Occupied Mandays – The number of actual inmates in CCA's systems x Days in a period – Compensated Mandays – The number of inmates in our system for whic
Slide 58: Utilizing Available Capacity Drives Earnings Growth
Utilizing Available Capacity Drives Earnings Growth ($ in thousands) Estimated Potential Total Beds Available Average Annual Incremental at August 1, 2013 Margin (1) EBITDA Total Owned and Controlled Vacant Facility Capacity 8,321 $ 22.22 $ 67,485,806 Total Owned and Controlled Partial Utilized Faci
Slide 59: Reconciliation to Adjusted Diluted EPS
Reconciliation to Adjusted Diluted EPS ($ in thousands, except per share amounts) For the Quarter Ended For the Six Months Ended June 30, June 30, 2013 2012 2013 2012 Net income $ 20,429 $ 37,334 $ 201,521 $ 69,014 Special items: Expenses associated with debt refinancing transactions, net 33,092 179
Slide 60: Calculation of FFO, Normalized FFO and AFFO
Calculation of FFO, Normalized FFO and AFFO ($ amounts in thousands, except per share amounts) For the Quarter Ended For the Six Months Ended June 30, June 30, 2013 2012 2012 2011 Net income $ 20,429 $ 37,334 $ 201,521 $ 69,014 Depreciation of real estate assets 20,114 19,646 39,861 38,989 Funds Fro
Slide 61: Reconciliation to Proforma AFFO Per Diluted Share
Reconciliation to Proforma AFFO Per Diluted Share 2013(E) 2012 2011 2010 2009 2008 2007 2006 Net income $ 219,250 $ 156,761 $ 162,510 $ 157,193 $ 154,954 $ 150,941 $ 133,373 $ 105,239 Depreciation on real estate assets 78,500 79,145 73,705 70,460 67,020 58,378 50,808 46,944 Depreciation on real esta
Slide 62: Reconciliation to Adjusted Diluted EPS
Reconciliation to Adjusted Diluted EPS Reconciliation for 2012, 2007 and 2002 (Amounts in thousands, except per share amounts) For the Year Ended December 31, 2012 2007 2002 Net income $ 156,761 $ 133,373 $ (28,875) Special Items: Expenses associated with debt refinancing transactions 2,099 ‐ 36,670
Slide 63: Reconciliation to 2013 Guidance
Reconciliation to 2013 Guidance $ in thousands, except per share amounts Third Quarter 2013 Full‐Year 2013 Low High Low High Diluted earnings per diluted share $ 0.45 $ 0.47 $ 1.95 $ 1.99 Adjusted net income $ 52,500 $ 54,500 $ 217,000 $ 221,500 Deprciation on real estate assets 19,000 20,000 78,500
Slide 64: Slide 64
Corrections Corporation of America — Investor Day (October 2013) on 6ix