By M. Marin
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Reactivating idled facilities, as demand for occupancy is expected to rise
CoreCivic (NYSE:CXW) reported 1Q25 compensated occupancy of 77.0%, up from 75.2% in 1Q24. Importantly, CXW is in the process of reactivating them, as well as one other idled facility. ICE is seeking to expand its nationwide capacity and CXW is reactivating three facilities that it had idled previously. The company remains optimistic that it will reach long-term agreements with ICE and others to warrant bringing additional capacity online. Reflecting the limited supply of and older state of many government-owned correctional facilities, among other factors, we anticipate that the company will continue to sign new business that, in turn, will further enhance operating leverage, results and lead to multiple expansions.
CXW has entered into an amended intergovernmental services agreement (IGSA) with ICE and the City of Dilley, Texas to resume operations at the South Texas Family Residential Center in Dilley and care for up to 2,400 people. The amended contract runs through March 2030 and may be further extended through bilateral modification. The company has also entered into a new lease agreement with Target Hospitality Corporation, which owns the facility. As with the prior agreement between CXW and Target, the period contracted for leasing of the facility is co-terminus with the ICE agreement so that CXW has no exposure at the back-end of the contract once it ends. CXW will be able to largely match lease costs with expected revenue.
The Dilley Facility was constructed specifically for ICE in 2014 to provide occupancy for families seeking entry into the U.S. CXW managed the facility from inception until August 2024, when funding for the contract ended and the facility was idled. In addition to all the prior services it offered through August 2024, CXW will also now provide onsite medical care.
Once it is completely active and with the provision of medical services, the new agreement is expected to result in annual revenue to CXW of about $180 million. The company indicated that pre-activation activities commenced earlier this year and the company expects it to be accretive beginning in 2Q25. The company also entered into four contract modifications with ICE last week. We have increased our projections for CXW and believe our revised 2025 estimates still might prove conservative. Reflecting the limited supply of and older state of many government-owned correctional facilities, among other factors, we anticipate that the company will continue to sign new business that, in turn, will further enhance operating leverage, results and lead to multiple expansions.
Increased demand for occupancy also reflects company’s more modern facilities and operating history
CXW’s relationship with ICE, its largest government partner, and other government partners continues to be strong, in our view. Moreover, reflecting the limited supply of and older state of many government owned correctional facilities, CXW’s facilities are relatively new compared to about 57% of the Federal Bureau of Prisons (BOP) infrastructure built 30+ years ago (and about 31% 50+ years old). The BOP is a relatively small customer for CXW but we believe that the overall state of its facilities provides insight into the general state of government detention facilities in the U.S., reflecting budgetary constraints and other challenges to constructing newer facilities. Thus, over the past 5-years, retention rates on owned and controlled facilities is over 95% and the company is engaged in discussions for additional contracts with existing and potential partners, including federal, state, and local agencies. CXW has indicated that the prospective pipeline for new contracts is robust. Reflecting the additional capacity required by ICE and potentially other government partners, we anticipate new contracts to be signed. We expect the results of RFIs and RFPs, as well as other ongoing business discussions, to lead to new business and anticipate the company’s momentum to continue in 2025.
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