Executives at private prison operator CoreCivic say they’re prepared for a ban on private prisons but also have joined a new trade group to prevent that from happening.
On the campaign trail, several Democrats hoping to run for president — including frontrunners Joe Biden and Elizabeth Warren — have called for an end to the private prison industry. In response to questions about how Brentwood-based CoreCivic would survive that scenario, CEO Damon Hininger said on a conference call last week that the company will still profit. Instead of operating facilities for governments, the company could still sell or lease its real estate.
Hininger argued that state and federal governments don’t have the capacity to house all their inmates, and CoreCivic’s facilities are basically the only option.
“They need our real estate and a purchase or a lease of that real estate actually is going to be a net positive for the company,” he said. “There is no alternative, and we could be a lot quicker and easier to give them access to capacity versus trying to get it on their own.”
CoreCivic’s prison management business makes up by far the biggest proportion of its revenues, but other parts of the company are growing much faster. The part of the company that builds and leases properties grew by 30 percent compared to the same period last year. A division that operates re-entry programs grew by nearly 23 percent.
Those businesses made up about 10 percent of the company’s revenues in the third quarter but could create a buffer against what CoreCivic execs call the worst-case scenario — a virtual ban on private prisons.
While some investors voiced concerns about the effect of a Democratic presidential victory next year, the company is making lots of money right now. CoreCivic reported a record $509 million in revenue during the third quarter, beating out last quarter’s record revenue. (The company earned about $49 million in profit, which isn’t a record.)
The company’s stock price, which has spent the last year jumping around in response to industry headlines, rose almost 13 percent following the conference call. On Thursday afternoon, they (Ticker: CXW) were changing hands at $15.82, up about 1 percent on the day. They have fallen about 25 percent over the past six months.
Hininger said the increase in revenue is due to demand from states and the federal government. The company has won and activated 11 new contracts — totaling 12,000 beds — since the beginning of 2018.
Despite confidence that CoreCivic would thrive despite a private prison ban, the company joined a new trade group last month to stop that from happening. Along with peers GEO Group and Management & Training Corp., CoreCivic formed The Day 1 Alliance at the end of last month. In a press release, the group said it aims to “educate and inform Americans on the small but valued role the private sector plays in addressing corrections and detention challenges in the U.S.”
The group is defending the industry in general and claims that none of its members advocate for or against legislation that impacts the basis for or duration of an individual’s incarceration or detention.
According to the Center for Responsive Politics, CoreCivic has spent about $1.2 million on lobbying in 2019, about the same amount it spent during all of 2018. That’s the most the company has spent on lobbying since 2007, when its spending dropped precipitously. Many of the bills the company lobbies for are related to the budget of federal agencies that contract with CoreCivic.
In addition to the potential threat of a Democratic president, CoreCivic could also face some financial challenges in the coming years. Several major banks have announced that they don’t plan to loan money to CoreCivic in the future. Some of those lenders already have financial obligations to the company lasting through the next few years, and plan to follow through. After that, the company may need a new way to access cash.
Hininger said he’s not worried about it and added that his team is already exploring other options.
“We have been very pleased with the response we have received from the financial community, as we have recently made efforts to cultivate new banking relationships,” he said during the conference call.
CFO David Garfinkle said politics and headlines about banks pulling away from the industry have affected the price of the company’s debt. He added that CoreCivic could issue debt securities as a way to raise capital.
While executives signaled that investors shouldn’t worry, Garfinkle did say the company plans to “sharpen the focus” of its capital deployment strategy because of the bank market.