CoreCivic Inc

NYSE:CXW

Earnings Call Transcript 2020-Q3

[Operator]

Good morning. My name is Olivia, and I will be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to CoreCivic's Third Quarter 2020 Earnings Conference Call. [Operator Instructions].

Thank you. I would now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

[Cameron Hopewell, MD, IR]

Thank you, Olivia. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer; and David Garfinkle, Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On the call today, we will focus on our financial results for the third quarter, general business updates 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 and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our third quarter 2020 earnings release issued after market yesterday and in our Securities and Exchange Commission 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 on the Investors page of our website, corecivic.com.

With that, it's my pleasure to turn the call over to our President and CEO, Damon Hininger. Damon?

[Damon Hininger, President, CEO & Director]

Thank you, Cameron. Good morning, everyone, and thank you for joining us today for our third quarter 2020 conference call. Today, we will provide you with an overview of our third quarter financial performance, update you on recent contract awards and provide you with our updated outlook for additional opportunities in the market. We'll also update you on the progress we have made to reducing debt, which is our first priority of our current capital-allocation strategy, and provide a brief update on our evaluation of potential sale of certain non-Correctional real estate assets in our property segment and close with some comments about the political environment, the expansion of our multiyear policy initiative aimed at reducing recidivism and recent elections.

First, I'll briefly touch on our third quarter financial performance, which remains strong, albeit impacted by COVID-19. On the top line, our revenue in the third quarter was $468 million, which is a decline of 7.9% over the prior year quarter. A majority of this decline was experienced in our CoreCivic Safety segment, but our CoreCivic Community segment has also been impacted due to COVID-19 as our government partners have sought to release their lowest risk residents or those closest to the end of their sentences.

Normalized funds from operations, or FFO, was $0.52 per share in the third quarter, down from $0.70 per share in the prior year quarter. The largest impact on our revenue and normalized FFO in 2020 has been the lower utilization levels from our largest government partner, Immigration and Customs Enforcement, primarily due to COVID-19 pandemic and the closure of the nation's Southwest border.

While current utilization levels by ICE are well below historic averages, comparing Q3 2020 to the same period of 2019 was already going to be somewhat distorted under any circumstances because ICE reached historically high utilization levels in the third quarter of last year. The pace of declining ICE utilization slowed substantially in the third quarter compared with the rate of reduction we experienced from March through June of 2020.

In addition, we were awarded multiple new contracts during the third quarter that as they begin ramping, will help offset a portion of reduced ICE utilization resulting from COVID-19. Dave will provide you with greater details about our third quarter financial results following the remainder of my comments.

The first new contract we awarded during the third quarter that I would like to discuss with you is with the United States Marshals Service at our Cimarron facility Oklahoma. As you may remember, during the second quarter of this year, we announced our intention to idle the facility following negotiations with the State of Oklahoma to assist them as they sought to navigate significant budget constraints they were facing. For over a decade, the 1,692-bed facility served the State of Oklahoma to meet their need for medium- to high-security correctional capacity.

By the end of August, Oklahoma completed their departure from the facility. We began reaching out to partners who potentially needed capacity, and it was quickly apparent that the facility could meet the needs of the United States Marshals in the region. In particular, the Cimarron facility is located in close proximity to the transportation hub for the Justice Prisoner and Alien Transportation System, or JPATS, in Oklahoma City. JPATS provides transportation services for the Federal Bureau of Prisons, United States Marshals Service and Immigration and Customs Enforcement through a network of aircraft, cars, vans and buses. The JPATS air fleets operational center is also located in Oklahoma City. We expect the Cimarron facility will serve to provide ample capacity to facilitate the agency's transportation needs for many years to come. The new contract commenced on September 15, and the agency has quickly taken up available capacity. As of November 3, we carry -- we cared for 872 U.S. Ms. Detainees at the Cimarron facility.

We believe the new contract provides an attractive upside to our earnings compared with the previous contract. For the 9 months ended September 30, 2020, the Cimarron facility incurred an operating loss of $2.8 million. Even before the impacts of COVID-19, the facility's historic operating margins were below the average margins of the safety segment. We expect an improvement in facility net operating income as a result of the new contract, with annual revenues increasing to approximately $30 million at current utilization levels and an operating margin that approximates the average CoreCivic safety operating margin percentage with further upside to the extent utilization increases from current levels.

In August, we entered into a new contract with the Idaho Department of Correction to care for up to 1,200 adult mill inmates at our 1,896-bed Saguaro Correctional Facility. Subject to availability, we may utilize our 4,128-bed Central Arizona Florence Correctional Complex under terms of the contract. We are pleased to once again be working with the State of Idaho to provide solutions, and we expect the state will gradually increase utilization of the contract. However, the COVID-19 pandemic may slow the intake period. As of November 3, we cared for 437 Idaho inmates at the Saguaro facility.

The final new contract award I will highlight is with the Federal Bureau of Prison for Reentry and Home Confinement Services in Oklahoma, which was awarded in September of 2020. The contract award will result in reactivation of our 289-bed Turley Residential Center in Tulsa and increased utilization at our 494-bed Oklahoma Reentry Opportunity Center in Oklahoma City.

As I mentioned previously, the pandemic has impacted residential reentry populations to a greater extent because these residents are lower risk and are on the tail end of their sentences. The new federal contract will supplement the existing contracts we have in place with the State of Oklahoma. These 3 new contracts represent the potential for incremental utilization of approximately 3,000 beds. We are also pursuing additional market opportunities to help governments address their critical infrastructure needs.

The State of Alabama has continued its RFP process to partner with a private sector to build 3 modern, large-scale French facilities to modernize its system and close approximately 15 outdated facilities. In September, the governor's office announced the next phase of the Alabama Prison's program, including the state's intention to enter into lease negotiations with the successful developer teams to construct new facilities.

CoreCivic was selected for 2 of the 3 facilities, which in combination will represent approximately 7,000 beds to be constructed. To make sure I'm being clear, this opportunity is to build and lease these facilities to the state to operate, which would fall under our CoreCivic Property segment. The governor's announcement was not a definitive contract award, but merely an intent to enter negotiations. We remain engaged in negotiations with the state, and we believe that lease negotiations will be completed before the end of 2020.

The State of Nebraska is actively pursuing a similar path for a new [indiscernible] facility, but they are not as far as long in the procurement process. We anticipate similar opportunities will continue to come to market because nearly every state has a portion, a significant portion of the correctional infrastructure that has reached the use into their useful life. Modern facilities provide significant operational cost savings due to modern, efficient design that cannot be retrofitted for older prison facilities, and they offer the type of reentry programming space that provides opportunities for inmates to be more successful.

Retrofitting old facilities is typically one of the first options evaluated because, in theory, it would reduce the nimby challenges of starting a new facility. However, the operational challenges and high cost, coupled with the limited efficiency improvements available for retrofitting, typically cause it to be taken off the table pretty quickly.

Efficient design is the key. This is particularly relevant today with the threat of budget cuts, forcing government agencies to become more efficient. Also relevant today is the limitation older facilities have presented to systems responding to COVID-19 pandemic, included limited medical facilities, concentrated housing areas, centralized HVAC system hampering the ability to prevent the spread of airborne illnesses.

We expect in the long run, there will be greater interest in modernizing correctional system, especially after the COVID-19 pandemic subsides. Staying on the topic of COVID-19, similar to our last few conference calls, I'd like to provide you with a brief update on our ongoing operational response. Since the first quarter of the year, we have been collaborating with our government partners to respond to the evolving challenges created by COVID-19. Our operational plans follow guidelines by leading health experts from the CDC and the World Health organization, and these guidelines have evolved multiple times, so our operations have been responsive to these changes.

During the third quarter, we saw a steady decline in positive cases from the peak in cases we experienced during the second quarter. This trend has been consistent across our facilities. Our protocols and procedures are for addressing positive cases or suspected cases has remained consistent. We have not experienced any disruptions in our supply chain for PPE, cleaning products or other products used to reduce the risk of exposure. And in coordination with our government partners, our facilities continue to manage inmate movement, in-person visitation and other interactions in order to reduce the spread of COVID-19.

Given the trend in positive cases in the general public, we expect these operational interventions to continue. Similar to what we saw in the second quarter of the year, many of our government partners have expanded testing of inmate and detainee populations beyond the testing guidance from the CDC. We expect expanded testing to continue. While we are optimistic about the meaningful reduction in positive cases we have seen in our facilities during the third quarter, we remain vigilant of the trends the country is seeing in the general public. We will continue to be responsive to the COVID-19 pandemic and will work closely with our government partners to implement best practices as they evolve.

The impact of the COVID-19 has certainly been quite meaningful from an operational standpoint, but you can see our underlying financial performance remains strong, and there are ample opportunities in the market for us to grow. We have continued to execute on our strategy, successfully entered into multiple new contracts in the face of a global pandemic, and we remain in a strong and stable financial position.

Last quarter, we announced our intention to revoke our election as a real estate investment trust or REIT and convert to a taxable C corporation effective January 1, 2021. Revoking our REIT election provides us much more flexibility in how we allocate our substantial free cash flow. This was evident in our third quarter because we were able to allocate $107.2 million of net cash provided by operating activities in the quarter to debt reduction. We're paying over $100 million of net debt during the quarter, bringing our total recourse debt net of cash down to approximately $1.4 billion. We believe continued on this path of prioritizing debt reduction with a target total leverage of 2.25x to 2.75x will meaningfully improve our overall credit profile and lower our cost of capital.

This debt reduction target will not be achieved overnight, but our third quarter performance shows that we continue to generate substantial free cash flows, even while working through a global pandemic and have a clear pathway to achieving our leverage targets. We are also evaluating the sale of certain noncore real estate properties outside of our corrections portfolio. These mission-critical, primarily single-tenant government-leased properties were build-to-suit according to the stringent government requirements. The quality of these properties, combined with long-term in-place leases and top-notch credit quality in our government tenants is a clear distinction among REIT asset classes, particularly in the current environment in which government leased assets are increasingly attractive.

The sale of this portfolio could generate net proceeds of up to $150 million after the repayment of nonrecourse mortgage debt and related prepayment costs associated with certain assets being marketed for sale, which will also be retired from the balance sheet. We expect to use these excess proceeds to accelerate our capital-allocation strategy, monetizing the value of these properties that does not appear to be properly reflected in our stock price. Our marketing of this portfolio is active right now, and we are pleased with the significant amount of inbound interest. We will provide updates in the future as we work through the sales process.

Following our number one priority of debt reduction, we expect to allocate a substantial portion of our free cash flow to returning capital to shareholders, which could include share repurchases and future payments of dividends. The management team and the Board of Directors are 100% aligned with our shareholders and have a sizable stake of our own personal wealth represented by CoreCivic stock. We are clearly not content with the current valuation of our debt and equity securities, and we believe our capital-allocation strategy represents the best approach for positioning the company to create long-term shareholder value, given current market conditions.

Before I turn things over to Dave, I would like to briefly reflect on this week's national election. As in the organization, CoreCivic has successfully collaborated with our government partners for nearly 40 years. We have experienced success across all presidential administrations over that time, and we expect this to continue across each of our business lines. The solutions we provide to our government partners include mission-critical real estate assets that lack viable alternatives. The federal partners in our Safety segment depend on us to execute their agency's missions. The missions and needs as the federal partners we support may evolve over time, and we have had a successful track record of being responsive to their changing needs.

We will remain responsive to our federal partners and believe our value proposition will continue to resonate. We are excited about the opportunities that are appearing in the Property segment with the state and local governments taking action on their outdated criminal justice infrastructure, improving the quality of the lives for their staff and those individuals entrusted to their care. They have budget challenges that stand in the way of addressing their critical infrastructure needs. These state challenges do not change under different administrations. And we are pleased to be part of the solution for states like Kansas and Alabama with more on the horizon.

With the pending replication of our REIT election, we believe monetizing certain high-quality, noncorrectional assets in the Property segment is a way for us to accelerate our capital-allocation strategy, particularly considering the value that sales could create for our shareholders, given the dislocation in our stock price.

Lastly, for our Community segment, although the number of people we care for in our Community segment is currently suppressed because of the pandemic, we are gratified by the positive change in dialogue of reentry that has occurred in our country with additional resources set aside to help people get their lives back on track. Our educators, chaplains, case managers and countless others are very proud of the tools we provide to people in our care to help them succeed. Our mission in this area continues unabated, and I need to add, I am so proud of the entire CoreCivic team for their tremendous passion for our mission.

So to that end, in October, we announced the expansion of an initiative we started 3 years ago to advocate for federal and state policies aimed at reducing recidivism. The expanded slate of policies we act as support now includes the restoration of telegrams for incarcerated individuals, the restoration of voting rights for the formally incarcerated and licensure reform to remove punitive measures that make it harder for formally incarcerated to find and keep jobs.

With the legislative process of the past couple of years, we believe now is the time to step up, not slow down our commitment to programs and policies that reduce recidivism. I encourage you to visit our website to learn more about the public policy positions we have taken to support those entrusted in our care. With private facilities carrying forward just about 8% of the inmates in the United States, it's clear that companies like ours are not the driver of the serious and complex challenges facing our criminal justice system. But what CoreCivic is saying through our words, commitments and actions is that we are proven to be part of the solution.

Now more than ever, it's time to set aside politics, take advantage of the consensus around these issues and show the American people that there are areas where we can all work together to make economic and social progress.

I'd now like to pass the call over to Dave to provide a more detailed look of our financial results in the third quarter and other recent trends. Dave?

[David Garfinkle, EVP & CFO]

Thank you, Damon, and good morning, everyone. In the third quarter, we generated $0.22 of EPS or $0.28 of adjusted EPS, $0.52 of normalized FFO per share and $0.49 of AFFO per share. Adjusted EBITDA was $94.6 million for the quarter. Adjusted amounts exclude $4.7 million of expenses associated with our change in corporate tax structure and $2.8 million of incremental expenses associated with COVID-19.

Adjusted amounts also exclude a noncash impairment of $0.8 million, a $1.6 million net gain on the sale of real estate and $0.6 million for contingent consideration associated with the acquisition in 2019 of 2 residential reentry centers based on financial performance that has been better than estimated. With respect to COVID-19 expenses, we are following SEC guidelines and have taken a conservative approach, including only those that we believe are nonrecurring, incremental or separable from normal operations.

Despite being impacted by COVID-19, we continued to generate significant cash flow and sign new contracts to provide essential services for federal, state and local governments in our critical real estate assets that are very difficult to replace.

During the third quarter of 2020, we signed a new contract with U.S. Marshals Service to utilize our 1,692-bed Cimarron Correctional Facility in Oklahoma, enabling us to keep this facility operational for the long term with improved economics. Recall, last quarter, we announced that we agreed with the State of Oklahoma, which previously contracted for the full facility to idle the facility because of lower inmate populations resulting from COVID-19 combined with the consequential impact of COVID-19 on the state's budget. We completed the transition of the facility from Oklahoma to U.S. Marshals Service during the third quarter much faster than originally anticipated, and therefore, did not report any start-up costs in our non-GAAP metrics.

During the third quarter, we also entered into a new contract with the State of Idaho for up to 1,200 inmate to 2 facilities we own in Arizona and began leasing our 656-bed Southeast Correctional Complex in our Property segment to the Commonwealth of Kentucky. During the first quarter of 2020, we entered into a new contract with the State of Mississippi for up to 375 beds at our Tallahatchie County Correctional Facility in Mississippi, which the state increased to 1,000 beds in the second quarter.

Finally, in our Community segment, last month, we were awarded a new contract by the Federal Bureau of Prisons for Residential Reentry and Home Confinement Services at our idle 289-bed Turley Residential Center in Tulsa, Oklahoma, and our 494-bed Oklahoma Reentry Opportunity Center in Oklahoma City. As a result, we expect to reactivate the Turley Residential Center during the first quarter of 2021 and provide the BOP additional reentry services at our Oklahoma Reentry Opportunity Center, which will supplement existing utilization by the State of Oklahoma. These new contracts are exemplary of the critical need we continue to provide through various political cycles, economic downturns and now political health crises.

Since the beginning of 2018, we have signed five other new federal contracts, activated four previously idle correctional facilities and completed the intake of new inmate populations as a result of new contracts with 6 other states. During the 9 months ended September 30, 2020, we generated over $1.4 billion of revenue, and as of quarter end, we owned or managed 133 properties with a gross book value of $4.5 billion.

Despite COVID-19, our cash generated from operating activities remained strong, amounting to $107.2 million during the third quarter of 2020, enabling us to repay $102.2 million of total debt during the third quarter net of the change in cash. We currently project that we will repay an additional $60 million of net debt with cash flow from operations during the fourth quarter of 2020, increasing our total net debt repayments to approximately $185 million in 2020. This strength in cash flow is despite the pandemic and while the southern border is essentially closed to asylum seekers and anyone crossing the southern border without proper documentation or authority in an effort to contain the spread of COVID-19.

During the pandemic, investors may view sequential performance as more relevant than comparisons to the prior year since we began to see the impact of COVID-19 at the very end of the first quarter of 2020. As mentioned, net cash provided by operating activities, as presented in our statement of cash flows, amounted to $107.2 million during the third quarter. This compares to $98.9 million during the second quarter and $75.4 million during the first quarter of 2020.

Total revenue declined $4.4 million or 0.9% from the second quarter to the third quarter of 2020, including a reduction of $3 million at our Cimarron facility due to the aforementioned transition from Oklahoma to the U.S. Marshals, which did not begin occupancy until September 17. U.S. Marshals, nonetheless, quickly ramped up to 693 detainees by the end of September and currently stand at 872.

Normalized FFO declined $5.5 million or $0.04 per share from the second quarter of 2020. Declines in occupancy at Cimarron and at our Tallahatchie facility accounted for $1.9 million and $2.9 million, respectively, of the reduction in FFO or $0.04 per share for both. Occupancy at our Safety and Community facilities declined from 75% in the second quarter to 71% in the third quarter, translating into a decrease of 3,178 average daily resident populations. Oklahoma accounted for about 1/3 of this decline, again, mostly at Cimarron, while ICE accounted for a decline of 525, with the remainder due to declines across our portfolio due to the ongoing impact of COVID-19.

We were largely able to adjust our expense structure to align with the reduction in occupancy, minimizing the impact on our bottom line. Occupancy in our Property segment increased to 99% from 97% in the second quarter, with 100% of rent collected. Although we have excluded the impact of COVID-19 expenses on our adjusted per share results, they are included in the operating margins and per mandate statistics presented in our supplemental disclosure report. Excluding COVID-19 expenses each period, our total facility operating margin would have been 24.5% in the third quarter, lower than 25.3% for the second quarter, mainly because of the aforementioned transition of populations at Cimarron and in line with 24.6% in the first quarter, which had no COVID-19 expenses.

As of September 30, we had $282 million of cash on hand and $329 million of availability on our revolving credit facility, which matures in 2023. Our leverage measured by net debt to EBITDA is 3.9x using the trailing 12 months, and we have no debt maturities until October 2022 when $250 million of 5% unsecured notes matures. We currently expect to repay these unsecured notes upon maturity with cash on hand. We have no material capital commitments and remain on track to achieve the 10% reduction in our maintenance capital expenditures mentioned on our earnings call in May, which we expect to total $54 million, split evenly between real estate and non-real estate assets.

Our 2020 capital expenditure forecast also includes approximately $5 million of tenant improvements and leasing commissions associated with new lease agreements, down $2 million from our estimates at the beginning of the year.

We continued to explore the sale of certain noncore real estate assets in our Property segment and are very encouraged by the interest expressed thus far in the process. We still believe we can generate up to $150 million in net proceeds from such sales, which should enable us to accelerate our revised capital-allocation strategy, and we still believe such sales could occur late this year and/or in the first quarter of next year.

Although we continue to perform well and generate significant cash flows and even win new business, risks and uncertainties associated with COVID-19 remain. Operations in the criminal justice system have not yet normalized, the southern border remains effectively closed, and many state budgets will have significant holes to fill. The duration of these disruptions and the response to state budget challenges are difficult to predict. Because of all the uncertainties associated with our Safety and Community segment, we are continuing to suspend our financial guidance. 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 2 full quarters now under COVID-19. Criminal justice-related populations continued to decline, mostly due to a reduction in new intakes rather than early releases with a disproportionate impact on the Community segment, which is considered a lower-risk population. Governments have acted faster to transfer certain residents assigned to our reentry facilities to nonresidential statuses such as furloughs, home confinement or early releases to create additional space for enhanced social distancing within our reentry facilities.

Without the court system functioning normally and with the Southwest border still effectively closed, we expect to continue to experience declines in populations in our Safety and Community segments, while rightsizing our expense structure without sacrificing safety or quality. These population reductions are likely to continue until a vaccine is distributed. Our new contracts with U.S. Marshals in Idaho are expected to mitigate these declines. The pace of occupancy declines, however, appears to have slowed. In fact, excluding our Cimarron facility and the transition out of the managed-only Metro-Davidson Detention Facility on October 4 that we discussed last quarter, the number of people in our care in the Safety and Community segments has increased by 52 as of November 3 from the end of September.

Further, as a reminder, about 2/3 of the federal contracts in our Safety segment have fixed monthly payments that help ensure our partners have access to the capacity they need if and when populations increased, minimizing the impact of further occupancy reductions. We have managed through the largest transactional obstacle we have faced so far by backfilling our Cimarron facility. What's more? We expect an improvement in net operating income at this facility as a result of the new contract with annual revenues increasing to approximately $30 million at current utilization levels and an operating margin that approximates the average CoreCivic's safety operating margin percentage, which would result in an annual improvement of at least $5 million compared with the full year 2019 when operations were stable.

There is also significant upside to the extent utilization increases beyond current levels. Our operating margins will be impacted by incremental expenses to procure personal protective equipment and other miscellaneous supplies and certain inmate medical expenses related to COVID-19, which we estimated to be in line with those reported during the third quarter. We do not expect a material amount of G&A expenses in the fourth quarter for the conversion of our corporate structure from a REIT to a taxable C corporation as most of that working expense was complete during the third quarter. We will exclude any of these expenses, along with the COVID-19 expenses from our calculations of adjusted EPS, adjusted EBITDA and normalized FFO and AFFO as we did in the second and third quarters.

Finally, we continued to pursue a longer-term opportunity in Alabama to design, build and finance construction for up to 3 new correctional facilities for the state, which the state would operate. We are pleased with the progress of this opportunity for our Property segment. We continue negotiations with the state and remain optimistic. Lease negotiations will be concluded by year-end.

I will now turn the call back to the operator, Olivia, to open up the lines for questions.

[Operator]

[Operator Instructions]. We will move to our first question that is coming from Joe Gomes with NOBLE Capital Markets.

[Joseph Gomes, NOBLE Capital Markets]

Nice quarter in a challenging environment.

[Damon Hininger, President, CEO & Director]

Good morning, Joe. Thank you.

[Joseph Gomes, NOBLE Capital Markets]

Let's start off with some of the easier ones first. It sounds like some of the population levels might be seeing some type of stabilization here, even if it's at the reduced levels?

[Damon Hininger, President, CEO & Director]

Yes. This is Damon. Thanks, again, Joe, for your question. So yes, I think that's right. If you look at our first two partners, Marshals Service and ICE, Marshals Service has been pretty steady during the quarter. ICE has continued to decline, but the rate of decline definitely has slowed down versus what we saw in Q2. And then on the state side and looking at numbers this morning, I think we have seen a pretty significant slowdown with our state populations. I think 2 states have shown a little bit of an increase in the last month, and I think we've seen 4 states increase a little bit in the last week. So yes, I think generally, looking at kind of both sides of the portfolio on the Safety segment, again, seeing a little bit of decline in a couple of partners, but the rate of decline has slowed down a bit. And then on the Community segment, that's been, I think, pretty stable over the last, probably a month or 2. And again, we're excited about the new opportunity in Oklahoma, which will be a nice opportunity for a couple of facilities that have been underutilized there in Oklahoma. But anything to add to that, Dave?

[David Garfinkle, EVP & CFO]

No. Well, I guess, I'd say, our Marshals populations were pretty flat. I think they were down like 50 from the second quarter to the third quarter. ICE's compensated populations were down probably about 500, something like that. As I mentioned in my script, the pops are -- total pops are actually up, even if you exclude Cimarron, which is the new contract ramping up, they were up slightly from the end of September to a couple of days ago. So fingers crossed. But as I mentioned in my script, there's a lot of uncertainty and still in the middle of COVID-19 and would expect to see some impact of that in the form of reductions in populations going forward, but a little bit -- I think it has slowed down.

[Joseph Gomes, NOBLE Capital Markets]

Okay. And then in the fourth quarter, any significant contracts that are up for renewal? I saw in the third quarter, it looks like you guys had about a 90% retention rate. So just wondering what it looks like here in the fourth quarter for contracts up for renewal?

[Damon Hininger, President, CEO & Director]

Yes. Nothing -- this is Damon again, Joe. Nothing in the fourth quarter, and I go out a little further into kind of first, second quarter, maybe even out 12 months, nothing really significant relative to significant contract renewals. The Houston and the Hutto contracts were ones that we're focusing on, but now that we've gotten those across the finish line, I'd say that the list of kind of near-term contracts that we think are at risk of being competitive to procure and whatnot, we think that's probably pretty unlikely here in the next probably 6, 12 months.

[David Garfinkle, EVP & CFO]

Yes. There is -- let me add, with contracts that are averaged 3 to 5 years in terms, generally speaking, you do always have a significant portion of them expiring in any 1 year. But as we look out over the next 12 months, it's pretty quiet relative to what it has been when you're looking at the material contracts. So I feel pretty good about those that are coming up that they would be renewed.

[Joseph Gomes, NOBLE Capital Markets]

Okay. And then just kind of a technical question here. I know you guys suspended the dividend. At the time you suspended it, you said you thought you had paid enough in dividends that you would be able to retain the REIT status for 2019. That's still I'm assuming the thought process right now?

[Damon Hininger, President, CEO & Director]

Yes. Yes. We had mentioned that there were some benefits under the CARES Act to accelerate some depreciation qualified improvement properties. Without that, we probably wouldn't have been there, but we obviously have that and don't anticipate an additional distribution required this year. If we were to sell a significant portion of our assets that are -- that we've talked about in the scripts, at a large taxable gain, there could be an additional distribution, but I don't anticipate that right now.

[Joseph Gomes, NOBLE Capital Markets]

Okay. And kind of big broad from the 10,000 foot. I know, Damon, you touched on a little bit here. But obviously, if we look at your guys' stock price with what's been going on here with the election, there is a huge portion of the investor base saying, the feeling is that with -- if Biden was to win the election, that is a huge negative for the company, just based on what's happened to the stock price here. If you can fill in a little more color here, any more detail? I mean what actually can Biden do from a regulatory standpoint in terms of changing immigration or the U.S. Marshals? I know the Bureau of Prisons has reduced its populations over time. I don't know if that gives them excess capacity, can that allow the government to transfer detainees that are currently being helped by the private sector to the Federal Bureau of Prisons? Are those facilities just not set up to handle detainees versus inmates? It's my understanding, correct me if I'm wrong, please, ICE and the U.S. Marshals own minimal amount of beds at all. So that, again, the alternatives for the federal government to house these detainees is extremely limited. Any kind of overview or more detail you can give on all that would be greatly appreciated.

[Damon Hininger, President, CEO & Director]

Absolutely, Joe. Thank you for the question. So yes, let me give a little color on all three federal partners. Let me start with the Federal Bureau of Prisons. So that was, as you know, about 10 years ago, that was about 10% of our revenue -- excuse me, about 15% of our revenue came from the Federal Bureau of Prisons. This year, on the safety side, it's going to be about 2%. So we started a conversation with our Board about 7, 8 years ago, noting that the need and the trends for the BOP was going to change because they, at that time, were going through some sensing reform and changed some policies on sensing for different criminal offenses. And so we went through a process to -- as we saw contracts come up, exploration most notably, the most recent one here, Adams County, just thinking about maybe alternatives for those facilities. So that 15% revenue from the BOP back in 2010, now it's down to 2%. So we think if there is a change in policy directed towards the BOP about utilization of the private sector, again, we think our risk is pretty minimal there just because we're down to one contract.

I'll touch a little bit more on ICE and Marshals, but let me, I guess, answer one part of your question that was embedded there, and that is the BOP being able to support the missions for ICE and Marshals Service. We think that if there is some direction again for the BOP because utilization and occupancy has gone down in their system that it's likely that the contracts they have with the private sector directly like our one in McRae, maybe that's capacity or that's population they move back into their system. So facilities they own and they operate. We think if that's a step, that's probably the first step, but they do those direct contracts that they've got with the private sector because again, utilization has gone down, occupancy has gone down, and I'll say they've impacted here near term also with COVID-19. So that's what we think potentially could be a step, if there is some direction and desire, either from Department of Justis and/or Bureau of Prisons.

Going to ICE and Marshals Service. So you touched on this. Both those agencies are law enforcement focused. And so Marshals Service do not have any facilities they own or they operate. So unlike the BOP, where they've got 100 facilities around the country that they own and they operate, Marshals Service doesn't have that luxury. And so they have no alternative. They either rely on us, the private sector or city and counties for space. So if they are asked to look at either buying or building a new capacity, that will be a very large capital commitment and probably would take anywhere from 5 to 10 years to happen. So obviously, it's not something they could affect overnight. And again, depending on what the leadership is within the Congress that obviously would require also some concurrence with Congress on federalizing the workforce to operate those facilities. So several different steps that also they would have to take. So we think our 40 years' work with the Marshals Service and with ICE, too, we have been able to be very closely aligned with the mission, which has changed over time, provide high quality, good solutions that are very efficient for their mission.

Notably, and again, it goes a little bit of question about BOP potentially providing capacity to those agencies, the capacity has to be in the right location. So for example, our city in San Diego, which is about 1.5 mile from the Southwest border, that facility has not only capacity, but it's got court rooms, it's got space for lawyers and for case managers, and that BOP doesn't have anything nearby that could support them. So our facilities are not only efficient from a design perspective, but they're very strategically located that makes the mission of both agencies, Marshals and ICE, very, very, very effective. So that's an important point on that piece.

The last thing I would say is that the need for ICE and Marshals Service come from 2 different areas. So Marshals Service, they have to provide capacity anytime a federal judge directs into holding federal prisoner. So they -- regardless of the budget situation, U.S. attorney, if they're prosecuting someone and the judge says, this person needs to detain, and they produce this individual to the Marshals Service, they have to house that individual. They don't have the luxury to say, they don't have the dollars or maybe the policy to house that population. So they're, again, beholden to what's being directed by the Federal Judiciary. And ICE, different circumstances, driven by their funding levels. And as you know, Joe, we've talked through kind of the charts, ICE funding going back to 2005, and so this goes back to George W. Bush, President Obama and then now under President Trump. So almost 15-plus years over 3 different administrations. ICE funding year-over-year has either been flat or has grown.

Last 15 years, you have not seen a decline in ICE funding. And again, you've got 3 different administrations, and you've had multiple changes in leadership, both on the House and the Senate side. So we think that indicator is probably a pretty good sign of kind of regardless of what the outcome here of this week's election, ICE mentioned is they have a need for capacity, they rely on the private sector or local facilities, and funding has been either stable or has grown over the last 15 years. And we have constantly shown not only a high-quality solution in strategic locations, but also we've continued to apply and advocate that ICE continue to raise the standards, have appropriate oversight so all these different reforms and improvement in standards and quality of operations we've advocated for, and we've met the bar. And so that's probably a pretty long answer to it, a pretty important question, but I guess, Dave, when you look at you, anything you would add to that?

[David Garfinkle, EVP & CFO]

Just a couple of points. You touched on, though, the standards. Our facilities meet what they call the performance-based national detention standards that the alternative in a public sector facility, where they house them in county jails, just oftentimes cannot meet those facilities because of physical plant limitations. So where our facilities, our newer facilities, they meet all of those standards. In many cases, the alternative use in a public sector facility just can't meet those standards because of the physical plan. And then last point or last couple of points, I guess, I'd make is, many of our facilities also have courts within the facilities. And ICE officials, we have hundreds -- literally hundreds of ICE officials that when they get up in the morning, they report to their place of work. It's at one of our facilities that -- in the case where they have courts, is an extremely efficient -- much more efficient use of the space when -- as opposed to having to round them up from county jails and get them to court. So a lot of critical needs we provide within our real estate that's very challenging to replicate.

[Damon Hininger, President, CEO & Director]

One of the other thing I'd add, Joe, is that we've got about 65,000 beds in our Safety segment that we own and we operate. And so if there was a -- for whatever reason, a desire either to lease or buy that capacity, if you put a dollar amount to it, new construction for federal facilities that we've seen over the last few years is anywhere in the range of about $200,000 to $400,000 per bed. State new construction is in the range of about $100,000 to $200,000 per bed. So if you just use $200,000, it's kind of the midpoint between state projects versus federal projects and put that against 65,000 beds, that's $13 billion in value of our underlying real estate. And again, about 1/3 -- maybe actually half of that is with the federal government. So that's -- we're willing to have that conversation, if appropriate, basically the alternative. But I guess, I would just say, again, both Marshals Service and ICE have been and continue to be very satisfied and really have a great desire to kind of keep the current situation in place, which is look at the private sector first, maybe city county's second for capacity, they have -- capacity needs they have around the country.

[Joseph Gomes, NOBLE Capital Markets]

Great. One last quick one for me, and I'll get back in queue. So again, we'll go back to the stock price and, I quote, understand the first focus here is on debt reduction. But assuming we were able to sell the noncore assets in the Property segment, any consideration given to maybe using a portion of those proceeds to buy back some of the stock if the stock was to stay at these types of levels?

[Damon Hininger, President, CEO & Director]

Yes. I mean, share repurchase program, obviously, would make a lot of sense based on current valuation. And as a large shareholder of the company, obviously, I agreed with that just because of my current holding. But we think the position we've put ourselves in now, which is now we can control our own destiny as it relates to if equity and credit markets are not available to us, we can pay down debt. So that is our singular focus at the moment. Let's pay down debt. Let's get our leverage level down to 2.5x. And along the way, we can evaluate, especially if the bond market opens up for us, we can evaluate and see if there is opportunity to refine some, if not all, of our outstanding debt.

But the near-term focus is just to pay down -- continue to kind of evaluate market conditions, but clearly, a share repurchase program based on current stock prices would make sense down the road. And I guess the last thing I would say, especially for newer investors, I mean, it is a tool in the toolbox that we have used in the past. From late 2008 to 2011, we bought almost $18 million of shares back. These were in the early days when I was CEO, about $0.5 billion. So it's clearly the tool and toolbox that we've utilized in the past. But again, I just want to reemphasize, #1 priority is paying down debt and getting our leverage level down to a level we think is appropriate.

[Operator]

We will take our next question from Jordan Sherman with Ranger Global.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Just want to make sure I understand the Alabama opportunity. I think you mentioned 7,000-plus beds, and maybe you can compare that to Kansas?

[Damon Hininger, President, CEO & Director]

Absolutely. So this is Damon. I appreciate your question. So yes, Kansas was about 2,400 beds, primarily two compounds. One was a secure facility about medium to high security. There was a big investment there, too, for medical infirmary beds or whatnot as in about 500 beds that were outside the facility. So combined, that's about 2,400, 2,500 beds. Capital project, if you want to put a dollars to it, was kind of in the range of about $160 million.

So Alabama, obviously is a much larger project, and I should say projects because it's going to be two facilities that we've been selected, assuming we are successful on lease negotiations. And this will -- this is going to be pretty fluid, probably here to next probably 60 days, but one facility will probably be in a range of about 3,000 beds. The other one will be in a range of about 4,000 beds. One of them is going to have also a very big investment for specialty medical care, so probably some infirmary beds and whatnot, that's conceptually what the state wants to accomplish. It's hard to put a dollar amount to it right now just because it is pretty fluid right now.

One of the key things we bring to the table is, we know how to build facilities obviously very efficiently from not only a systems and utilities perspective, but also from a staffing perspective. And so that's really the meat of the work that we're doing right now is continue to kind of work with the design with the folks in Alabama to ultimately give them the most efficient facility that meets their goals of the project. But anything, I guess, you'd add to that, David?

[David Garfinkle, EVP & CFO]

Yes. I think the state had put a total estimated cost of close to $1 billion for all 3 of them. As Damon mentioned, that's the process we're in right now, working with them to try to minimize the cost and obviously, the lease rate that they would ultimately pay. So much more...

[Jordan Sherman, Ranger Global Real Estate Advisors]

I apologize. The phone cut out just as you were saying the dollar amount.

[David Garfinkle, EVP & CFO]

Actually the state put an estimate of about $1 billion, close to $1 billion on.

[Jordan Sherman, Ranger Global Real Estate Advisors]

And that was for the -- for all three facilities to almost 10,000 beds or something?

[David Garfinkle, EVP & CFO]

That was their estimate. That's right.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Okay. And were expected returns for you guys similar to Kansas?

[David Garfinkle, EVP & CFO]

I hate to get into the details of that, but I'd say, at least, some returns is Kansas. Kansas was the first one in the industry ever done. Kansas is also one where ownership reverts to the state at the end of the lease -- 20-year lease term. That is not going to be an option in Alabama. So we would expect to retain ownership at the end of the 30-year lease term. So I think it's what they're shooting for, but yes, there'll be returns that hit our thresholds.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Okay. And then just wanted to ask about the facilities to be sold. I'm not sure I quite know my mind around, which is how many facilities total are you thinking of selling? And then what's the associated NOI with those and what type of pricing ranges? I don't know. No one will probably be careful about what you say about that. But I'm just -- just sort of -- any sort of parameters around that?

[Damon Hininger, President, CEO & Director]

Yes. The 46 facilities, NOI of about $30 million on an annual basis. If you look at our supplemental disclosure report, they're all in the CoreCivic properties segment and their lease -- most of them are leased to the GSA, General Services Administration. Most of them like SSA building, social security administration buildings, IRS buildings. And so it's really your noncorrectional portfolio. And yes, I probably wouldn't want to talk about price at this point.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Understood. And these are -- some of these were part of the newer direction you guys had been headed in?

[Damon Hininger, President, CEO & Director]

That's correct, yes. So we started acquiring these a couple of years ago. There was a couple of reasons why we thought that was advantageous, one of which is to diversify the cash flows through the overall company. But clearly, with the current valuation of the stock price, we're not getting any credit for those assets. But what also has happened on a parallel path is that government lease assets like these, I mean, this market is red hot because other real estate asset classes obviously are distressed right now for obvious reasons. So we think there is a market opportunity to take advantage of the current market, interest in the market, I should say, to buy these assets, understand that we're not getting any credit with it being embedded in our portfolio.

But the other strategic reason we thought these assets make sense and now we feel like we've kind of cleared that hurdle is when we were building the properties line initially, there was a lot of trying to kind of misunderstanding or maybe not complete awareness of what we're trying to do in places like Kansas and now Alabama. Now that we've completely developed that market, it's very, very well understood. It's seen as a very attractive option for states like Alabama and Kansas and Oklahoma, Kentucky and even Nebraska, we think having a portfolio of government lease assets.

We've kind of made the market, kind of aware of how we can do it, but we've also made the market aware of that this could be on an individual project basis, something that might be interest for investors if they want to help with the development of the cost and maybe do a specific loan for projects like Alabama, like Kansas. So there was a couple of reasons. Strategically, we thought these portfolios added value, but we think now is an opportunity with the market being red hot from a buyer's perspective and also not getting credit. It's a good time to go ahead and see what the market will bear relative to potential purchase.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Scary thought, considering what people think about private prisons these days. Maybe you are getting credit for that, but I'm just kidding. Just a question on, so obviously, there is some concern with the Democrats -- if Joe Biden wins, and I would think that the concern would be less now with a -- if the Congress doesn't turn over. But I'm just wondering, in your experience, and I gathered from all your comments that you think these concerns are not well founded in either history or in your expectations? But how long will it be? Say, Joe Biden's elected and we have a Republican Congress, how long will it be before we start to see whatever policy that the new administration has for immigration and private prisons taking shape? When will the rubber start hitting the road to sort of demonstrate that life is not going to be as bad as feared with the change in administration?

[Damon Hininger, President, CEO & Director]

Yes. Good question. And I'll tag team with Dave on this, but I'd say a couple of answers. Let me first say, it was the Marshals Service. So again, the Marshals Service 100% rely on private sector or our local facilities. They do not have any own facilities, they have no alternatives, and again, they completely take every prisoner that's produced to them from the federal judiciary. So I think if there is a policy decision made where the Marshals Service can no longer use the private sector for whatever reason, that would be very, very hard, if not impossible, to affect. And again, I've talked you through a little bit about the idea of maybe leasing or buying the facilities. Again, if the Republicans control the Senate, there is going to, obviously, have to be some discussion and probably, agreement that, that is in the best interest of government. So we think that one is going to be kind of a difficult one.

As it relates to, I see your question, I think probably what you potentially would see is maybe through the funding cycle. So as you go into the new funding cycle for, this would be, I guess, fiscal year 2022, which would happen during the kind of spring and summer of next year. Obviously, that level of funding could go up or go down, and that could be somewhat linked to maybe a policy directive or the buyer with a new administration. Again, if history is in an indication under multiple congresses being controlled by either Democrats or Republicans and other 3 different presidential administrations over the last 15 years, funding for ICE has either been flat, so year-over-year on par with the previous year or has increased. But anything you want to add to that, David?

[David Garfinkle, EVP & CFO]

Just if Joe Biden were to become the next president, I think there is a lot on his plate to deal with. Certainly, COVID-19 is going to be mission #1 to help get that under control. But when you think of all the other initiatives that are on his plate, health care, tax reform, climate change, trade negotiations, it's probably a while before you would expect the focus to become on private prisons. It's just such a complex area to solve because we provide such an essential governmental service there that I just can't believe that, that would be one that they want to tackle out of the box.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Yes. I always thought that the bigger -- well, two things really. One is that the bigger picture question would be more important, comprehensive immigration reform, then specifically targeting the private prisons. And also that with President Trump out and a shot at true comprehensive immigration reform, the private prisons would become less of a target.

[Damon Hininger, President, CEO & Director]

Yes. That might be, again, kind of going through the list of kind of legislated priorities. I think if it is -- Biden becomes President, and he's got -- and the Congress is controlled by Democrats on the House side and Republicans on the Senate side, there could be an opening, but they've kind of ticked off. There are so many other priorities, but also challenges, notably with the pandemic. And he's obviously got to think through what's my priority list over the next couple of years, especially with the midterms coming up in '22.

[David Garfinkle, EVP & CFO]

And the only thing I'd add to that is it's a little uncertain what's going to happen to the trends of immigration. Right now, populations are really down because of COVID-19. There has not been a fundamental shift in the number of people trying to cross the border. Those numbers are still large numbers, but they're just turning them away to help prevent the spread of COVID-19. I would expect, although it's just an opinion, you would suspect that a softer immigration policy or perceived softer immigration policy from the Biden administration compared with the Trump administration might result in increase in the number of people trying to enter the United States. It's going to be a good economy. The benefits that are potentially provided to asylum seekers and people on documents to people trying to enter the country could create somewhat of a surge. And I'd point to -- Joe Biden was the Vice President under the Obama administration, and during that administration, they did turn to the private sector to help resolve the humanitarian crisis that they saw in 2014. So hopefully, memories are long and can recall the solutions that we have provided.

[Damon Hininger, President, CEO & Director]

Yes. That's kind of the bottom line. Obviously, there's a lot of scenarios you can go through with this question, which is a really good question, an important question. But the thing we can control is to provide safe, humane, high-quality solutions to ICE and Marshals Service. And we think we have answered that call over and over and over again with turnover that we've seen in leadership, both in the House Senate and the White House. So the thing we can control is continue to raise the bar on our quality, continue to advocate for transparent operations and on-site monitors and completely raising bar on standards and policies and protocols. And we feel like if we keep doing that, which we've got a good record based on our renewal rates on our contracts, we'll continue to be a very attractive option for the government.

[Jordan Sherman, Ranger Global Real Estate Advisors]

Understood. And just last question. So I appreciate the capital needs and the capital concerns behind the view of potential stock -- corporate-level stock buybacks. But I'm wondering at what level -- it's both a question and a sort of suggestion, at what level does the stock become attractive for management to step up and buy? And I guess the suggestion there is that purchases by management at these levels would certainly send the right -- would be the right signaling to the market about the value in the stock.

[Damon Hininger, President, CEO & Director]

Yes. So message received. I've got, I think, about 300,000 shares. And then I've got, I think, probably equal amount of options I've bought over the years. So I've -- vast majority of my personal net worth is in CoreCivic stock. So obviously, I'm highly motivated, incentivized accordingly. So -- but I understand your point.

[David Garfinkle, EVP & CFO]

And I'd add -- this is Dave. I have not -- so we used to issue options up until, I think, it was 2013, something like that, and now we've issued restricted shares since then. I have never sold a share of stock since then. We have share owner guidelines that we require our management team to hold -- I own 3x the requirements.

[Damon Hininger, President, CEO & Director]

I think I'm same way.

[David Garfinkle, EVP & CFO]

So certainly, well invested. And as a fellow shareholder are certainly frustrated with the performance of the stock.

[Jordan Sherman, Ranger Global Real Estate Advisors]

We call purchases at these levels averaging down.

[Damon Hininger, President, CEO & Director]

Okay. Understood.

[David Garfinkle, EVP & CFO]

Right.

[Damon Hininger, President, CEO & Director]

Thank you.

[Operator]

This will conclude today's question-and-answer session and today's conference. We thank you for your participation. You may now disconnect.