Q4 2020 Corecivic Inc Earnings Call
Okay.
Good morning, My name is David and I'll be your conference operator as a reminder, this call is being recorded at this time I would like to welcome you to course of ex Q4, 'twenty 'twenty and year end results conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there'll be a question and answer session if you'd.
To ask a question during this time simply press the star key followed by the digit one on your Touchtone telephone if you would like to withdraw your question simply prestige Starkey followed by the digit too I would now like to turn the call over to Cameron Hopewell course, civics managing director of Investor Relations. Mr. Hopewell, you may begin your conference.
Yeah.
Thanks, David Good morning, ladies and gentlemen, and thank you for joining us participating on today's call are Damon <unk>, President and Chief Executive Officer, and David Garfinkle, Chief Financial Officer. We're also joined here in the room by our Vice President of Finance, Brian Hammonds.
The call today will focus on our financial results for the fourth quarter provide general business update and an overview of the evolving impacts of the COVID-19 pandemic.
During today's call our remarks, including our answers to your questions will include forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act, our actual results or trends may differ materially as a result of a variety of factors, including those identified in our fourth quarter 2020 earnings release.
<unk> issued after market yesterday and in our SEC filings, including forms 10-K, 10-Q, and 8-K reports you are also cautioned that any forward looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future.
On this call. We will also discuss certain non-GAAP measures a reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data disclosure on the investors page of our website of course civic Dot com.
With that it's my pleasure to turn the call over to our President and CEO Damon Hymer kind of her Damon thank.
Thank you Cameron and good morning, everyone and thank you for joining us today for our fourth quarter 2020 conference call.
Today, we will provide you with an overview of our fourth quarter financial performance update you on our continued response to the COVID-19 pandemic discuss business develop opportunities discuss also last months executive order impacting the department of Justice is use of private facilities.
Debt you on the potential sale of certain non Correctional real estate assets in our property segment and provide you with an update of strategic overlook for the new year.
Following my remarks, I will turn the call over to our CFO, Dave Garfinkle, who will review our financial results in greater detail.
Our fourth quarter revenue of $473 5 million represented a 5% decline over the prior year quarter due to continued impact of the COVID-19 pandemic on occupancy within our safety and community segments.
However, oxy rates in the fourth quarter appear to have stabilized versus the more significant declines we experienced in the second and third quarters of 2020.
In the fourth quarter, the oxy rates across our safety and community segments increased by 70 basis points versus the third quarter of 2020.
Normalized funds from operations or <unk> for the fourth quarter was 63 per share an increase of 7% compared with the fourth quarter of 2019.
Our earnings growth was driven by a combination of new contract awards that were initiated within the last 12 months and lower G&A expenses, which helped to offset the reduction of oxy, we experienced as a result of the global pandemic, particularly lower utilization at our facilities under contract with immigration and customs enforce.
Dave will provide you with greater details about our fourth quarter financial results. Following the remainder of my comments.
I'd like to provide a brief update on our ongoing response to the COVID-19 pandemic and its impact on our day to day operations.
It has been nearly a year since the onset of the pandemic. We continue to focus our daily efforts are working collaboratively with our government partners on our operational plans as guidelines from leading health experts have continued to evolve.
Throughout the year, we worked tirelessly to ensure our operation policies adhere to the latest guidance from health experts our facility staff of residents had access to clinically effective personnel personnel protective equipment and everyone at our facilities received a proper training and advice to help mitigate the risk of contracting and spreading.
The virus.
These efforts continued unabated.
Recently, many of our facilities began receiving shipments of the vaccine from state and local health departments.
It is at the discretion of the state and local health authorities, how to allocate the vaccine they receive a in each community where we operate has a unique differences in the process of developing their vaccine rollout plan.
We've made every effort to evaluate these players and to collaborate with state and local authorities to ensure our staff and residents are appropriately prioritize.
And in many cases, our frontline health care personnel were included in the early distribution phase as were many of our other facility level staff.
In most cases the individuals entrusted in our care have also been prioritized by public health officials.
The availability of vaccines continues to be inconsistent and that is where we are what we are seeing across our facilities, but it is clear that over the next few months there will be a significant increase in availability.
In every case as soon as we have access to the vaccine we have the medical resources in place to quickly administered doses to our facilities staff and residents.
With the prioritization directives of local health authorities.
We are committed to working closely with our government partners and local health officials to ensure everyone at our facilities has access to the vaccine as it comes available.
During the fourth quarter, we continued to see a decline in positive cases within our facilities similar to the trend we experienced in the third quarter.
This trend has been consistent across our facilities and we believe it is evidenced that the operational policies. We've put in place in response to COVID-19 are effective.
We expect that new challenges and mitigating the risk of virus transmission will arise at facility operations begin to normalize such as in person visitation classroom based programming and increased resident movement in and out of facilities, all of which will increase person to person interactions.
However, we are working closely with our government partners to thoughtfully enact enact these changes over time in order to maintain the best possible measures of prevention.
And I emphasize these changes will occur over time, we are still operating in the pandemic environment.
I'm encouraged by the recent trend of decline in the number of positive cases and household nations across the country.
I am even more encouraged by the compassion and commitment our employees have shown to keep each other and the individuals in our care and what has proven to be one of the most challenging years, we could have expected to face.
While our work related to the pandemic continues I am confident that our team of course it is dedicated to meeting the challenge.
Well so much of our attention over the last year is focused on responding to COVID-19 Correctional systems around the country continue to face. Many other non pandemic related challenges that have resulted in new opportunities from core civic to help provide solutions.
Just last week the state of Alabama awarded US two new 30 year lease agreement for the development of two correctional facilities.
Construction of both facilities will contain an average of approximately 7000 beds and represent two of the largest development projects in our company's history.
The pricing of these leases will be finalized upon the close of projects specific financing and the construction timeline facilities will be approximately three years. So it is too early to speak to the final financial impact of the leases.
However, we are very grateful to have the opportunity to help the state of Alabama address such critical such a critical challenge.
Upon signing two new lease agreements the governor of Alabama Express the serious infrastructure concerns the state faces in their correction system, including dilapidated facilities significant deferred maintenance cost and a risk of federal court intervention.
The conditions not only inhibit the health and safety of employees and residents of a facility, but they also create additional roadblocks to receiving critical rehabilitative programming and services to help put people on the roads with successful reentry Society.
We look forward to helping the state addressing serious serious challenges through our innovative real estate solutions.
The solutions, we offer continues to resonate with more and more government agencies that are facing serious challenges with their correctional infrastructure.
Just two weeks ago, the state of Hawaii issued a request for interest concerning the planned development of our new Oahu community Correctional Center, the largest jail facility in the state of Hawaii.
The existing facility has exceeded its useful life and the state is in need of a new modern facility to meet their current and future needs.
This is only the beginning of the process. It typically takes multiple years.
However, Hawaii joins Kansas, and Alabama, and recognizing the value in working with the private sector to deliver a critically needed upgrade to their correctional infrastructure.
We delivered the industry's first solution of this kind of into Kansas, just last year, and we see growing momentum across the country for these solutions.
It presents a promising opportunity for future growth, but we're also helping address serious challenges that will improve the health and safety for employees and inmates within existing facilities operating beyond their useful life.
As you can see we clearly have significant opportunities for growth and we believe our ability to deliver flexible solutions to meet the unique needs of our government partners will continue to resonate in the market.
Add to that the historic durability of our cash flows and it is clear that we are well positioned to continue to respond to the challenging needs of our government partners.
And deliver on our capital allocation strategy of reducing leverage.
In the fourth quarter, our total debt declined $297 million or approximately 128 million net of the change in our cash balance.
This was achieved through a mix of cash flow generation throughout the quarter and the sale of a 42 property portfolio of GSA leased assets in December.
Our total leverage ratio for the quarter was three five times, a half turn reduction from the prior year's fourth quarter.
We continue to target a total leverage ratio of two and a quarter times to two and three quarters times.
This year, we intend to continue to deliver on our debt reduction strategy through positive cash flow generation and net proceeds generated generated by the sale of additional non core real estate assets within our property segment.
Last month, an executive order signed by President Biden directly the attorney General not to renew department of Justice contracts with privately operated criminal detention facilities.
Two agencies of the department of Justice utilize our services for the Federal Bureau of prisons, or B O P and the United States Marshal service or U S. M S.
The VIP houses the inmates who have been convicted from federal crimes and the U S. M. S is responsible for prisoners, who are awaiting trial in federal court.
<unk> has experienced a significant decline in inmate populations over the last seven years and simply does not have as much of a need for prison capacity from the private sector.
We currently have one prison contract with the.
Accounting and four 2% of our total revenue for the year ended December 31 2020.
U S. M. S populations have remained relatively consistent in recent years, so their capacity needs remain unchanged.
With that we do not believe the U S. M. S. Currently have sufficient detention capacity that satisfies their needs without the private sector and we do not believe an alternative solution that provides all the benefits of private sector provides exist anywhere else.
We're extremely proud of the critically important services, we have provided the DLP during their period of need which extended more than 20 years.
One of the value proposition is provided by the private sector is the ability to flex flexibly manage fluctuations in capacity needs wherever those needs are increasing or decreasing so our government partners are not saddled with the cost of developing large scale real estate assets that they may or may not need in the future.
Our ability to deliver these solutions to our government partners is why we have successfully worked with both Democrats and Republicans, providing critically important services to address serious serious challenges for nearly 40 years.
Now before I turn the call over to Dave to review in greater detail our financial results I wanted to highlight our continued into innovative efforts to provide high quality reentry programming to help tackle America's recidivism crisis.
Last month, we announced the creation of a new role Vice President reentry partnerships and innovation.
It will be served by Darren Swinson, who previously led course of its community segment, which provides residential and nonresidential surfaces to help justice involved individuals obtain employment.
Housing health care mental health and addiction treatment and family reunification as a successful you reintegrate into their communities.
In his new role Darin will serve as core civics top advocate and practitioner for reentry.
The role will build on our ongoing efforts to cultivate meaningful partnerships with academics issue experts policymakers and other organizations dedicated to effective reagent solutions and recidivism, reducing the outcomes.
We will also focus on incorporating it into our operations innovative programs and best practices learned from these partnerships as well as share the lessons learned through course of ex extensive effort to promote successful reentry programs and policies.
We are excited for this potential impact this new role it can have on improving outcomes for the government partners, we serve and the individuals entrusted in our care.
This represents yet another step forward in our leadership in the area of reentry and our commitment to advance our profession and offer EBIT more innovative solutions.
One final comment.
I noted this earlier, but let me express again, my deep appreciation and grateful to our core civic team.
Their passion and heroic efforts supporting the individuals in our care. During this pandemic has been inspiring to see and for that I'll remain thankful and honored to work alongside them.
On that note I'll now turn the call over to day to provide more and more detailed look at our financial results in the fourth quarter and full year of 2020.
Thank you Damon and good morning to everyone in.
In the fourth quarter, we reported a net loss of <unk> 22 per share or <unk> 40 of adjusted EPS. Excluding special items, we generated 63 of normalized <unk> per share in the fourth quarter of 2020, compared with 59 from the prior year fourth quarter, an increase of 7%.
We generated <unk> 58 from the fourth quarter of 2020, the same as in the prior year fourth quarter adjusted EBITDA was $108 $7 million in the fourth quarter of 2020, a 5% increase from $103 5 million in the prior year quarter.
Adjusted amounts exclude asset impairments of $47 $6 million.
Consisting mostly of a noncash impairment of goodwill $7 $1 million of expenses associated with debt repayments incurred in connection with the sale of 42, GSA leased properties and $2 8 million of expenses associated with COVID-19.
Our goodwill impairment analysis considered numerous factors with the non cash impairment predominantly driven by our consideration of the broad based declines in the market capitalization of publicly traded companies in our industry.
As well as the reduction in cash flows from the COVID-19, pandemic and the anticipated change in our tax structure.
The decline in our equity market cap had to be considered when assessing fair value under the accounting rules for goodwill impairments and resulted in the impairment of the full balance of goodwill allocated to our community segment amounting to $42 $6 million.
We believe the cash flow in this segment will improve once the effects of the pandemic subside and we remain committed to the community segment, which focuses on helping those entrusted to our care obtain employment and successfully reintegrate into their communities.
This segment serves individuals' nearing the end of their sentence or as an alternative from incarceration in critical need of case management services, such as substance abuse counseling and life skills programs offered by trained professionals.
Adjusted amounts also exclude a $17 $9 million loss on the aforementioned sale of 42 real estate assets. Most of this loss was attributable to a tax protection payment that is owed to the partners who contributed 24 of the properties to a wholly owned subsidiary of ours in January 2020 in exchange for $1 3 million limited partnership units.
It's that we are convertible into shares of our common stock after a two year holding period.
The tax protection payment will be funded to the extent there is cash in the partnership including proceeds generated from the sale and set aside in restricted cash.
As a result of the sales we intend to dissolve the partnership in 2021, which is expected to result in the extinguishment of the limited partnership units for no additional consideration and a gain upon the solution that will be reflected as an increase to stockholders' equity of $15 million to $20 million essentially offsetting the loss on sale.
The press release includes commentary pertaining to the improvement in financial performance from the prior year quarter, which is notably a comparison to a quarter before the COVID-19 pandemic.
Compared with the third quarter of 2020 normalized <unk> per share increased 21% <unk> per share increased 18% and adjusted EBITDA increased 15% the.
The primary drivers of the improvement included an increase in facility net operating income and our 600 bed Cimarron Correctional facility in Oklahoma and lower G&A expenses.
During the third quarter, we transitioned to Cimarron facility from a state population to the U S marshals, which had stable occupancy during the fourth quarter <unk>.
The reduction in G&A expenses, excluding special items was largely due to lower incentive compensation in the fourth quarter.
We also experienced lower operating expenses due to more favorable claims in our self funded employee medical plans lower COVID-19 related paid time off property taxes, and a seasonal reduction in utilities expense.
We completed the aforementioned sale of 42 non core real estate assets on December 23, 2020. These assets were sold for a gross sales price of $106 $5 million, which generated net proceeds of $27 8 million. After the repayment of non recourse mortgage notes associated with some of the properties and other transaction related.
Costs.
We used the net proceeds to pay down our revolving credit facility, including this paydown. During 2020, we repaid $199 million of debt net of the change in cash which was after the payment of $106 million of dividends during 2020.
As of December 31, we had $113 million of cash on hand, and $566 million of availability on our revolving credit facility, which matures in 2023.
Our leverage measured by net debt to EBITDA is three seven times using the trailing 12 months and we have no debt maturities until October 2022, when $250 million, 5% unsecured notes matures. We currently expect to repay these unsecured notes upon maturity with cash on hand and capacity under the revolver.
As of December 31, we had three additional non core real estate assets held for sale with a net book value of $279 million base.
Based on interest expressed to date, we are hopeful to consummate the sale of these assets during the first half of 2021.
If we are successful in consummating the sale of these assets combined with the sale completed last quarter. We expect the net proceeds from our sale of non core assets will be consistent with our original estimate of up to $150 million.
We also have several smaller assets that we are evaluating for sale, which could result in us.
Our result in us exceeding our original estimate.
Earlier this month on February one we were awarded two new 30 year lease agreements with the Alabama Department of corrections for the development of two Correctional facilities final lease costs for both properties will become available upon achieving financial close we.
We expect to finance, 10% to 15% of the project cost with existing resources, which we expect to fund upon financial closing.
Both facilities will contain an aggregate of approximately 7000 beds with construction expected to begin later this year or the beginning of 2022.
The first facility, which will specialize in medical and mental health needs is a larger is larger and has a construction timeline of approximately three years.
The Alabama Department of Corrections will lease and operate both facilities, we will be responsible for facility maintenance and we will retain ownership beyond the terms of the leases.
In addition to the Alabama commitment our maintenance capital expenditures are forecast to be $65 million to $69 million, which is consistent with the original guidance. We provided for 2020 before we reduced it by 15% in response to COVID-19.
Though we continue to generate significant cash flows and even when new business. During the pandemic. At this time, we are not providing 2021 financial guidance because of uncertainties associated with COVID-19, as well as uncertainties associated with the application of the administrations various executive orders related to immigration and criminal Justice.
Because of the pandemic operations in the criminal Justice system have not yet normalized the southern border remains effectively closed in many state budgets will have significant holes to fill.
The duration of these disruptions in the response to state budget challenges and executive orders are difficult to predict.
While we remain focused on the long term success of the business and on executing our revised capital allocation strategy. We can provide some direction on our financial forecast, having gone through three full quarters under COVID-19, and based on what we know today.
Operationally with the court system functioning normally I'm, sorry, without the court system functioning normally and with the southwest border still effectively closed we expect to continue to experience declines in populations and our safety and community segments, while right sizing our expense structure without sacrificing safety or quality.
These population reductions are likely to continue until a vaccine is more widely disseminated.
Eventually the backlog of court cases will make it through the court system, our new contracts with the U S. Marshals at our Cimarron facility and with Idaho at our <unk> facility in Arizona are expected to mitigate these declines.
Further as a reminder, about two thirds of the federal contracts in our safety segment have fixed monthly based payments that help ensure our partners to have access to the capacity they need if and when populations increase minimizing the impact of further occupancy reductions that such facilities.
Conversely increases from current populations would not result in incremental revenue under these contracts until populations exceed the first tier fixed payments.
Second the properties we sold.
And are holding for sale generated approximately $30 million of EBITDA in 2020, which translates into the elimination of 20% to $25 million, depending on the timing of the assets held for sale.
We expect to use the net proceeds to repay debt, which could include the purchase of some of our outstanding debt securities in open market transactions privately negotiated transactions or otherwise.
Until operations returned to normal we expect to continue to report quarterly expenses.
With COVID-19 materially in line with the past two quarters.
Lastly, beginning in Q1, we will be subject to federal and state income taxes on our taxable income at applicable tax rates without the dividends paid deduction as a REIT and currently estimate our effective tax rate to be 27, 5% using federal and state tax rates.
Once we revoke our REIT election in the first quarter of 2021, we will also revalue, our net deferred tax liabilities for accounting purposes, resulting in a significant special income tax charge that we estimate to be in the range of $100 million to $135 million. This is not a cash payment, but represents an accounting adjustment similar to the one similar to the one.
Time tax benefit of $138 million, we recognized when we converted to a REIT in 2013.
There is no transitional tax payment to revoke our REIT election, and we currently expect our cash taxes to approximate 27, 5% of our pre tax income.
With respect to the first quarter of 2021, there are a few things to remember when cross walking the fourth quarter of 2020 to the first quarter of 2021 <unk>.
Compared to the fourth quarter Q1 is seasonally weaker because of two fewer days in the quarter and because we incur approximately 75% of our unemployment taxes during the first quarter, resulting in a collective <unk> <unk> per share decline from Q4 to Q1.
And as I previously mentioned, our G&A expenses in Q4 were lower than our expected quarterly run rate, which is expected to translate into a per share decline of <unk> <unk>.
From Q4 to Q1.
While we reached a significant milestone with signing two new agreements to construct at least two new correctional facilities in Alabama, and we will pursue similar opportunities in Hawaii and potentially other states for our property segment those opportunities are longer term and would have no impact on earnings in 2021.
In our safety segment, we are pursuing a number of separate nonpublic opportunities, including a new state contract to utilize available capacity in our system. The transition of an existing state contract to our property segment with improved and more stable cash flows and potentially reactivating an idle facility.
These opportunities could be consummated in the second half of this year.
Finally, although challenges certainly remain state budgets, thus far have generally outperformed expectations during the pandemic, which could lead to a more favorable environment than expected in our safety and community businesses.
I will now turn the call back to the operator, David to open up the lines for questions.
Thank you the question and answer session will be conducted electronically if you'd like to ask a question. Please do so by pressing the star key followed by the digit one on your Touchtone telephone if there isn't a speaker phone. Please make sure. Your mute function is turned off although your signal to reach our equipment. Once again star one to ask a question we will take our first question from.
Joe Gomes with noble Paul.
Yes.
Good morning, Damon and David.
Good morning, Joe.
So.
Nice solid quarter and looks like to me there are some you know.
The one time items, but once we get below the surface it looks pretty solid it looks a little bit better than what I was expecting.
The last three quarters look.
Pretty similar.
During the Covid time.
Just wondering kind of two part one.
You talked a little bit about it but maybe you can provide a little more color or detail as to what.
What helped drive.
A little bit better than expected results here.
As we're looking forward do you see you know.
What the last three quarter run rate is that kind of a new normal as we brought things today.
Yeah. Good question, Joe I'll take the first stab at that I would say certainly when youre comparing Q4 to Q3. The primary drivers were the transition of the Cimarron facility from the contract with.
The Oklahoma City U S. Marshals. So during Q3, we are ramping down the facility.
For the state and then ramping up the facility from U S. Marshals. So there was a GAAP in there in the third quarter.
Debt stabilized really in the fourth quarter, so that contributed.
<unk> <unk> when you're transitioning from Q3 to Q4. The other notable item I mentioned in my comments was the lower G&A expenses, that's not a run rate. So that was probably four cents lower in Q4, compared with Q3 that we would expect to return to the Q3 in prior quarter numbers.
Beginning in Q1.
We did see some expense savings.
I think we will continue as long as the pandemic continue.
Continues just because we're not able to provide the extensive services that we normally provide.
And our non pandemic time period with all the great things that we do to help our our inmates in people entrusted to our care all of those services. The ged's classrooms trade certificates. So we're operating at a lower level of service currently during the pandemic just to protect them from the safety and dangers of.
COVID-19, so eventually those those expenses will ramp back up as we start to reinstate those levels of services.
So that's probably unique to the period of time and the pandemic also in the fourth quarter, we did have some.
Favorable claims experienced in our in our self funded medical plans we have.
Had some property tax true ups that were favorable based on the receipt of property tax bills.
And some other things like that that could be recurring they're just hard to predict.
Okay, great. Thank you on that.
If we could switch to Alabama for a second.
Congratulations on the win there.
Very significant in my view, but a couple of quick questions.
You mentioned you can't really.
Talk about the lease impact from financial impact right now, but I saw some estimates out there bandwidth looking to build three different facilities and the estimates were that the capital cost would be somewhere in the 900 million to $1 billion range.
You guys just doing from average math would suggest somewhere in the $600 million to $700 million for two facilities.
That you you won that.
Is that kind of in the ballpark.
And you mentioned about.
Self financing, 10%, 15% of that and raising the rest through outside financing.
Given what we've seen here.
You know on the Actavis harsh I mean, how comfortable are you you're going to go out and raise that.
The rest of that.
The construct that.
Then finally, you mentioned, Kansas has kind of a model here.
Kansas and it's been up and running I think roughly let's call it a year.
You kind of just give us a little color on how Kansas is performing.
Over this past year I know, it's it's actually about the pandemic and everything.
Is it.
Turning towards your expectations and any hiccups there.
Kind of give us some detail as you know.
Project forward, Alabama, potentially Hawaii or some of these other states, Kansas being the first one.
How's that performing thank you.
Yes, Thanks, Joe.
Questions. There. So let me try to take a couple of them on the cost we don't want to get out in front of Alabama on those.
They did disclose the cost of I think it was somewhere around $800 billion to $1 billion for all three correctional facilities.
We've worked with them on the costs during the design phase and have been working extensively trying to offer.
Opportunities for cost savings and so forth, but we don't want to get out in front of Alabama undisclosed and those costs will somewhat also depend on their lease costs will depend on the financing.
We feel very comfortable right now with the financing for that project.
Private placement markets municipal bond markets are very competitive right now.
For lenders.
A lot of dollars chasing infrastructure funds so.
This would be a great project, we think.
To execute the financing so we feel really good about the financing sitting here today.
Kansas.
I'll, just I'll touch briefly on Kansas.
Was delivered under budget.
Really on budget under budget real close to budget certainly not over budget. It was delivered in the first quarter of last year and has delivered really as expected.
Just the owner they operate the facility is very similar to Alabama, Alabama is going to staff it and operate it so with respect to our risk. It really is limited to the maintenance services that we perform so all of that is going as expected and net.
No hiccups there whatsoever Damon you have anything to add yes, I would say also on Kansas, just kind of connected out to a little bit todays comments on Alabama, So going back several years. When we were starting that project. You know we did a private placement on that facility and did a 100% and we needed about 160 $170 million for the finance.
We got almost a $1 billion in interest and so those type of projects and the findings of all a very very interesting to a lot of lot of investors and so again got almost 100% money, 100% loan to value on that about $1 billion in interest for 20 year money I think for three or four 4%. So so very strong interest.
<unk>.
Then and now or these type of projects that are government leased assets. The net again that was also with all of this kind of rhetoric still circling around the around the country.
Also talking about Kansas as Dave said were delivered under budget into Q Q1 of last year.
And you'd rather be lucky than good but it really was very fortunate timing because as you know it was right at the beginning of the pandemic and so you've got a population that was coming from facility that was built in the 18th <unk>, So very challenging infrastructure HVAC units lack of.
You know kind of negative pressure rooms are firmly beds moving into a brand new modern facility right at the beginning of the pandemic was very very helpful for them operationally and that facility that we delivered it has got the largest and firmer unit in the state of Kansas. So it really gives them a lot of flexibility in normal environments, especially with a.
With the pandemic and then finally I'll just say I had the good fortune to tour the facility.
Late last year, and fourth quarter and it looks really good I mean, just it's open it's modern it's it's very clean it's got the new technology and again, it's got the largest firm unit in state of Kansas for the correction system. So it gives them a lot of flexibility to do a lot of channel issue. So we're we're excited about that project and we think it's a good model for now.
And alloy as we finalize and finalize the development and designs of Alabama, but also from some of these other state opportunities we think are down.
Down the road for Us.
Okay. Thanks for that and one last one from me and I'll jump back in queue.
So more David from really the the 10000 foot level, we've had exactly the orders from bided.
Ministration U S. Marshal service question there yeah, there's been some.
Email, we'll call they've been reported about the.
Somewhat in the Justice Department are I think of the Justice department, but calling out for.
For ice.
And who you can detain you can't attain anymore.
And we can talk a little bit here about the.
The court system.
Trying to get back to normal there I'm trying to maybe give us a little bit of a state of the union address so to speak as you see it now.
If we look at U S marshals service and the.
Population there that are detained.
You know what I mean are there other available alternatives out there that that could soak up about the population there that are being currently.
Serviced by the private sector.
Just like to hear from some of your thoughts and again I understand all the complications here.
A lot of <unk> going forward, but you know what.
Where do you think or what you guys are thinking about today. Thank you.
Yeah. Thank you for that question, Joe really really good series of questions. There. So the couple of answers. Let me just first as a globally about populations and so Marshal service nationwide based on our research is about $63 64000 nationwide.
Pretty consistent where they were kind of late 2019, and early 2020 day did see a significant debt, but it is pretty short live during the spring summer of last year I think they went as low as 56000, but they've gone back up to about 63000, and again thats pretty comparable where they were in 19 and even if you go 10 years ago.
At My chart here to go back to the kind of the 2012 to 13 year, we're kind of into the low 60. So their populations historically and recently have been pretty stable and then you take it to the company. If you look at our numbers.
We're pretty pretty stable last 24 months. So again, we've seen probably some dip last summer, but overall, it's been pretty pretty stable. So globally, but also company specific population is pretty pretty stable.
You know as we look at kind of the needs of our customers and it's something we're always research and you're talking about in anticipating and but also provided maybe a new more flexible more innovative solutions going forward base to their changing demands.
As you and I have talked about Joe.
It was pretty clear seven eight years ago that their needs were going to change in the private sector.
And part of their overall kind of solutions going forward, especially since they were significant we are proud of the time, probably what's going to change. So we have adapt to see that now.
Now I would anticipate kind of the demand may be changing on the safety side, but also provided more solutions on the community side for reentry facilities and maybe even some home confinement. So.
We've changed our kind of our service and our offering structure for the <unk> based on their change in changes in demand.
But for the Marshal service I mean, you touched on this a little bit into your question or net is the most service. Their mission is obviously very different I mean, it's the same population, but theres. This in different parts of the journey in the criminal Justice system. So the Marshal service really really rely on the private sector, but also city and counties for.
Bed space that Didnt very close proximity to the federal courts, and so if you've got someone that's say in Phoenix, Arizona and Theyre going through the federal courts, there in Phoenix They came out be housed.
And our neighboring state they've got to be easily within 25% to 50 miles of the courthouse, just so that they can obviously active participate any legal proceedings be close proximity with family and friends.
And also be in close proximity with legal representation, so really really important that they've got space close by to the to the court system and so our survey of the landscape and this is something we do all the time not just in the current environment is that we do not see any alternatives that we provide space that is new mod.
And it meets all the appropriate standards has the appropriate government oversight and auditing on a regular basis, but also provides good access to legal representation and also again good access knowledge of the courts, but also in turn allows judges. The I mean, we have a fair amount of non federal judge is actually to our facilities today and want to see the conditions firsthand and so we just do not see in the markets where we operate.
Any any alternatives and again not only do we provide detention space. We also provide some services on site for not only legal staff it, especially in this environment and actually I just saw this firsthand a couple of weeks ago.
In our facility in Florence, Arizona supporting the federal courts in both Phoenix, and Tucson were quickly able to adapt in this COVID-19 environment, where we actually put a.
Video conferencing systems in place to where they can do some arrangements and other legal proceedings via video conference since judges, maybe don't want to have people in person during the pandemic. So that's.
A quick innovative solutions that private sector can provide especially in a challenging environment that we just don't think there's alternatives or other other agencies organizations able to do but anything you would add to that Dave.
So I mean, it's a.
Little early in the by the administration so it's.
One of the reasons, we haven't issued guidance, it's hard to it's hard on pack all of the.
The application of the executive order and immigration policy.
So there's just a lot of dynamics.
Dynamics in the environment right now and that was really the Genesis for us not issuing guidance, we want to take a little bit of a wait and see approach and see how things play out.
Thanks.
I'll answer as Damon and David I'll get back in queue, what someone else asked a couple of questions. Thank you.
Great. Thank you Joe Thank you Joe.
Next we'll go to M Marin with Zacks.
Yes.
Uh huh.
Hello, the transition to Jeff good morning.
Sure.
Okay.
Thanks, Doug.
Post two average action does not open.
Open the door to potential.
New revenue streams from Cooper.
For two weeks from your revenues.
Okay.
Yes. Thank you for your question. This is Damon so yes, the short answer is yes.
As you know with or with a with a REIT. There are some restrictions on what you can or cannot do.
As a publicly traded REIT. So we do think now being a C Corp. Again, we were a C corp. Once upon a time to before 2013 it could open some opportunities to where we provide not only the real estate, but maybe the services for certain solutions. So for example, I.
I mentioned earlier.
The new project in Kansas that has a very large and from unit again largest natural unit in the state of Kansas, serving their Correctional institution, our Correctional system, there could be a case, where we could maybe do a medical kind of oriented solution.
For certain jurisdiction, maybe thats, an infirmary, maybe that's a mental health or subs abuse tax facilities. So it gives us greater flexibility to providing kind of health care related services that we werent able to do as a REIT, but anything you would add to that day.
Our restrictions under the REIT rules that prohibited certain.
Business activities, obviously, we're focused on the real estate aspects of.
The business, but.
Without those limitations certainly weak the sky's the limit.
Non real estate related businesses.
Perhaps in Adjacencies to the corrections market that that could be available to us. So those are things kind of in the R&D stage at this point, but we're starting to identify some some opportunities.
Thanks, Jeff.
That time line is because of translation.
I'm sorry, you broke up on me I Didnt hear that question.
So could you just from my guess is the timeline.
Oh timelines.
Oh, yes.
It's hard to put a timeline now and so we're just on the other side of just now.
Moving into the new year with the conversion to a C Corp, but we're actively looking at and talking with partners and part of it's just been a little bit of a listening journey with our partners on kind of the emerging issues of needs within their system and how we can be a solution. So so no real timeline be able to express today, but it's something we're actively looking at.
Thank you.
Thank you.
Next we'll go to Jordan Sherman with the Ranger Global.
Hi, good morning.
I was just wondering.
Talk about the Alabama.
Hum once once more from a different angle.
You're welcome to give too much detail, but.
Kansas, The Kansas facility, what was the cost of development per bed.
It was about $65000 a bed is a $160 million project.
Right.
Is there any reason for us to think at least conceptually not specifically that there would be major differences, one way or the other for the development of <unk>.
Okay.
Or there could be I mean, alabama's needs are different.
Certainly larger facilities different components to it.
So.
It could be.
But again I really just don't want to get out in front of Alabama.
I guess, one thing I would note does that.
Oh I'm sorry.
Well, that's okay I'm sorry.
Well I'm just going to mention that it's only so it could be different.
It could be as I say one of the units wanted facilities, that's going to be a kind of a medical focus.
So that will drive some unique kind of requirements for that physical plant.
So it's a different way theres three facilities anticipated two of the three are going to be what I call general population kind of normal facilities and those are very consistent with Kansas, but one of the three we will have a very specific medical focus I mean again, those will probably has a pretty unique requirements from a physical plant perspective.
It would be more expensive than the other two facilities.
Okay.
Forward to details.
Hawaii.
What is the size of the facility that they are looking to replace.
I think it's about a 500 or 2000 beds.
And it could be it could be a little bigger or smaller than that depending on kind of what their needs are and maybe we've heard also that over the year. So we're trying to maybe do some small regional facilities around other parts of the state or other islands I should say, but that's probably a pretty good ballpark at the moment.
Okay. Just wanted to go out to the US marshals we have no.
I heard your comments about that.
Not really a lot of capacity outside of your debt.
Whats, what's being utilized today, and let's say it that way.
Should there be a shift or attempted shift away from public revenues.
I was just wondering.
If they go down that pathway.
One the way they chosen with the DLP is to eliminate the contracts as they rollover.
I was just wondering just conceptually how it indefinite contracts work in that environment.
I'm not sure we know Jordan.
[laughter].
Yeah, we list out the explorations in our in our.
So the portfolio table in our supplemental disclosure report, but.
We're not.
We don't have clarity on that.
Right. Okay. So and then just from the immigration side just.
Looking at the southwest border crossings number, which I guess, we just got them for January and it's clearly there.
Kind of exploding.
So long as you saw the latest numbers.
I'm just wondering how we think about those net I'm sorry.
We did see those numbers yes.
Since highest number 30, 30% above the highest number we've seen in the last decade.
How did those numbers translate into intentions.
Well the biggest.
Yes.
Action right now thats affected detention capacity the title 42, which is the.
Basically a turnaround right at the border so theyre not the painting and putting them through the process here in the United States.
And you know obviously, we're early early days into the New administration, but there has been not any change on the title 42 policy at the moment I know that you've read news reports out there looking at it closely and also overlaying that with the challenges with the pandemic.
Youre exactly right the encounters.
Single adult encounters I think out of the 200% year over year increase so that the activity and the board was dramatically impacted but is not related to attention at the moment because the type of 42.
Okay, so they're coming they're touching the border in some shape manner or form and they're being turned back.
Right.
Okay.
Under normal circumstances, how would those numbers translate into.
Retentions.
It's just a free.
Say it.
I'm, sorry, yes, it's hard to give a ratio and a counter versus you know how many that comparison to a detention capacity I don't know if thats ever been kind of steady and I'm sure. It would be honest with you probably changes.
Based on administration and priorities.
But I'd say historically, yes the fee.
Calendars are going up on the southwest border that typically somewhat correlates under detention capacity and utilization of capacity on the southwest border.
I guess, let me ask a little differently because that wasn't necessarily the ratio.
There are certain people, who presented the border either through a port of entry or a.
We're not reported entry.
Who will be detained right and there's certainly certain types of people who won't be.
Yes that was going after is who is detained.
And then when you think about priorities, that's what you're referring to is the.
Who is detained out of those people coming across the border may shift as a result of the by the Ministration then we're not sure exactly yet on those.
Yeah, I think yeah. It's the latter is exactly right it's too early to tell.
Historically, I guess, what I'd say and this is regardless of the administration Republican or Democrat historically.
The individuals that are detained are typically individuals that maybe have a violent.
Either crime history or have.
Are in active.
Doing a valid crime.
So I'd say more not only just illegal entry into the country, but also maybe a smuggling of firearms is smuggling of.
No.
Children or something like that those are typically the ones, if theyre going to kind of triage and determine what's the right.
Individuals and attention, it's ones, where the violent history.
And then you add to that debt.
The source of where theyre coming from the origination the country from which they are originating also can have an impact on their detention at how long it is.
How long or entertain so somebody might have a complex.
Deportation order they might spend more time to detention facility than somebody who is in Mexico comes from Mexico. For example, theres arrangements with Mexico that would support them more rapidly.
So then I guess, how then conceptually do you think about.
Changes in an interior interior enforcement.
<unk> versus <unk>.
Moving to attained at the border.
I guess I'm trying to figure out one of them will be there are a lot of moving parts I know that I'm just trying to figure out what all those moving parts are.
And then how if we go to a more liberal catch them relief.
How is that going to work and then of course, if we have a more liberal policy, we're certainly going to get in the U S. We're suddenly getting a more border crossings.
That isn't different.
I'm just trying to put all the elements in place and I know, we won't be able to have an answer on where it goes but just trying to make sure I have all the pieces.
Net puzzle.
Yes, it's a good question and the short answer is too early to tell I mean, we're getting obviously some signs.
With some of these executive orders and some of the pronouncement from the administration.
So the short answer is it's too early to tell and you also have to monitor but I guess, what I would say is that.
We have been able to.
Not only change, but also kind of recalibrate, Norway, our services, but also maybe investing ourselves a little bit if the priorities changed.
From Administration administration.
We can change our solutions based on those priorities to stay say different way there.
There are certain parts of the country, where there may be doing more southwest border enforcement in the interior enforcement or there was a maybe a greater need for families versus females versus adult males and we have changed over the years some of our facilities our mission and our services based on kind of those changing changing needs. So so.
Here today looking at 40 years of history with the country I think we've been able to do a good job, especially with our ice facilities that primarily as you know are on the southwest border.
We can change again, either our services.
Make some investments or maybe adding more.
Not only capex, but maybe court rooms, and other other things that help support that mission and also again maybe changed the makeup so no change in the facility from adult male or female to families or something like that so we can pivot and navigate through that I think pretty effectively as we've shown in the past.
Okay, and then just one more on that net I'll kind of timeline, how does how do you think about timeline of changes I guess, we will get a budget request.
Give us some sense of the number of beds at least in the interim how do you think.
From the roadmap timeline that Youre looking for.
At least I wasn't known.
Hi, Mike Yeah, I would say, it's a good question I would say probably a couple of key things yet the budget. You. Just noted I read this morning, I don't think I've seen an exact day, but I know the budget is going to be delayed coming out, but they're usually is pretty good information not only on the on the dollars and cents for each individual agency, but also how that tie into maybe changes in policy.
A priority for the administration. So again I think that'll be a pretty good blueprint to your question. The other thing I would say is that.
Just saw here in the last few weeks.
The confirmation of the agency heads.
With this subject, which is DHS, but I think probably in the coming weeks as you start to see.
Announcements on a department heads and agency heads.
Obviously, they want those individuals get in place and then they can kind of get aligned with the priorities knowledge from the secondary but also the administration.
That'll be that'll be key but I don't think I've seen you guys do that perhaps as importantly, his title 42. The president is trying to protect the country eradicate the COVID-19 virus as much as possible.
And.
The timing of reopening the borders if you will.
Rather than turning them away as we were just discussing could have an impact on the number of people admitted to the country.
And notably those claiming asylum in United States.
And we will we glean anything interesting out of the Netherlands.
The 100 day moratorium, which is now.
Well there is a federal injunction against that I guess, what should we read anything about ability to deport or not report from that.
Any sort of final decision on that.
Yeah, I think that's going to be a probably wait and see.
We will have to deal with it I know theres been core challenges that take out of Texas and I haven't heard of any other states, but that'll be just have to wait and see what the impact of those actions are.
Perfect. Okay. Thank you very much.
Thank you.
Next we'll go to Dane bowler with second market capital.
Hi, good morning.
Good morning, good morning.
So I'm wondering on the Alabama Newbuild.
Presumably the detainee, they're being moved in from older facilities that maybe werent as well designed for the exact purpose.
The modern purpose built buildings that you guys are making.
I'm wondering if you can quantify.
The benefits of the better facility in terms of say health and safety benefits, both the detainees any employees as well as potential cost savings and operating them.
Good question, probably a little hard on that on the last one but I'll.
Give you a little color to the first part of your question and that is it's been reported and I don't think Alabama state of hard and fast decision on this day. It's been reported that they were talking about 15 to 18 facilities within their state that they are looking to close.
As a result of these new these three new modern facilities once they're delivered being able to get the efficiencies by again closing out of older facilities.
Technology is a big one so I mean, if you think about facilities that are 50 to 100 years old.
This is not cost effected nor they didn't have the dollars per se.
Enhancing these older facilities with from a technology perspective, I'd say second the design of facilities today is a lot different than it was 50 or 100 years ago. So a lot cleaner line of sight lot more efficient design from a staffing perspective, you don't have near the exterior work.
You used a limestone or rock is the perimeter wall. These are now used.
Fences, where you can see through and again use technology from both camera and other detection detection systems and then I'd say finally is that these facilities.
Sometimes there are acquired.
Other other agencies within the state governments are sometimes these facilities or maybe vacated mental health or hospitals.
They were initially built for a different mission, but theyre, just not really conducive to an environment, where you're providing.
Well, a corrections kind of housing and services, but also maybe not have adequate space for <unk>.
Programs or medical services. So a lot a lot of different benefits that can be provided with a new modern facility part of which is again just being able to design. It kind of from day. One for this mission versus maybe being acquired and had a previous mission and in another life, but anything yet.
A couple of things one.
They're not incremental beds to Alabama or intended to be replacement beds for.
Existing facilities for which Alabama is currently being sued by the department of Justice for the conditions of confinement. So certainly this is the governor solution to come up with better capacity as Damon mentioned there'll be.
Hi Tech technology, there'll be larger facilities, which I think is also important to note to the latter part of your question. So when you have disparate smaller facilities.
Much more inefficiently run then it can be run when you have three very large facilities is just kind of common sense.
Alistair Kansas. This case, they were able to save enough cost savings.
To fund the lease payment that we collect.
Ownership of the facilities because of the efficiencies that they gain and not having to have as many staff in and as much repairs and maintenance.
Older facilities, I think theres dated back to $18 50.
Like that so these facilities similarly are very old and outdated. So they have a lot of deferred maintenance and maintenance if they spend every day on them that they will not have to spend on three brand new facilities. In fact, that's our responsibility under the under the terms of the leases. So a lot of efficiencies to be gained by by consolidating the facilities and again not incremental.
Capacity for more inmates, but just replacement capacity it puts them in better conditions and quite quite frankly safer conditions for the staff as well.
Okay, great. So as those numbers come out from the Kansas facilities and theoretically indicators from the Alabama. One are you finding those are useful in pitching the same case to other states or other entities that would like a similar.
Sort of thing.
Oh, absolutely, yes, great question, but yes, absolutely we think that.
The best marketing, we can do for new opportunities as previous examples we can point to so we know that every jurisdiction. We have worked with they do a lot of a lot of homework in research with other jurisdictions that have done kind of similar projects with the private sector. So we think yes, Kansas helped us.
Good momentum in Alabama, and we think in turn Alabama will give us good momentum in another state. So yes, that's exactly right and this is what we do so we can provide that value added service to government agencies that haven't constructed facilities and $25 50, or 100 years, where thats our business. So we know it well.
We know how to design facilities, so that they can rebound from efficiencies or inefficiencies about inefficiencies out of the older older facilities and when they are designing a new one.
Okay. Thank you congrats on a good quarter.
Thank you and thank you so much.
And that does conclude today's conference. We thank you for your participation you may now disconnect.
Yeah.
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