CXW: Asset Sales & Cash Generation Facilitate Deleveraging Measures

By M. Marin



CoreCivic’s (NYSE:CXW) 4Q20 results reflect the impact of lower occupancy rates as a result of the COVID-19 pandemic. Government initiatives to curb the spread of COVID-19 among the prison populations and ICE initiatives to contain the spread of COVID-19 through tighter control over the southern U.S. border have led to lower numbers of people housed in CXW facilities.

While the COVID-19 pandemic had a negative impact on occupancies and revenue in 2020, management believes that longer-term, it could serve to highlight the advantages of more modern prison infrastructure such as CXW’s in protecting inmate’s health. CXW facilities are, on average, 20 years old compared to 30 to 40 years old for the overall prison system, according to management. In fact, a recent report from the National Commission on COVID-19 and Criminal Justice noted that the “number of deaths per 100,000 reported by private facilities is considerably lower than the rate at prisons operated by state or federal governments.”

In fact, in awarding recent contracts for construction of new prison facilities, including two that CXW will build, Alabama’s governor noted the state’s need to lease and operate new and modern correctional facilities in order to provide safe conditions for the inmate population.

Balance Sheet Strengthening

Debt repayments are a key initiative for CXW. CXW sold 42 non-core properties in 4Q20 for net proceeds of $27.8M, with additional asset sales expected and the proceeds earmarked for debt repayment. Using the proceeds plus internally generated cash, CXW reduced total debt by more than $125 million in 4Q20. The total leverage ratio was 3.5x, down from 4.0x in 4Q19. CXW targets a leverage ratio of 2.25x to 2.75x. Strengthening its balance sheet is a priority and the transition to a C-Corp. is expected to facilitate this initiative.

In terms of the recent executive order regarding private prisons, it is important to note that the order pertains primarily to BOP, which represented only 2% of the company’s total 2020 revenue. At the end of 2020, CXW had only one prison contract with the BOP and recently renewed that contract through November 2022. Moreover, over the past decade, the company’s contract retention rate has averaged above 90%. CXW has also expanded into residential re-entry facilities and other adjacent verticals over the years, with opportunities for additional extensions, as well.

The company has several new contracts that are expected to boost revenue and several potential opportunities, as states and government entities look to the private sector. For instance, as noted, CXW recently won a new Alabama contract to build two new facilities and a new BOP contract for residential re-entry and home confinement services. CXW also plans to respond to a request for interest from Hawaii.

Separately, reflecting its goal to provide services aimed at reducing recidivism, CXW recently created the role of VP Re-Entry Partnerships and Innovation. This is consistent with CXW’s expanding the range of reentry and education programs it offers in recent years.

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