CoreCivic, Inc. (CXW) Earnings Call Transcript & Summary

Welcome to the virtual road show series presented by Channelchek and Noble Capital Markets. Of the 6,000 small and micro-cap companies listed on Channelchek, today we're featuring CoreCivic, NYSE ticker symbol, CXW. Research coverage of CoreCivic is provided by Noble Capital Markets. Noble is a FINRA-licensed SEC registered broker-dealer. All Noble research is available on Channelchek. [Operator Instructions] Following the formal presentation, Joe Gomes, Noble's senior research analyst covering CoreCivic, will ask our presenters a selection of the questions received. The source of the questions will remain anonymous. And now here is Damon Hininger, CEO; and David Garfinkle, CFO of CoreCivic to make the presentation. Damon and David, take it away.

Thank you so much. Damon Hininger with CoreCivic. Thank you for Noble Capital Markets having this virtual road show this afternoon. We really appreciate the opportunity to have a little time with you all. So I will lead us off, and then I'll tag team with David Garfinkle. So David is our CFO. He's been with the company since 2001 as you see from the slide there. And he's done great work for us in the Finance Department, but now being CFO for gosh, about 5 years. He's a tremendous leader for the company not only on the day-to-day stuff that's most important relative to our finance and accounting and payroll, but also really is an important strategic leader for us as we think about our company strategy, and I know, a trust adviser to the full Board and our Audit Committee. So Damon Hininger again is my name. I've been with the company about, oh, gosh, 28 years. Been in my current role just over 10 years as CEO, and actually, I started as a correctional officer with the company. And Leavenworth, Kansas is where I was born and raised. Worked in that facility for a couple of years, worked another year in a facility in Arizona before coming to Nashville to work in the headquarters. But grateful to have this journey with the company. Love what our company does. And we'll also share that more here in the coming minutes. But just really have been drawn to this company because of its mission and its real focus on helping people get their life back on track on the individuals that are entrusted in our care. So again, I'm going to lead off and provide a little bit of an overview and talk a little bit about also the important work we do in our facilities, and then I'll turn it over to Dave here in a few minutes. So past the forward-looking statements and go to this slide, which is -- gives you a good overview of the company. I won't read this all to you, but really just want to note kind of the size first, and that is, company has a size of about $2 billion in annual revenue, if you look at -- from that metric. But another metric point too is about $3.8 billion in total assets that the company owns, and that is about 18 million square feet of real estate we own around the country. So we're focused purely on U.S. opportunities. We don't do anything international. So that real estate holding is purely U.S.-based. In the bottom left here, you see kind of the operational segments: Safety, Properties and Community. So let me talk about Safety first. This is where the company was founded back in 1983. Our founder saw an opportunity to provide private sector solution to corrections agencies at the federal state and local level. And they had a great opportunity to do that because at that time, there was about 41 states that were in dire situation in such a way where they had federal courts coming in because they were concerned about not only being overcrowded but really old antiquated infrastructure and then also wouldn't get key services, not just with the programs, but also medical and other important services that are really needed for this population within these facilities. So the founders looked across town and saw what HCA done in health care and asked the question, "Well, maybe there's an opportunity for a company to do the same thing in corrections." So the core business, what we call Safety where -- was -- again, where the company was founded. We have about -- with our footprint, along with some competition in our industry, we have about 8% of the total inmate population in private facilities. We do tremendous work on the program side, which I'll talk about here in a minute. But what's unique about our business too is that we do it with government, and in many cases, our government partners do this themselves. And so that way to benchmark ourselves in kind of real time with our operations versus our customer, which, again, are running their own facilities, it motivates us and incentivize both of us to do better with the population that we've been entrusted within our facilities. And so we're also very proud of the fact, and we know this creates a very high bar, but we have a lot, a lot of oversight from the jurisdictions that we work with. And so they'll have on-site monitors, they'll have auditors that come in that work for government to do regular inspections, but also third parties like American Correctional Association and a couple of others that were coming in and continue to kind of inspect our operations. We know, with that type of scrutiny and that type of frequency from an audit perspective, that raises the bar from a quality perspective, but also, we're always focused on providing good value back to our government partners. The Safety segment is in the majority of our business at the moment. It's about 80% of our NOI, if you look at this past year. And this solution, which is where we own and operate. We do have a couple of solutions in here where we just provide the service and the government owns the real estate, but the vast majority is where we own the real estate, and we provide the service. It's been a great, great solution for jurisdictions that are dealing with growth, overcrowding and antiquated facilities, kind of -- cost savings, kind of all the above, and we provide that, again, not only high-quality but in a very cost-effective way. And we've had good growth in that segment for nearly 40 years. Two newer parts of the discussion or part of the history, I should say, is what we call the Properties segment and the Community segment. So you'll see those both here on the bottom left. Those were established around 2012, 2013. So let me give you a little color on those. The Properties segment is taking our know-how on how we can develop and maintain real estate, and we provide that solution directly to the government and, in essence, they become the tenant. So in cases where we own and operate prisons on the safety side, what we do on the properties side is we own and maintain the asset, but the department of corrections or the state agency or the federal agency operates it. And so they're the tenant. So it's basically taking our wherewithal of not only maintaining and developing properties but also providing a good and effective solution to, again, deal with overcrowding or, in many cases, maybe replace antiquated facilities with a new project or they can close some of these older facilities, get more efficiencies by closing those facilities, but also it's safer for staff, more humane for inmates. So that's what we call CoreCivic Properties. And that segment has had tremendous amount of growth here in the last 6, 7 years because a lot of jurisdictions are dealing not only with antiquated facilities, but even here in the last, obviously, 6 months, COVID has really reinforced the fact that newer modern facilities to deal with a pandemic are really, really critical for a population that's at risk with this virus. And then finally, on the final column here on the right, CoreCivic Community. That's again a relatively newer segment, around 2013. These are facilities where we own and we operate, but they're typically in metropolitan areas where we are housing individuals in the last 6 to 12 months before release. So the key mission of these facilities are to connect the individuals with an employer, help them get reunified with family, participate in religious activities, if wanted or appropriate, but basically give them a little bit of a head start before they ultimately get released by the jurisdiction to get established with not only an employer but also with family. These solutions are really, really critical because that last -- that kind of last step is so, so important to really make sure people that they've got the network, they've got the ties, they've got the employment, and they can support themselves and their family once they get released, in turn not come back in the criminal justice system. So that's what we call CoreCivic Community. The overarching thing, as you see here, is that we connect all these with obviously government, so federal state and local jurisdictions. So obviously a government is the connection between all three. And all of them have a connection also with the real estate. So one thing we think we do really, really well is develop and maintain real estate for government. Again, almost 18 million square feet that we own in the United States. So we've been doing a long time, and we think we do it very, very well. On the right, again, I won't go through all these, but there's some great, great either dynamics or characteristics about this business. But also on the bottom right, a lot of work that we do to help better the public good. I mean so much work we do to make sure not only we provide good quality operations by helping those individuals entrusted in our care to again -- get their lives back on track once they get released and not come back in the criminal justice system. This next slide just gives a little more of a reinforcement of some of the points I made in the previous one because you see the kind of the breakout between the different segments and again, some of the trends and the value proposition. Before I turn it over to Dave, I want to just make one key point that I alluded to earlier, and that is the passion our team has for this work. And so we have an awesome responsibility with our company to really make sure that the people entrusted in our care, that they're treated humanely, that they're treated with respect, that they're provided the services that are key during their journey through rehabilitation, especially if they're dealing with maybe probably a medical issue, but maybe a chronic care issue or maybe addiction issue. But they're provided those services as appropriate to help them in that journey but also making sure that the people entrusted in our care, if there's an opportunity where they can achieve higher education, maybe get the high school diploma or a GED or maybe certified in a vocation. We make a lot of time -- we've put a lot of time and effort and invested a lot of resources to making sure that those programs are available to the people within our facilities. So as you probably have seen, if you've done a little research on the company, we do -- we actually have done our second year in a row ESG report. We were kind of the -- one of the first ones in our industry to kind of run towards that type of reporting. In fact, we were doing ESG reporting before it was known by its current name. We started actually in 2014 announcing public goals on reentry and help the people get their high school diploma or maybe certified a vocation. We set goals, and then we started doing annual reentry reports that would show progress or lack thereof of those goals that we set forth back in 2014 and report on an annual basis. So we called it a reentry report up until 2000 -- I guess, '17 and then 2018. And then this current reporting cycle, 2019, we did our 2 consecutive years of ESG reporting. So that report, if you haven't had a chance to take a look at it, provides great window into our operations and the work we do. But relative to this topic, which is that people entrusted in our care and helping them get better prepared once they get released, I'm really proud to report that we've had, over the last 5 years, 30,000 people in our care either get their high school diploma or get certified in a vocation. And those vocation programs historically have been like welding or have been as an electrician or maybe in cabinetry. But more recently, as the labor market changes, and this is the beauty of the private sector, we could change very quickly with that, we just started opening a couple of coding programs -- computer coding programs because we're hearing, as probably many of you here on the call hear, that labor market is in dire need of more coders. And so that's a relatively new program that we've done a couple of sites, and we look to expand. But the bottom line is with 30,000 people either getting higher education or maybe certified in a vocation, studies have shown that when they walk out the door, they're 40% less likely to come back to the criminal justice system. So that's kind of common sense. Obviously, that's consistent with what you see with the general public when people go through the education system or maybe get certified in a vocation. But that's really, really, really important work. We're grateful to have the opportunity to do it. It's part of our DNA. It's our passion. And our employees do such a great job doing that. And it's so important to do because -- I'll leave you with one last statistic before I turn it over to Dave, and that is that of all the people incarcerated in the United States, which is just over 2 million people, 95% of that population will get released, will come back into our respective communities, will become neighbors of ours. And you can say, well, we should do this because if that is going to be the case where you got 95% of people come back into our communities, we should get them prepared. But more importantly, it's the right thing to do. It's the right thing to do. It's helping these people get better prepared, where they won't come back to the criminal justice system, but they could be productive in a way where they can support their families and be productive citizens in our communities. It's just the right thing to do. So we're grateful to have that opportunity. It's an awesome responsibility that we take seriously. And we think we've shown good success on that. At the end of the day, we're providing good, not only value back to our partners, but we're helping our respective communities, too. So with that, Mr. Garfinkle, I'll turn it over to you.

Thank you, Damon. I may be going a little bit out of order on the slides. So I'll kind of start on Page 7, although some of these statistics are not on there. I just want to show the very strong cash flow business. So our business model generates significant cash flows. It's durable during good times or bad, various economic cycles. It's proved resilient during the pandemic, COVID pandemic, as well that I'll get to in a moment. But so as of June 30, very conservative, largely unencumbered balance sheet. Based on the trailing 12 months, June 30, our leverage was 3.9x. That's a net debt-to-EBITDA leverage. We've had a historical leverage policy of 3 to 4x in the Safety and Community segments. Our Properties segment, we're more comfortable with a higher leverage level, we've said 4 to 5x of a leverage level for those cash flows. Those cash flows are based on fixed monthly rents as opposed to the Safety and Community segments, which cash flows are more or less based on populations. So justifying a higher leverage level in that Properties segment. So blended, that all in comes out to probably, as I mentioned, 3.9x as of June 30. We've got a little bit higher than that, we've been a little bit lower than that. But that's been the leverage policy, gosh, for the past 20 years since I've been with the company. I'll talk about a change in that leverage policy in a minute as we talk about the conversion from our REIT to a taxable C corporation. But as of June 30, tremendous amount of liquidity, very strong cash. We have $364 million of cash on hand, an additional $154 million of availability on our revolving credit facility. That cash balance does reflect partial draw we had done at the end of the first quarter once COVID-19 hit. Really just out of a pure abundance of caution, we partially drew down that credit facility, so maintained that high cash balance as of June 30, as I mentioned, $364 million. Subsequent to June 30, we paid down a little bit. I mentioned on our last earnings call, we had paid down $50 million in July. I think we paid down something like $125 million of that since June 30. Our cash continues to build. And once we went through the announcement of the strategic revocation of the REIT and conversion to a taxable C corporation when we have the ability to retain more cash, we'll be building cash, so not as much need to keep such a large cash balance on hand. Debt maturities, we've got $250 million of unsecured notes maturing in October 2022. We've got $350 million of unsecured notes maturing in 2023. Our credit facility, which is also -- it's a $1 billion credit facility, also matures in 2023. So talk just a couple of seconds on performance during COVID-19. So coming into this year, we had guided to The Street in February, at least our full year guidance in February 2020, with an expectation of lower ICE detainee populations, and that was really because they had reached some unprecedented levels during 2019. So our guidance in 2020 was already reflecting a reduction in those ICE populations. When COVID-19 hit, for us, it was really toward the end of March when the administration effectively shut down the border to asylum seekers and anybody trying to cross the border without proper documentation, our ICE populations really began to decline further. So the reductions that I was talking about, comparing '19 to 2020, really amplified by shutting down the border to Protect U.S. citizens from the spread of COVID-19. But nonetheless, so with the first quarter relatively unaffected by COVID-19, we report both FFO and AFFO. We like to use AFFO as a proxy for cash flows after maintenance capital expenditures but before debt repayments. So during the first quarter, that number was $70.3 million. So even though having gone through a full quarter in the second quarter of 2020, under COVID-19, we nonetheless reported AFFO of $69.3 million. Our cash flow was very stable under the COVID-19 environment during the second quarter compared with the first quarter. That's not to say we have not seen disruptions to the criminal justice system. We did see our occupancy decline from just over 80% down to around 75%. So as I mentioned, the biggest impact there was really with a reduction in ICE populations, but we have seen a reduction in some state populations as well as the criminal justice system has not been functioning normally -- under normal operation, say, prepandemic. So I'd like to say kind of the front door has been somewhat disrupted, and we're not seeing as many populations come in the front door, but people continue to serve their sentences and be released. So we continue to see some reductions in prison populations overall. So with such a stable cash flow base and a business model that's very resilient in various economic times, you'd wonder, well, why did we decide to go through the analysis with our Board about converting from a REIT to a taxable C corporation. And I'd say really, there are several reasons, but the main one was the trading price of our stock. The multiple, no matter how you measure it, I'd like to look at FFO trading multiples more than anything you could use, total enterprise value, earnings multiple, but whatever it was, we just have not had a fair trading multiple. We don't believe the marketplace has assigned a proper value to the cash flows, the durable cash flows that we generate. So when we converted -- we originally converted to a REIT in 2013, it was a right decision at the right time. We did see an expansion of our multiple to around, say, 15x an FFO trading multiple. As time went by, that multiple declined. So in 2015, we started seeing a decline in that multiple. We kept our head down. We said, we'll just continue to perform, deliver on the business, and the stock price will take care of itself. And for various reasons, it just has not. And as we continued to assess what can we do within our control to turn that around, it led us to the evaluation of corporate structure alternatives. So we had our own internal analysis. We engaged Moelis, a financial adviser, to help us think through that. We engaged Latham & Watkins, who's been our long-time REIT advisers, to help think through what are the various structural alternatives that might potentially be a catalyst for improving the trading multiple. And we looked at the REIT structure. And gosh, when the REIT structure requires you to pay out 90% of your taxable income in the form of dividends to shareholders, we paid out 100% of our taxable income. So a substantial portion of our cash flow is being paid out to the shareholders. That limits the things we can do. When you're at a very low trading multiple, one of the tools companies take advantage of is buying back stock because it's the highest returning investment that you can make with your capital. And obviously, capital allocation is a very important part of management's strategy. So without the ability to buy back large amounts of stock, having to pay out such a large dividend, that really creates an impediment for creating a catalyst to increase the stock price. Damon mentioned ESG, helping people get their lives back on track, helping 30,000, 35,000 people get GEDs and industry-trade certificates. We think we've got a great ESG story. But unfortunately, the market has, we believe, mischaracterized us as a non-ESG investment. And [indiscernible] political pressure on the large banks is the immigration policies have been perceived as being harsh to the United States. So that put a lot of the immigration advocates, a lot of special interest groups putting pressure on the large banks not to bank the industry. So all that's kind of translated into a higher cost of capital. So before the analysis with our Board on corporate structures, our dividend was yielding 15%. That's just not sustainable. That's a cost of capital that's not sustainable for our business. And trading -- the trading price of our bonds reflects higher-yielding investments, which implies that when we go to refinance those notes, that the interest expense, the face rate on those bonds is going to go up. So we just looked at the business and said, "What can we do to improve that situation? Rely less on the capital markets so that we can grow the business, get a lower cost of capital, improve the credit profile of the company." and all that led us to a decision to revoke the REIT election. Well, we plan on doing that effective January 1, 2021. We believe we've paid enough dividends to satisfy the REIT requirements already in 2020. So we'll enjoy the rest of the year not having to either pay a dividend or pay taxes, so that will enable us to pay down a significant amount of debt in the second half of the year and then next year, without the dividend requirement, we'll also be able to continue to pay down debt, even though we will have a cash tax obligation beginning next year. So in consultation with the Board, certainly, the cash flows, what we're going to do with the cash flow is prioritize debt reduction. And that creates the revocation of the REIT election. Converting to a taxable C corporation provides numerous benefits: one, as I mentioned, improvement of the credit profile, just having the ability to retain cash flows makes you a better credit. Lenders are going to be more willing to lend to companies that have a better ability to repay that debt. So that will translate -- should translate into a lower cost of capital. So when that debt comes up, we actually believe we're going to be able to repay the 2022 maturities that I mentioned and the 2023 maturities with cash flow from operations. But should the capital markets be there available to us at the cost of capital that we've enjoyed for so long, we'll certainly be able to take advantage of those capital markets. But we don't have to is the important part. We'll have less dependence on the capital markets. We'll have less dependence on the size of the credit facility. So we've got $1 billion credit facility, that credit facility that I mentioned matures in 2023. It's grown over the years because it's been cheap capital, and it's been readily available. With the big banks making the decisions, we believe for political purposes and not to continue to provide credit to the industry, we won't need that capital as much, so we can shrink the size of the credit facility. We'll focus in on super regional banks and community banks, banks where we already do business and believe that we'll be able to get an adequate sized credit facility to continue to operate the business effectively. But again, we won't be dependent on the capital markets or the banks. Our focus is on paying down debt. We published in our press release that our target leverage is going down, we said -- as I mentioned earlier, from 3 to 4x. The new target leverage will be 2.25 to 2.75. So the focus of the cash flow in the interim will be paying down debt, getting toward that leverage through that net debt-to-EBITDA targeted leverage. Once we get that, we'll have the ability to buy back stock. When we were a C corporation last, as I mentioned, we converted to a REIT in 2013. But in 2009 to 2011, when we were last a C corporation -- taxable C corporation, we bought back $500 million of stock. Think about what was going on in 2009 through 2011. The country was going through a financial crisis, and you had the Great Recession, yet the durability of our cash flows was so strong, we bought back $0.5 billion worth of stock. So we expect to be in that same position, continue to generate significant cash flows, pay down debt. And if the stock price doesn't respond, we'll be in great position to execute another stock buyback program, maximizing value to the shareholders. We'll also have the ability to self-fund our growth. So as a REIT, you're dependent on the capital markets to fund your growth and all those growth opportunities. Well, as we're retaining that cash flow, we can use that cash flow to continue to grow the business. And in fact, we'll be able to grow in some areas that aren't eligible under the REIT structure. Finally, my last point, we've announced that we're placing certain properties -- portfolio of properties in the Properties segment for sale as a taxable C corporation. Those properties probably don't make sense for us to own. They're more appropriately owned by REITs and other organizations that don't pay federal income taxes. So we're looking at properties not in the corrections portfolio. So government-leased assets, such as an IRS field office, the Social Security buildings, Social Security field offices, DEA and so forth. So we're marketing those properties as a portfolio and believe that we can generate approximately $150 million in net proceeds, and that's after the repayment of nonrecourse debt on those properties and any other obligations. So generating $150 million in net proceeds will enable us to further accelerate the capital allocation strategy, pay down debt and get to that leverage target of 2.25 to 2.75x faster than we would if we weren't selling those properties. In fact, it could potentially present an opportunity -- a unique opportunity where we're actually selling properties, delevering the business accretively. So increasing earnings and FFO per share because those properties, they're very attractive properties, particularly if you look at those properties in this environment, leased to the federal government, in some cases, state government, by government agencies that have AA credit ratings. So properties that are in high demand, cap rates can be anywhere from 5.5% to, say, 8%. So if we're paying down debt at a higher rate than that, you actually increase your per share earnings at a time when we're derisking the balance sheet, lowering the risk profile of the company. So we'll see what the ultimate proceeds are. We hope to complete that sale toward the end of this year, potentially could slip into 2021, but we're charging ahead with our goal to try to sell those properties by the end of calendar year 2020. So with that, I don't know, Joe, if I want to open up some questions that you've been accumulating, either pre call or during the call. We're happy to answer any questions that you've been receiving.

Thank you, Damon and David. Great in-depth presentation. I'm Joe Gomes, this NOBLE senior analyst who covers CoreCivic. And here are some of the questions I've selected from the audience as well as a few of my own. We'll get right into it. We'll start with the easy questions for you. So the Biden platform has talked about moving away from privatized prisons and detention centers. And along with that, there's been press reports about bad conditions, use of force by guards, et cetera, in the private prison industry. How do you guys respond to those types of questions?

Yes. So important, important question. So let me tackle. And again, I might tag team a little bit with Dave, but let me tackle those questions. So the first part is that we've been around for 40 years. We've worked with federal, state and local jurisdictions. And as you can appreciate, a lot of those jurisdictions have changed. Obviously, governors get term [indiscernible] limited, and also, you get new governors, but they've also changed politically, from Democrats to Republicans and vice versa. And so we know, regardless of who is in the White House, regardless who is the governor in the jurisdiction we're operating at the state level, we got to do a good job. We got to keep our eye on the ball from a quality perspective. We got to make sure that our customer, which, again, I'll reinforce a point I made earlier, they do this themselves, so they know what quality is because they do it themselves. We know we've got to do a good job from a quality perspective because they've got a lot of people on site in real-time, looking at our operations, talking to staff, talking to inmates. And if we're not doing a good job, we know that contract renewal rates that we've enjoyed here last 5, 6 years, which is north of 90%, are not going to happen. So we got -- regardless of kind of the political affiliation of the elected leadership with the jurisdictions we do work with, if we do our job, and do it well and making sure that we're keeping our eye on the ball relative to quality, but also be cost effective, then we can navigate through the political winds of change that happen from time to time, either at the federal level or at the state level. More specific at the federal level, just to give a little bit of kind of more color about our book of business there. So we do work with 3 federal agencies: the Federal Bureau of Prisons, the United States Marshals Service and Immigration and Customs Enforcement. Actually, Immigration and Customs Enforcement, which many of you all know was formerly known as INS, that's actually where the company started its journey back in 1983. So our very first contract as a company was with INS, now with ICE. And so we've had almost a 40-year relationship with them during that period of time. Obviously, a lot of presidents during that period of time of 40 years. Obviously, a lot of priorities, especially related to the immigration period of time, but our focus has been with INS or ICE to do a good job from the quality, provide solutions that government can't do themselves, but also help them be -- being able, I should say, being flexible and provide custom solutions based on the needs and priorities of those respective, not only presidents, but also leaders in Congress. And with a 40-year track run, just highlighted again last week with 2 new renewals at our 2 facilities in Texas, reinforces the fact the service and solution that we provide is critical. So I think if it's a case where -- keep going with ICE for a minute, then I'll go with the Marshals and BOP, I think it's the case where you've got new leadership in the White House, if Joe Biden gets elected, and maybe he's got some changes within -- in Congress, the quality that we provide today, the solution we provide today, it's the same thing that happened during under President Obama, and obviously, when Mr. Biden was Vice President. And we provided some good solution, especially in a challenging environment in 2014, where they had a real need for humane-safe solutions for families at the Southwest border. And we're doing that facility today in 2014. We started in 2014, I should say, we're providing that same solution today in South Texas. So if there's changes relative to ICE, I think probably the change is probably going to manifest itself on funding, where funding maybe go up or down a little bit, depending on, again, who's in the White House and Congress. And we've kind of worked through those kind of changes in funding in years past, and we'll navigate that as appropriate based on, again, whoever is in the White House and who our leaders are going to be in Congress, especially if the Congress, on a [indiscernible] flips over to the Democrat. One of the key point I'd say about, well, ICE, is that they virtually, not quite 100%, but it's probably north of 90%, rely on the potential capacity of providing the United States by third parties, either us or a city and county government. And so they don't have their capacity. They don't have capacity on their own. They don't operate very much -- again, it's probably less than 5% they operate themselves. So they really do rely on cities and counties or a private sector for solution, but probably more importantly, they've overlaid, and this goes back actually to President Bush and even President Obama, a lot of standards, a lot of requirements, a lot of expectations from a quality perspective. And our view on all that is any new improvement on the quality of operations is a good thing. We've supported those reforms, improved standards, additional audit functions and oversight. At the end of the day, that makes us incentivized to do better in their eyes. And so I'd point to that, too. United States Marshals Service, another customer on the federal side we do business with. They may -- you may know this already, but they are 100% law enforcement. So they completely rely like ICE on either cities or counties or the private sector for capacity. Most of our capacity is near federal court houses. So these are individuals in the proceedings of their case, and they could be 3 to 6 months while they're in Marshals service custody. We're providing the detention capacity, and we're also providing the support from a transportation prospective to get them back and forth to the court during their proceedings or how their case progresses. They've also, like ICE, have put on a lot, a lot of standards and requirements from a quality perspective. And so we've, again, embraced that. Again, at the end of the day, that makes us all better from an operation perspective. So we think that, that customer has been unique, not just because they 100% rely on others to provide that solution, but also the need for that capacity is driven by U.S. attorneys in the federal courts. And so that's not necessarily a policy or a congressional kind of direction from a policy perspective. It's really the U.S. attorneys and the judges that ultimately are working with local or federal law enforcement for individuals that are going through the federal court system. At the end of the day, we're providing a good solution that's safe and humane from an operational perspective but also high quality and cost effective. So then finally, I would say that the Federal Bureau of Prisons, the BOP, is a largest correctional system in the country. They're embedded within the Department of Justice like the Marshals service. ICE, I should have said earlier, is actually over in Homeland Security. But the Bureau of Prisons, they have looked at the private sector as relief valve based on the needs of their system. And so up until 2013, they had about 33 years of consecutive year-over-year inmate growth. And since 2013 to today, their populations declined by 60,000 inmates. And so that's been because of sentencing reform. It's been because of criminal justice reform. It's also moving some populations maybe to a lower custody environment or maybe community corrections. At all -- at the end of the day, those are important reforms. Anything connected to criminal justice reform, we're supportive of. We're on the record for that. And we've been, we think, a good relief valve during that period of time where they have been severely overcrowded, especially in those days of the '90s and the early 2000s where they were significantly growing faster than the capacity they had available and made available to that population. But today, kind of fast forward to now, we are working with the BOP, but with one contract. It's about 2% of our revenue. It's about 2,000 beds. So it's a pretty small amount of the overall enterprise that CoreCivic provides to our federal partners. And so I think as it manifested in a little bit on the 2016 election, if there is a desire to, BOP, maybe be even less reliant on the private sector. They have taken steps, along with the policymakers, to where their overcrowding is insignificantly reduced and in turn, their utilization of private sector, especially of CoreCivic, has been over time reduced to the level it is today, which, again, is one contract by 2,000 beds and about 2% of our revenue. So from that perspective, there's a change there. It's going to obviously not be very, very impactful. But let me turn it over to Dave, see if there's anything he'd add to that kind of feedback because obviously, that's an important question.

Yes. You checked off most of the boxes that I have in response to that very important question because it is a good one. Two additional points I think I would make. On ICE, so Immigration and Customs Enforcement, we meet Performance-Based National Detention Standards or standards commonly referred to as PBNDS that a lot of the local jails that Damon referred to that also care for ICE detainees just can't meet those requirements because of the physical plant. So our detention facilities, which we've constructed purpose-built for this population, is able to meet those standards. So as -- and during the Obama administration included, wanted to make sure that their populations were following, or they were governed by these standards, we're able to meet them probably a lot easier than the local jails can just mostly because of the physical plant. The second point I think I'd make -- Damon mentioned the family residential facility we have in Texas, that was also a purpose-built facility for this population for families, particularly mothers and children who were held together. So it enables us to keep those families together. They're not separated. We don't house on a company of minors. We never have, have no intentions of housing on a company of minors. So that facility, which looks nothing like a prison facility, does not have razor wire, does not have locks, does not have the things that you'd typically find in a correctional setting because it's meant for a softer population, a mother with her children, in this facility so that we can house them together. And again, that was put up in 2014. So those are the only 2 points I really want to add to Damon's comments, Joe.

I appreciate that, Dave. And yes, to the second part of your question, Joe, you asked about the headlines and the accusations about the quality of our operations and individuals doing inappropriate things in our facilities. This is a challenging business. Obviously, they're running the -- especially prisons or jail detention centers, public or private, it is a challenging business. Again, I started with the company as a correctional officer. So I know firsthand in those early days, when all worked the midnight shift there in Leavenworth, Kansas, this is a difficult job, but it's an important job. It's a job that we take very, very seriously, day in and day out. Not only from a quality perspective, but again, a lot of the things that have happened in the industry, especially over the last, I'd say, 10, 15 years, where there has been more standards put in place that Dave just alluded to with ICE. There has been more investment in on-site staff working for government, so these are government employees that have unfettered access to every nook and cranny of our facilities. We've got regular inspections by our partners, sometimes not only in real time with the on-site staff, but maybe monthly, quarterly, yearly. And those inspections and reviews -- these are people that know this business because they do it themselves. So again, this is not people or maybe academics that are trying to figure out, "Okay, what's the right way to audit facility?" These are people that probably are wardens from their facilities that have been doing this 10, 20 or 30 years, and they know what quality is or doesn't look like. And so that raises the bar. We -- I tell our folks all the time that the scrutiny and the level of oversight that we have, it's probably a higher bar than a lot of other jurisdictions have in the United States, but so be it. If that bar is higher, let's achieve to try to clear it. Now are we perfect? Absolutely not. When you got an organization with 14,000, 15,000 employees, do employees make a wrong decision or use poor judgment? Absolutely. It's rare, but it happens. And I think the clear track record we have, and this is what our customers judge us on, is that we take quick and decisive action when those things happen. Take the appropriate steps to investigate it. Depending on the situation, we may refer to local law enforcement for them to investigate it. The government partner may investigate it, and then the appropriate action will be taken. May lead up to termination, may lead up to a legal proceeding against that individual. But the thing I would point to, I think probably the most important thing for this audience to know is our contract renewal rates. We started a couple of years ago -- started publishing those in our supplemental. So if you're looking at our quarterly supplemental, you can see this going back 3 or 4 years. But it's been consistent, which is north of 90% renewal rates in our contracts. So again, our partners do this themselves. You can't pull a fast one on them on quality. They know what quality looks like or doesn't look like. And if we're not doing a good job, not only from a quality perspective, but in those situations, which again, are unfortunate and rare -- but if we're not taking the appropriate action and in a decisive way, then that's going to put at risk the contracts not getting renewed. And so we've been really consistent on that point on renewal rates. The other thing that we post relative to American Correctional Association are audit scores. We've been really enjoying good audit scores. Again, as a third party that is nationally known -- it's been around for, gosh, almost 150 years. They have been setting the standards for our industry, public and private. And so all of our contracts require that ACA, American Correctional Association, come in on a regular basis on in our facilities. And actually, that audit results in accreditation or lack thereof. So that's another level of oversight we've got in our facility. So the headlines, I know it can be frustrating or maybe an area of concern, but I would say we've got a tremendous amount of oversight from government partners. We've enjoyed great renewal rates in our contracts, and we've got third parties coming in and doing reviews. And the final thing, I'd say, before I give it back to you, Joe, is that, especially people learning about the company and the industry for the first time, we want to be completely open book. So we've put a lot of stuff out there, obviously, on the website, the ESG report, the supplemental data. But also -- come see us at the appropriate time. Obviously, we're in the middle, I know, in the pandemic, but at the appropriate time, come see us. Meet with the management team in person. Come see a facility. We'd love to tour a facility to anybody's interest and see firsthand our operations, get an opportunity to interact with staff and maybe even our customers. So anyway, that was a long answer, Joe. I'll turn it back over to you. But that's 2 important questions, we want to make sure we answer very comprehensively.

We appreciate the color on that. So I'm going to bunch a couple of questions here together because they're all hitting at the same point here. You mentioned you've got some new contracts, Idaho. You entered into the new ones with ICE. And the questions revolve around where is the growth coming from? Do you see the growth? Where is the opportunity set? I know you can talk about Alabama here. What other opportunities do you have? And particular with ICE, you mentioned how the ICE populations have been declining here due to COVID. What does the ICE now entering into the 2 new contracts -- how does -- what does that mean for you guys? And what does CoreCivic's recovery from COVID look like?

Yes. Important, important questions. So let me again tag team with Dave on this. Just say quickly on Safety, Community and Properties. So Safety, again, also, we've been impacted. Dave kind of walked you through the numbers earlier a little bit. The state populations have been less impacted than the federal population. Again, Dave gave a little bit of color on some of the numbers there. Probably the answer that you'd probably hear from a lot of other companies in the industry is that once the new normal -- once normal or the new normal come, obviously, a lot of people believe that the catalyst is going to be the vaccine. I tend to agree with that, that you're starting to see over the last few months the kind of getting back to normal. But do you see a real catalyst after that point where everybody feels it's kind of all clear and there's been a widely accepted vaccine? It feels that's going to be kind of a little bit of the case within our industry, too. But what's very clear, and I'll -- you asked about ICE specifically, Joe, and I'll mention them, is that our government partners, obviously, they're navigating through this, too, especially the ones that operate their own facilities. It's very clear that, one, the real estate that we have, that we own, where we own and operate on the safety side, that's even more important to have newer modern facilities in the pandemic because you're able to do quarantine and cohort and have -- we've got infirmary beds. We've got negative pressure rooms. We've got newer modern HVAC systems so you can deal with air-borne viruses like this one. And so that type of real estate has become even more valuable in a situation like a pandemic, especially with our partners that are dealing with 50-, 100-, maybe 150-year-old facilities that can't do that and have that ability -- and have a higher risk than -- with a pandemic. But the second thing is we're hearing again with ICE and other partners -- is that, obviously, yes, you've got a disruption in the intakes and releases because of the pandemic, but the footprint of capacity and services we provide is very, very important. And there's been no desire to change that footprint because near term, you're dealing with, obviously, the ups and downs of populations with the pandemic. So that was reinforced even to me here recently with the call I had with ICE leadership. So they're continuing to plan. Obviously, they can't say and our other partners can't say exactly when normal gets back to normal and kind of the timing of that when they ramp up, it's clear that they really value our real estate because it's the newer -- most modern capacity in the United States and then second, that they obviously are seeing a change in demand at the moment, but they think that's short-lived. And again, short-live is a month, 6 months, maybe a year. So yes, Dave, let me maybe turn over to you to see if there's additional points you want to add to that before I go to Community and Properties.

Yes. No, I guess, talking about the growth opportunities, Joe, you mentioned Alabama. So Alabama is a good opportunity right now. Alabama is looking to construct 3 brand-new facilities in the state to be operated by the state. So this property -- or these properties would fit in our Properties segment. So we would just be the landlord and providing maintenance of that real estate as well. So that's a near-term opportunity. We think that despite COVID-19, Alabama has charged forward on that opportunity. And we believe an award could be made by the end of the year. I think it's down to a couple of teams. CoreCivic is one of those teams. So we like our chances. We've done a very similar solution for the state of Kansas that actually just came online in the beginning of this calendar year in January. So I think we're competitively positioned to win one or more of the opportunities in Alabama. And there are other states in that same situation. Damon mentioned the outdated infrastructure throughout the country. We think there's an opportunity of $15 billion to $20 billion of outdated correctional infrastructure that's going to be -- that's going to have to be replaced. And even now or more so now, I should say, with state budgets getting tighter and tighter because of COVID-19 and lost tax revenues, they're going to be looking to the private sector to come up with a solution where they don't have to raise taxpayer dollars to appropriate $100 million, $200 million or more for a brand-new correctional facility. So we see opportunities in -- Alabama is a near-term opportunity. We think other states could also follow that same solution. Because of the outdated infrastructure, they're going to have to do something. On the state side, you mentioned Idaho. Idaho is a very good contract. We're real happy to resume business with Idaho. We stopped doing business with Idaho years ago, but happy to have them back in the portfolio. They've begun the intake at our Saguaro facility in Arizona. So very humbled by their decision to utilize CoreCivic again to help them manage their population. Beginning of this year, Mississippi, we -- they're in a very challenging situation in their correctional system. Had some untimely deaths and some dangerous situations that, with relief capacity that Damon mentioned at the beginning of the presentation -- we provide that relief capacity. So we're able to quickly come up with a solution for Mississippi. And in fact, it was an instate solution for Mississippi because we had capacity in state. Came up with a solution for them. They expanded that contract from 350 beds to 1,000 beds in the second quarter. So just one quarter after they initially contracted with us, expanded it from 350 to 1,000. Haven't quite utilized that 1,000 yet because of COVID-19, but I think there could be an opportunity to help them continue to solve some of their issues within their correctional system, providing them with additional capacity once things get kind of back to normal. So I think there's particularly opportunities on the Alabama-type, Kansas-type projects, where we're just the landlord and lease the correctional facilities to the state and some other state opportunities as we've got some idle correctional facilities and capacity within existing facilities. So with that, Damon, I'll turn it back to you.

Good. Thank you. Yes, thank you. Great, great overview. So yes, Joe, I'll turn it back over to you actually.

Great. Let's switch gears here for a minute. I think you pretty much answered what was the primary decision-making process around the change from the REIT to the C-corp, but if you want to expand a little bit on that, feel free. But what are the next -- key next steps in the process and the timing for the conversion from a REIT to a C-corp?

Yes. So we're off to the races on affecting the conversion on 1/1/21, so here -- before the end of the year. And so yes, we're going through that process. So Dave, I'll let you highlight maybe a couple of key things before the end of the year. But pretty straightforward process. And again, we're doing the reverse of what we did in 2012 so we kind of know the playbook. We just kind of have to turn it around. But Dave, I'll maybe let you provide a little additional color there.

Yes. Very little disruption. I mean the facility operations wouldn't even know if they weren't reading the news or reading our announcements on what we're doing. They're doing their jobs, don't change one bit. We'll have some changes in the finance area as we'll now be required to prepare a much more material income tax provision and -- but on the other hand, we won't be required to comply with the REIT requirements. So there's a lot of work, back-office work associated with making sure we maintain all of the -- meet all the requirements to maintain REIT status. So we'll obviously continue to do that through the end of this year. But then once the turn of the calendar into 2021, there's tax consulting, and there's other tax-related issues that we'll have to deal with, but most of that's in the finance department. That won't have any disruption to the operations whatsoever. So it should be a pretty seamless transition. Our organizational structure will pretty much stay intact from what entities we have, holding contracts and so forth. So there's very, very little effort involved in converting from or revoking that REIT election effective January 1, 2021. We'll begin recording an income tax provision in the first quarter of next year and begin paying quarterly tax estimates in April of 2021, I think, it is. So it should be pretty straightforward. We'll take cash flows. Like I said earlier, we're a unique position where we can take cash flows for the rest of the year, not paying a dividend or income taxes and just focusing it on repaying debt. So that will be the priority for the rest of this year.

Okay. Great. And got about 5 more minutes here, so let me throw a couple of quick ones at you. What's management's interest in pursuing M&A? What assets are interesting? What type of returns do you usually target? And would CoreCivic consider going private?

Wow, okay, got a couple of good questions there. So the M&A side, I would say based on where we are today with this announcement, with the conversion underway as we've laid out, and Dave kind of went through a little bit of additional color or provide additional color, and that is #1 priority is pay down debt and then at the appropriate time, based on -- if it's -- we've got opportunity to refinance or pay it out -- pay those maturities off completely, then we'll evaluate the capital allocation strategy to either do a share repurchase or whatnot. So that is -- that's kind of the near-term strategy from a capital allocation perspective. The interesting thing, I guess, probably important to note, I should say, on the Safety segment, which we're talking about occupancy, I mean, where occupancy, right now, just because of COVID, has gone in kind of the mid- to low 70s. And so there's a lot -- obviously, a lot of opportunity for growth within the Safety segment, either with existing partners or new partners. And so to kind of put a round number and keep me honest here, Dave, but keep -- put a round number to it, if we get occupancy back up to what I would say, kind of high 80s, low 90s, that probably is about $100 million in EBITDA without any capital -- or capital needed for the Safety segment. So obviously, that could be a big driver of the growth over the next few years. On the Properties and Community side, Community, again, that's very opportunistic. There typically are acquisitions. I don't see any kind of near-term opportunities in front of us based on what we see in the pipeline. And from a CapEx perspective, pretty small. Those are kind of $10 million, $20 million deals. So pretty small. And again, don't see anything, I'd say, near term, which could be next, let's say, 2, 3 quarters. And then on the Properties segment, like -- talked about earlier -- with Kansas and with Alabama that we talked about earlier, there is a really robust, and credit to the team here, but a really robust kind of environment out there where we can get project-specific financing at very, very low rates, so really lowering the cost of capital on those development projects. So that's kind of what we see kind of near term. Again, the -- primarily part of the question was M&A. And I don't see anything near term. But what we are doing, and as alluded to a little bit on the slide but we didn't really highlight it, and that is, now and we being in a C-corp, there are parts of the industry that we were precluded to do in the past, notably around health care or mental health or maybe infirmary beds. Those are really, really important solutions for government partners. And now we could be a little bit in the front seat in providing those solutions versus in the past we couldn't, being a REIT and the rules prohibiting those type of medical care facility -- being able to be provided by REITs. The last question is that -- what I would say generally, and I think we've demonstrated as a management team, is we're always receptive to any and all ideas. I mean you look at -- I mean, I would highlight a little bit, over the last 10 years, during my tenure as CEO, we have done a $0.5 billion share repurchase before we converted to a REIT. We had initiated a dividend. We converted to a REIT, which obviously increased the dividend payment to our shareholders. Obviously, you saw increased valuation during that period of time. And as Dave said, being a REIT made sense when it made sense, but it doesn't make sense now. But I guess my punchline is that all those things were done in a way to make, I think -- show a behavior that's very shareholder friendly. And when we did the share repurchase program, we had some shareholders saying, "You guys should think about this. This makes sense." And we listened. They made compelling arguments. Obviously, I'm a big shareholder so obviously I'm invested in this, too. The bottom line is we're open to any and all ideas. If -- what we've always said to investors, if you've got an idea, you've got a receptive audience, never going to be defensive, never going to -- completely be dismissive. And I think prior practice over the last 10 years shows that we listen. And many times, we act on it.

Okay. One last question here. You guys have noted in the presentation that you don't think the share price currently is reflective of the business. So is the company currently in the market for share repurchases? And have insiders been accumulating shares?

Yes. Good question. So we have not formally announced a share repurchase program. Again, the focus here near term is going to be paying off debt. And the debt paydown could have been -- could again be -- if we got a window to refinance some of these near-term maturities, then maybe we'll take advantage of that. But if not, then we'll pay down. But that's going to be the -- what I'd say kind of the key critical path here to near term is what the -- what maturities look like, either being paid down or refinanced and kicked out from a maturity perspective. Once we kind of get over that hurdle, then it will be a case where we look at, "Okay, how do we think about our capital now, now that we've got maturities in our back -- rearview mirror? Maybe announce a share repurchase program." So that's how we're thinking about it near term. Relative to insiders buying, let me tell you, I've been with the company 10 years. I've accumulated a lot, a lot of shares during that period of time. Vast majority, well over half of my net worth is in this company. So if you look at the proxy and look at not only the shares I have, I don't see any, but also, I've got some options that are underwater here in the next few years. Obviously, I'm highly, highly motivated to continue to drive value to our shareholders because I am one and obviously, I've got a lot of skin in the game with over half of my net worth within the company. So I've accumulated a lot over a period of time. But I'd be cryptic clear on this. Obviously, a $9 share price based on, again, what the slide that Dave walked through earlier, I mean, the multiple is just not appropriate. So now we're going to do something about it. Now that we've got, again, the conversion to C-corp, we've got the ability to kind of control our destiny.

Well, Damon, David, I think we can keep going on this all day long, but that's all the time we have for today. Thank you for helping us get a better understanding of the CoreCivic story. If you would like to get the independent research I've written on CoreCivic, go to channelchek.com, and type in the company name or the ticker, CXW, in the search box in the top left company data section of the site. A recording of today's virtual road show also will be available on Channelchek. Again, thanks to Damon and David from CoreCivic. I also would like to thank all of you from the investment community who have watched today. Log in for more virtual road shows on Channelchek, brought to you by NOBLE Capital Markets. Goodbye for today.

Thank you.

Thank you.