CoreCivic, Inc. (CXW) Q3 2017 Earnings Report, Transcript and Summary

Good morning. This is James, and I'll be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to the CoreCivic's Third Quarter 2017 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thank you, James. 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. 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 of 2017 earnings release and in our various SEC filings. 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 discuss 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. With that, it's my pleasure to turn the call over to our President and CEO, Damon Hininger.

Thank you, Cameron and good morning and thank you to everyone for joining our call today. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. Our second third financial performance came in ahead of our initial forecast as we experienced modestly higher revenues across multiple federal and state partners during the quarter. Normalized FFO of $0.56 per share was $0.02 ahead of the high-end of our third quarter guidance and AFFO of $0.53 per share was $0.01 ahead of the high-end of our guidance. This has allowed us to raise our full year 2017 per share guidance for the fourth consecutive quarter to normalize FFO per share of $2.33 to $2.35, an increase of over 8% in the guidance range from $2.11 to $2.21 per share or $0.18 at the midpoint from the initial full year 2017 guidance we provided back in October of last year. Dave will provide a more detailed summary of the drivers of our financial performance and key factors impacting our updated full year outlook at the conclusion of my remarks. Before I begin to discuss business developments during the third quarter, I'd like to say and take a few moments to recognize the contributions of our Chief Corrections Officer, Harley Lappin who after nearly seven years in the role at CoreCivic has decided to retire from the position at the end of this year. Harley's time as Chief Corrections Officer with CoreCivic adds to a highly distinguished 33 year career as a Corrections Administrator that began with the Federal Bureau of Prisons in 1985. His leadership experience insights and knowledge have been incredibly helpful to the executive management team, our Board of Directors and to me personally. For all of his contributions to the company previous service to his country and to me personally, I'd like to extend my sincere thanks to Harley. At a time when our company's diversified business offerings are likewise diversifying our operational services, I cannot think of anyone better suited to step into this important role than Patrick Swindle. Since joining CoreCivic in 2007, Patrick has served in a number of critical leadership roles that have provided him with meaningful companywide knowledge and experience while supporting and leading our efforts to grow and diversify our company. I have really enjoyed working with Patrick during his time with the company and we are very excited about his move into this position. Moving next to discuss business developments in the third quarter, I'd like to begin by providing an overview of our response to Hurricane Harvey in Texas in late August, and our response to Hurricane Irma in September that affected portions of Florida and Georgia. Well before Harvey made landfall in East Texas, we proactively worked with our federal and state partners to assess the path of the hurricane and made the decision to transfer all residents out of our Corpus Christi Transitional Center to other CoreCivic residential reentry facilities in Texas that were outside the direct path of the storm. That residential reentry facility received modest damage when the eye of the hurricane made landfall only a few miles northeast of the facility. We also assisted non-CoreCivic facilities in the path of the storm with transportation and temporary housing of offender populations at our facilities further inland. As Harvey settled over the area of Houston, delivering historic levels of rain and flooding to the area, our 1000-bed Houston processing center continued to operate without interruption. That's not to say our staff did not face - did not face significant challenges, because as you expect a number of their homes or family members' homes were impacted by the rising floodwaters and many other states difficulties reporting for work due to impassable roadways. Although the facility never lost power, we were fully prepared with backup diesel generators and had ample food supplies for our ICE detainees and also our staff, who were displaced from their homes or could not return home due to roadway flooding. Following the hurricane through our employer sponsored CoreCivic assistance Fund and additional corporate resources; we have made financial assistance available to colleagues whose homes were damaged. A few weeks later Hurricane Irma displaced many people and left large portions of Florida in Georgia with extensive property damage and without power. We operate two facilities in northern portion of Florida and we own five facilities in the southern half of Georgia. So, we very quickly found ourselves again planning ahead of the hurricane with multiple federal and state partners. Given the path and expect to strength of the hurricane winds there was no need to relocate any of the inmates and detainees across the seven affected facilities. However, we did have to bring in extra diesel fuel for backup generators work with our food service and pharmacy providers to ensure additional supplies were in hand in case of disruption of normal delivery schedules, and operations had to implement staffing plan alternatives in case the hurricane disrupted regular scheduled shift changes. While few facilities experienced periodic power outages that required to use of backup generators and some various minor cosmetic damage to the exterior buildings no meaningful disruptions occurred. I'd once again like to thank all of CoreCivic employees that took part throughout these hurricanes and helped deliver the high quality of service our government partners have come to expect from CoreCivic. On August 31st, I flew down to Houston along with other members of our management team to personally thank all of the hardworking dedicated CoreCivic employees and meet with the facility management staff to ensure all appropriate resources were available to the facility and staff. Every story I've heard from our facility administrators and staff fills me with great pride and knowledge that our company is out there every day doing what is right for our customers and for the individuals that are trusted into our care. Looking next at new contracts within CoreCivic Safety. In July, we began receiving offenders from the city of Mesa, Arizona at our Central Arizona Florence Correctional Complex under a three year contract. Our facility predominantly houses detainees from the United States Marshals and Immigration and Customs Enforcement, but the new contract with Mesa has CoreCivic caring for an additional 100 of 200 offenders. While this is a relatively small contract, we are excited to have reached an agreement, because we believe there could be additional cities in the region that are interested in a similar solution. On August 15th, we began receiving offenders from the state of Ohio at our Northeast Ohio Correctional Center under a new agreement to house up to an additional 996 offender. We currently care for approximately 450 offenders from the state of Ohio at the northeast Ohio Correctional Center, in addition to approximately 625 prisoners from the United States Marshal Service and 275 detainees from ICE. And we anticipate their ramp of additional offenders from Ohio to be completed by the end of the first quarter of 2018. In September, we entered into a new contract with Cibola County, New Mexico to house a minimum of 120 offenders at our Cibola County Corrections Center. As we've discussed previously, last year we entered into a contract with ICE to house up to a 1100 detainees at this facility. But their anticipated demand in the region has not materialized. We work with ICE to adjust the contract to make the unused capacity available to other partners. Today, we are housing approximately 235 detainees from ICE, 275 prisoners from the United States Marshal Service and 120 offenders from Cibola County. And in October, we entered into a new contract with the State of Nevada to house up to 200 offenders at our Saguaro Correctional Facility in Arizona to help alleviate overcrowding Nevada is experiencing in their correctional system. The new contract has an initial term of two years and is renewable for additional period by mutual agreement. We expect to begin receiving offender populations this quarter and we are excited to work with Nevada for the first time since 2003. Just this week we finalized a new contract with Hamilton County, Tennessee to continue management of our Silverdale Detention Facility. That's a contract we've felt since 1985, so we are very excited to have been selected as the winning responded to the RFP. The initial term of the contract its four years, and it is renewable for an additional four year periods - additional four year periods. The original RFP was also seeking a potential county jail addition to the existing facility in order to replace the county's existing jail in downtown Chattanooga. The new contract incorporates a development agreement providing the county the ability to negotiate the construction of their replacement facility for the county jail and the Silverdale Detention Center. We see multiple opportunities for CoreCivic Properties ass across the country there are over 200,000 beds in correctional facilities that were constructed over 75 years ago and are in desperate need to replace in the near future. Add to that countless county jails and other key criminal justice infrastructure and collectively, we estimate $15 billion to $20 billion dollars of required investments are desperately needed for these type of properties. Governments are struggling to find room in their budgets to finance large capital-intensive infrastructure projects like this. However, these projects are also competing with the needs in education, transportation and utility infrastructure, all of which are routinely prioritize over correctional infrastructure. As we have seen this solution begin to resonate with many jurisdictions nationally, we have added resources on the development side of CoreCivic Properties to aggressively pursue these opportunities. We are also engaged with the Kansas Department of Corrections in response to an outstanding RFP to replace their 150 year old 2,400-bed Lansing Correctional Facility. We believe Kansas is still on schedule to make an official word announcement before the end of the year in our response offers a compelling solution. This could ultimately be a significant milestone for the industry as it would represent the first time in our industry's history that a government entity entered into an agreement with a private company to finance and construct a correctional facility that is to be leased and operated by the government. Our innovative proposed solution would allow Kansa to address their correctional infrastructure and program needs without negatively impacting the state's budget and their ability to address other critical infrastructure needs and we look forward to the announcement of this RFP by the end of the year. Staying with CoreCivic Properties, we are also pursuing near term lease opportunities with two additional state partners. In September, the Colorado legislature Joint Budget Committee authorized additional funds to allow the Department of Corrections to lease a privately owned correctional facility to relieve crowded conditions in the state prison system that has been developed because of inmate population growth over the last year. We currently have two idle facilities in the state. But we identified our 752-bed Huerfano County Correctional Center as the ideal solution because the state indicated they are currently in need for additional beds. We have submitted our Huerfano facility as an option to the lease and we are awaiting their final decision. We also continued to be engaged in discussions with the Department of Corrections in Oklahoma for a potential lease of our 2,160-bed Diamondback Correctional Facility. While the need for additional correctional facility capacity persists with the Department of Corrections the state legislature has struggled to reach a revised budget agreement for the current fiscal year as state tax revenues are falling short, which is causing the legislature to make cuts to various parts of the state budget. This situation has slowed the pace of our discussions for the lease agreement for our Diamondback Facility, but the state's need for capacity continues and we believe the lease agreement we have proposed presents a compelling solution for the state. We are also excited for the continued expansion of our CoreCivic community platform. We continue to execute our acquisition strategy to build out a nationwide residential and community reentry facility network. In the third quarter, we completed the acquisition of two residential reentry centers On August 1st, we acquired New Beginnings Treatment Center, a Tucson, Arizona-based community corrections company that provides residential reentry of services for the Federal Bureau of Prisons for male and female adults in a facility containing 92-beds for $6.4 million. On September 15th, we've acquired a portfolio of four properties including the 230-bed Augusta Transitional Center leased to the Georgia Department of Corrections. Subsequent to the end of the third quarter, we completed the acquisition of the time to change a Colorado-based community corrections company that provides residential reentry services for Adams County, Colorado and three facilities containing 422-beds for purchase price of $13.2 million with the potential for additional contingent consideration estimated to be about $9 million. Upon completion of these acquisitions, CoreCivic now owns 33 residential reentry facilities and across eight states representing nearly 6,300 beds including 26 that we own and manage and seven that we leased to a third party operator. In the last four years, the company has invested nearly $300 million in acquisitions to further our mission to provide high quality rehabilitative programming to help address the nation's recidivism crisis. We have a long runway of attractive acquisition targets and we are continuing to aggressively execute our diversification strategy here and our target is to have approximately 10% company's EBITDA on a run rate basis come from our CoreCivic community portfolio by the end of 2019. With the encouragement from many of our investors as we have looked at the potential for making additional investment via acquisition in mission-critical government real estate asset classes outside of our traditional correctional detention residential reentry facilities, and on September 15th the acquisition of a portfolio of our properties was our first as a company, and that was the acquisition of properties leased to federal agencies through the General Services Administration or GSA. The three facility GSA lease asset represents an aggregate of 30,000 square feet of real estate. We believe expanding our portfolio into other government lease assets with a bias towards those that are mission-critical offer synergistic benefits as we leverage our extensive real estate management capabilities that already have us maintaining nearly 100 facilities representing over 70 million square foot of real estate and our extensive history working with and developing real estate solutions for federal state and local governments. Between the real estate assets leased by the federal government through the GSA and similar real estate leased by state and local government agencies, we believe the addressable market for potential acquisitions is very substantial in the billions of dollars. As mentioned earlier, we are currently expanding our in-house staffing for the development side of CoreCivic Properties, but we are also adding staff to provide more expertise and resources and scoping, acquiring and managing these type of properties. We are building a very robust acquisition pipeline in by the end of this year we hope to acquire more of these type of properties. And next year we will provide guidance to the market on how many CoreCivic Properties we look to acquire each quarter. With the progress in growing our CoreCivic community portfolio as well as the near term opportunities to grow our CoreCivic Properties portfolio through both acquisition and development, we believe we could have approximately 20% of the company's EBITDA by the end of 2019 on a run rate basis coming from these two business lines. This is tremendous progress in diversifying our cash flows in a short period of time in our effort to bring not only long term value, but also stability to our shareholders. Next, I'd like to provide an update on current trends and updated outlook for our key federal and state partners. Starting first with the Federal Bureau of Prisons. The Bureau continues to project a need for additional bed capacity from the private sector and is progressing through the process as part of the CAR XIX procurement. We expect the BOP to be in a position to make an award announcement in the second half of 2018. We currently operate two prison facilities for the BOP, which represents approximately 5% of the company's total revenue. At its peak, the BOP represented over 13% of the total company's revenue, so 5% today we are much less exposed to downside risk from the federal inmate population changes that could occur in the future. Moving next to the United States Marshal Service, detainee populations continue to gradually increase throughout the third quarter. This was a trend we began seeing in June or July and I highlighted on our Q2 call in August. The process for nominating and receiving Senate confirmations for new U.S. attorneys continues to move forward. These individuals of course are the nation's principal litigators that operate under the direction of the attorney general. As the Department of Justice continues to receive these additional resources most expect case volumes will return to normal levels. By this process plays out over the balance of the year and into 2018 the average daily prison populations for the Marshal Service are expected to continue to gradually increase. And wrapping up my discussions of federal partners, I'll provide a brief update on the current trends we have seen from the Immigration and Customs Enforcement. Throughout the third quarter, we experienced a sequential increase in occupancy across our - essentially across all of our ICE facilities as we expected. It appears that Southwest border apprehensions have returned to levels that are in line with historic trends following the unprecedented reduction in activity across the border that we saw in the spring of this year. On a year-over-year basis, our financial performance was significantly impacted by the renegotiated contract for South Texas Family Residential Center. However, utilization of that facility was near capacity throughout the quarter. Continuing with ICE. The agency issued a request for information for either new or existing detention capacity of up to 3000 beds to assist the agency's mission in four different regions, Chicago, Detroit, St Paul, and Salt Lake City. For new contracts to be awarded ICE will likely have to issue a formal request for proposal, but more importantly ICE will likely also need Congress to increase their annual preparations for detention and removal operations. ICE is currently funded for approximately 39,000 adult detention beds under the current continuing resolution that funds the federal government through the end of the calendar year. ICE has requested funding for nearly 49,000 adult detention beds for 2018 and various markups for potential budget bills have indicated funding levels in 2018 will be above the current continuing resolution. The appropriation process of course, is ongoing in Congress and it is too early to definitively predict funding levels for ICE. Through October and the first week of November, we have continued to see increased occupancy levels from ICE. If this trend continues for the balance of the fourth quarter into 2018 it is likely ICE will have additional detention capacities for interior enforcement as efforts as well as in traditional Southwest border regions. At the state level, our contracts were once again very stable sequentially in the third quarter. On a year-over-year basis we experienced revenue growth in Tennessee and Arizona due to a full quarter impact of the new and expanded contract with those states, in addition to higher occupancy rates at facilities housing offenders from Colorado and Hawaii. Partially offsetting the increases to revenue on a year-over-year basis was the expiration of manage-only and underperforming contracts with Texas and the District of Columbia. I will now provide some additional details on our out-of-state contract with California as our expectations from this contract have changed from last quarter's update. As of the beginning of August, all aspects of Proposition 57 were in effect. Prop 57 creates parole considerations process for non-violent offenders who have served the full term for their primary criminal offense in state prison and authorizes a CDCR to award credits earned for good behavior and approved rehabilitative or educational achievements. The FY 2018 budget released from the Governor of California indicated the state intends to remove all offenders from one of the two remaining out-of-state facilities by June 30, 2018. At the time, we released our second quarter financial results also in August our financial guidance assume that the approximate 1,300 California offenders housed at our Tallahatchie County Correctional Facility in Mississippi would fully exit in the fourth quarter of 2017. Today, we continue to house approximately 1,250 California offenders at the facility and our expectation is that the CDCR will wait to see if the offender populations of climb further before they take back offenders from our facility in Mississippi. Our updated full year 2017 guides assumes the California populations will remain at approximately 3,100 offenders at the La Palma Correctional Center in Arizona and approximately 1,250 offenders at the Tallahatchie facility. California's future demand for out-of-state capacity will be dependent on the direction of their overall inmate populations. Those populations have declined modestly in the last month, but are up approximately 1,700 year-to-date. Similar to the Federal Bureau of Prisons are out-of-state contract with California at one point represented 13% of total company revenue, but our exposure to this contract has been reduced to now over - just over 5% of total revenue as we continue to diversify the business significantly mitigate in this risk going forward. In terms of upcoming contract renewals, outside of our Adams contract to rebid under CAR XIX, we don't see any material federal or state contract at risk or up for competitive rebid in the next 12 months. Now, before I turn the call over Dave, I'd like to briefly discuss last week's announcement of our new nationwide initiative to begin advocating for a range of government policies aimed at helping former inmates successfully free reenter society and stay out of prison. As part of the initiative, we will apply our government relations resources and expertise to advocate for the following policies. One would be ban-the-box proposals to help improve inmates chances of getting a job, a practice where allowed by a contractual obligations that CoreCivic already exercises in the hiring process for our own employees. Second, would be to reduce legal barriers to make it easier and less risky for companies to hire former inmates. Third, is to increase funding for reentry programs in areas such as education, addiction treatment, faith-based offerings, victim impact and post-release employment. And finally, social impact on pilot program that tie contractor payments to positive outcomes. We believe our support of these policies is further evidence of our commitment to make reentry a day one priority for every employee and deliver the best reentry programming of any correctional system, public or private. The successful reentry services being provided inside our facilities will only be bolstered by removing the embedded societal barriers they may face when they return to their communities. We are very proud to announce this new initiative and join with many others to push forward the policy changes that could make a meaningful difference in the lives of millions if enacted. With that, I'd like to turn the call over to Dave to review our third quarter 2017 financial results and provide additional details on our updated full year 2017 financial guidance. Dave?

Thank you, Damon and good morning everyone. In the third quarter, we generated $0.35 of EPS and $0.36 of adjusted EPS compared to our guidance range of $0.33 to $0.35. Normalized FFO totaled $0.56 per share compared to our guidance range of $0.52 to $0.54 and $0.02 ahead of First Call consensus estimates. AFFO totaled $0.53 per share ahead of our prior guidance range of $0.50 to $0.52. Our per share results exceeded our forecast as revenues exceeded expectations aided by higher than expected revenue from the U.S. Marshal Service and Immigration and Customs Enforcement or ICE. Adjusted EBITDA was $2.4 million higher than the midpoint of our guidance for the third quarter. Our per share results were lower than the prior year quarter as a result of the previously disclosed renegotiation and extension of a contract with ICE at our South Texas family residential center effective in November 2016 which contributed to reduction of approximately $0.10 per share. And the expiration and non-renewal of two contracts with the Federal Bureau of Prisons in April 2017 and October 2016, which resulted in an additional $0.03 reduction in earnings per share from the prior year quarter. Following these expirations, CoreCivic Safety revenue from the POP or revenue generated from two remaining BOP facilities comprised 5% of our total revenue for the third quarter of 2017. These declines were partially offset by higher inmate populations under a new 1000-bed contract with the State of Arizona at our newly expanded Red Rock Correctional Center completed in January 2017. Higher inmate populations from the State of Colorado and higher inmate populations from the State of Tennessee and a reduction in expenses at our Trousdale Turner Correctional Facility, where populations were ramping in the prior year under a new contract that commenced in January 2016. Financial results also included six M&A transactions this year to the third quarter with an investment totaling $28 million for five residential reentry centers and three GSA leased properties or properties leased to the General Services Administration of the Federal Government. Of these eight properties, three were residential reentry centers that we own and operate under our CoreCivic community portfolio and five properties were real estate only transactions meaning we are the landlord of the properties operated by third party tenants under our CoreCivic Properties portfolio. Our CoreCivic community portfolio generated 6.1% of our adjusted EBITDA during the third quarter of 2017, which as of September 30, comprised of 23 residential reentry centers we owned and managed with a total design capacity 7,792 beds in six states. Our CoreCivic Properties portfolio generated 8.1% of our adjusted EBITDA during the third quarter of 2017, as of September 30, comprised of 12 properties leased to third parties totaling $1.1 million square feet in five states. The CoreCivic Properties portfolio, again comprising 8.1% of our adjusted EBITD is 100% leased with very stable cash flows under leases with fixed monthly rents. We plan to continue to execute additional M&A transactions in the CoreCivic community and CoreCivic Properties portfolios that will diversify our cash flows supplementing the strong cash flows we generate from our CoreCivic Safety portfolio. In order to position our balance sheet for future growth and to take advantage of favorable debt capital markets, last month we completed the issuance of $250 million of 10 year senior unsecured notes with an interest rate of 4.75%. The terms of the successful issuance reflect the strength of our credit worthiness and continued stability in cash flows over multiple economic cycles and governmental administrations that will span the 10 year term of the notes. We use the net proceeds to pay down a portion of our $900 million revolving credit facility. As a result of this refinancing transaction, we reduced our exposure to variable rate debt, extended our weighted average maturity and increased the availability of borrowings under our revolving credit facility. At September 30, we had $43 million of cash on hand, and pro forma for the refinancing transaction, we had $722 million of availability on our $900 million revolving bank credit facility, and no debt maturities until 2020. As a tool to manage our leverage as we borrow from our revolver to complete additional M&A transactions, we also have an ATM equity offering sales agreement from which we may sell shares of common stock having an aggregate gross sales price of up to $200 million. We have no material capital commitments and are in excellent position to grow our cash flows through the utilization of idle bed capacity and have the flexibility to take advantage of M&A and other growth opportunities that require capital deployment. We have a strong balance sheet with leverage of 3.5 times and fixed charge coverage of six times using the trailing 12 months. Moving next to discussion of our guidance, as indicated in the press release adjusted EPS guidance for the fourth quarter of 2017 is range of $0.35 to $0.37. Normalized FFO per share guidance for the fourth quarter is $0.55 to $0.57 while AFFO per share guidance is range of $0.53 to $0.54. For the full year adjusted EPS guidance is range of $1.52 to $1.54, compared with $1.52 to $1.56 in our prior guidance. Full year normalized FFO per share guidance is a range of $2.33 to $2.35, up from $2.31 to $2.35 from our prior guidance. We're up a $0.01 at the midpoint. Full year AFFO per share guidance is $2.24 to $2.26, up from $2.22 to $2.26 in our prior guidance, also up $0.01 at the midpoint. I'll comment on a few changes to our updated guidance compared with our previous guidance. First, getting the necessary approvals to transfer offender populations from our Torrance facility to our Cibola facility in New Mexico to maximize operating efficiencies, which was finally completed at the end of October took longer than expected. This delay along with lower projected populations from the U.S. Marshal Services at the Cibola facility in the short term is expected to have a negative impact on the fourth quarter of almost $0.02 per share compared with our prior guidance. Second, the aforementioned refinancing of short term variable rate debt with 10 year fixed rate debt, results in additional interest expense amounting to a $0.01 per share in the fourth quarter. The negative impact of these items was partially offset by a change in our assumptions pertaining to California populations. As you may recall from our discussions in the prior quarter our guidance anticipated full utilization of our 3060-bed La Palma facility in Arizona and a 1250 inmates at our 2,672-bed Tallahatchie facility in Mississippi through the third quarter with the removal of all California inmates from our Tallahatchie facility beginning in October through year end. This guidance was based on the state's budget signed by the Governor earlier this year, which anticipates reduction in the states inmate population as a result of Proposition 57. However, to date, we have not experienced the declines previously anticipated as our average daily population of offenders from California actually increased by about a 100 offenders in the third quarter and remains at about 4,350 today with 3,100 at our La Palma facility, and a 1,250 at our Tallahatchie facility. Therefore, we are now projecting consistent populations from California through the end of the year. The continued occupancy of the California inmates forecasted Tallahatchie resulted in an improvement to our forecast by about a $0.01 per share. Full implementation of Proposition 57 was expected to take some time, so it is too early to predict inmate populations in the out-of-state program for 2018. We expect to update our population assumptions when we announce our fourth quarter earnings and issue 2018 guidance early next year. Other than these population assumptions, our forecast for the fourth quarter contemplate stable-to-rising federal populations consistent with our prior guidance and following the trend we experienced late in the second quarter through the third quarter and so far into the fourth quarter. Our guidance continues to reflect a gradual increase of offenders from the state of Ohio under a contract we signed in April for up to 996 offenders to be cared for at our Northeast Ohio Correctional Center. The state began transferring offenders to the Northeast Ohio facility in the third quarter, which we estimate will continue through the first quarter of 2018. There's been essentially no change to our updated guidance for this new contract, which we expect to generate $0.05 per share for a full year. Our 2017 guidance includes $0.02 per share net of interest expense generated from seven acquisitions of eight residential reentry centers and three GSA leased assets we have completed this year including the three additional residential reentry centers we acquired just last week in connection with the acquisition of time to change. On a full year basis these acquisitions are expected to generate approximately $0.04 per share net of interest expense used to finance these acquisitions. Although we continue to pursue a number of attractive investment opportunities, specifically in the reentry space that are accretive to earnings in FFO per share using our long term weighted average cost of capital our guidance does not include any new M&A activity beyond those already announced. Further, we continue very active discussions with potential customers at both the federal and state level to utilize our idle facilities in available capacity. Those publicly known at the state level include Kentucky, Colorado, and Oklahoma as well as several opportunities we are pursuing that are not publicly known. At the federal level future needs include ICE demand of up to 3000 beds pursuant to a request for information ICE just published last month, the BOP CAR XIX solicitation for 9,540 beds as well as increasing demand that could be manifested in the short term through higher utilization of existing contracts from both ICE and the U.S. Marshal Service. However, our guidance does not include any new contract awards beyond those previously announced as we don't expect any federal awards for the remainder of this calendar year and because the timing of state government actions on new contracts is always also difficult to predict. Any new contract awards could also come the startup costs that are not included in our guidance either. The full year adjusted EBITDA guidance in our press release, which was essentially maintained at the midpoint compared with our prior guidance enables you to calculate our estimated effective income tax rate of 5% to 6% and provides you with our estimate of total depreciation and interests expense for the fourth quarter and full year 2017. We expect G&A expenses to be approximately 6% of total revenue. I will now turn the call back to James to open up the lines for questions.

Thank you, sir. [Operator Instructions] We'll take our first question today from Tobey Sommer with Sun Trust.

Hi, this is Kwan Kim on for Tobey. Thank you taking for questions. First, it looks like CoreCivic has made small one-off acquisitions, such as the three properties in Georgia and North Carolina leased with those government. Is there a target portfolio of properties you are aiming to build out through these acquisitions and what may that look like? Thank you.

Thank you for your question. This is Damon. And the short answer is yes. So, what this did for us this acquisition we did earlier this fall of the three GSA properties, I think it woke up a lot of folks that own these assets are brokers that sell these assets. So, we actually have had a lot inbound interest here in a short period of time. We've probably looked at probably 20 or 30 properties that have been on-market or maybe off-market for transactions. So, we're building a really robust pipeline starting to scope these properties as I said earlier, we're adding resources on a real estate side to make sure that we can only scope and do the diligence, but also maintain these assets as going forward. So, as I said earlier, we're going to build this pipeline and get some guidance next year. But to your question specifically, yes, we have actually had some inbound interest on some portfolios. So, we've had some both companies that have some that are public, some that are private, maybe not necessarily focused purely on government leased assets, but looking at maybe selling some of these assets as a portfolio of multiple properties. So, we're taking a look at those also and that could be an opportunity here in the near term.

Got it. And in terms of where CoreCivic shares are trading now compared to those early this year. What is your view on what the market may be missing or misinterpreting on your valuation? Thank you.

Well, you probably never heard a CEO say that their shares are overvalued. I think clearly our shares are undervalued, and if I look at just one being a REIT, primarily in our case obviously exclusively working with government with $17 million - 17 million a square footage, I mean we are one of the largest, if not the largest government REIT out there. And so, I look at other publicly traded REITs that our third the size of the company and they're trading on FFO multiples of 15, 16, 17 times and we're in 11 times, I think, yeah, definitely can make the case where undervalued. So, here's what I'm hearing from investors, and what we're trying to do our darnedest is to try to make sure we are talking about some of their issues or concerns, risks that they're seeing. So, the number one, which we keep talking about regulate, I made this point in my remarks, and that is we think we really have moved the ball down the field on issue risk, on issues and opportunities or contract that we've had in place that have been involved in the past. So notably California as I said earlier, that was about 30% of our revenue, a couple years ago that is now 5% if you look just as a contract. We also with California, the facilities they vacated like North Fork in like Red Rock in Arizona, we have found alternative customers that we think our longer term solutions for those facilities. The Bureau of Prisons is the next one. The Bureau of Prisons that went out about 13% of our revenue a couple years ago, it's now 5%, and in places like Cal City, with the lease of California, where the BOP was there once upon a time and also more recently BOP be in a Youngstown, which is now got a contract place in Ohio we've done, we think great work feeling that vacated capacity for the BOP and again make it as very small, we think a lower risk percentage of our overall revenues. But also for the first time in probably several years, we do not have one contract that makes over 10% of our total revenues. So, we've got California now 5%, you've got BOP now to 5%, two partners that have had some volatility over the last few years, and then also no one single contract over 10%. We think we have diminished the risk that maybe worried investors here in the last couple of years. Next thing I would say is, that our balance sheet is very strong. Again, if I look at these other reads that are publicly traded look at our balance sheet, and how conservative we've managed it and we've got a lot of drive power knowledge for development, but also, it's kind of withstand, any kind of ups and downs with the market, I think we look really, really good. So, we continue to kind of make that point that we've got not only development opportunities in front of us, but also, we continue to have a very conservative view of how to manage the balance sheet. The next thing I would say is, that central occupancy rate of 80%, we clearly want that to be higher. But I'll tell you I've never been more confident that we've got opportunities to fill that vacant capacity. And I feel that for a couple of reasons, one of which is I just, look around and see what's going on with these jurisdictions with either growth or overcrowding, but we've really come to appreciate here in the last 12 months there is a lot of old antiquated facilities out there that need to be replaced. Oklahoma is the best example. The North Fork lease, we signed last year that allowed the state to close some really old facilities get a lot of more efficiencies. So, we've got now facilities like the one in Colorado, we mentioned earlier that are a very attractive Colorado just because we have this new solution in market, which is they operate it, and we lease it to them. So, make that capacity that we've got vacant. We now have a couple ways to market it, and it's attractive maybe for jurisdictions for different reasons. So, I feel really good about kind of near term prospects on available capacity either we own and manage or released back to respective jurisdictions. Another thing I would say is on the property side. We've got to continue to demonstrate that this is a value added solution to government partners, but on the development side no one that we've got 200,000 beds nationwide. We think that's about $15 billion to $20 billion in needed investment to replace these antiquated facilities. We think there's tremendous opportunity for development. And we're added resources. We're seeing jurisdictions some interest like Kansas where they actually have done procurement. So, we think, we've got to continue kind of show and demonstrate that is not a viable solution our partners, but also investors see this could be a real catalyst for growth for the company for the foreseeable future. The other thing is the market we just entered into the acquisitions of these government assets that are primarily mission critical, lease for GSA or lease to state properties again rather resources they we think we build a pipeline there, I think investors will then also see that as a great quarter for growth for the course - for the company going forward. Last thing I would say and have David maybe add anything to this is that one part of our business that's been not only volatile, but also as criticism challenges and headline risk for the company, and that's our managed-only business. We have been in a very thoughtful way through either expiration, or somewhat difficult conversations with partners, divesting out of that business. We have some managed-only already today that it's already - they're still in a portfolio that is very attractive, one in Silverdale is managed-only, but it's very good contract for us. But we've been very thoughtful over the last seven years to divest in a very thoughtful way that business. So that from an earnings perspective is only about 3%, the managed-only business is about 3% and compares to probably 10 plus years ago that was 25% of our earnings was coming from that book of business. So, we think the headline risk of that business has been drastically just because we have divested out that and again in a very thoughtful and meaningful way. So, let me see if anything to add to that Dave?

No, I just to reemphasize what I said in my comment, I actually said twice in my comments that we generated 8.1% of our adjusted EBITDA to the CoreCivic Properties portfolio, that's a 100 leased, but very stable cash flows that I think commands a higher multiple. So, I think that that's an underappreciated fact along with everything else that you just said as well, Damon.

Thanks for your questions.

That's very helpful. Thank you.

[Operator Instructions] We'll now hear from Jordan Hymowitz with Philadelphia Financial.

Hi guys. Just a couple of quick questions. One is the Hamilton County, Tennessee a new contract or an existing contract with the expansion, I wasn't clear.

It's a new contract, it's basically a follow on an existing contract we've had for many years. So, it is a new contract, but it does have a feature where the County can engage us on consolidation at our existing facility with the new contract or we could expand it and would allow them to close some facilities that they've gotten downtown in Chattanooga.

But that has not been approved yet, it's just the opportunity?

The contracts have been approved, it is in force. As I said the provision to allow for potential consolidation that's a part of the agreement, but that has not been undertaken yet.

Okay. Second question as you said you would hope that up to 20% of your beds in this new expanded government entity. Is that in addition over the next few years of your existing portfolio or instead of in other words is that replace of one asset with another or were arguably be 20% less in two years?

Yes, to make sure I follow your question, so today between CoreCivic community and CoreCivic Property were about 14% of our EBITD coming from those two lines of business. Our goal is to take that 14% to 20% in 2019. So, we think we've made great progress and we think that goal is achievable to get 20% earnings coming from those two portfolios.

But my question is will it be a replacement or that balance sheet expand or I'm saying the contract expand?

Make sure, I understand your question. What we're looking at - make sure I'm following your question, if you could repeat it for me.

I'll follow-up after, because maybe I'm little confused. And my last question is, what is the next time - what is next time in the state will likely make a decision as probably Kansas correct this year?

Yes, our understanding to try to get that procurement awarded by Christmas.

Okay, thank you. We can follow up with the other question later.

And Jordan, just to provide additional color with what I think the earlier question, in order to go up to 20% of our adjusted EBTID will be generating an additional $25 million of EBITDA on a run right basis.

That that was my question.

Okay, thank you for that. Thanks for that.

Perfect, thank you

Thank you. At this time, we will conclude today's conference call. We do thank you for your participation. You may now disconnect.