CoreCivic, Inc. (CXW) Q1 2018 Earnings Report, Transcript and Summary

Good morning. My name is Mindy, 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 CoreCivic's First Quarter 2018 Earnings Conference Call. [Operator Instructions] And now I'd like to turn the call over to Cameron Hopewell, CoreCivic's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference.

Thanks, Mindy. 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 first quarter 2018 earnings release and in our SEC filings, including forms 10-K, 10-Q and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current view 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 that we provide on our Investors page of our website at corecivic.com. 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 first quarter 2018 conference call today. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. Our first quarter financial performance met the high end of our guidance with normalized FFO of $0.53 per share. Our adjusted EBITDA in the first quarter, $92.1 million, slightly exceeded the high end of our first quarter guidance of $91.4 million. Our first quarter results were aligned with the high end of our expectations, principally due to increasing utilization trends across our portfolio for United States Marshals Service and Immigration and Customs Enforcement facilities. Startup related to expenses at our Lee Adjustment Center for a new contract with Kentucky coming in line with our expectations. And the timing of California's gradual exit from our Tallahatchie County Correctional Facility being consistent with our forecast, supported by stability and the balance of our portfolio. Dave will provide a more detailed summary of our first quarter financial performance at the conclusion of my remarks. Also included in yesterday's earnings release was our updated full year 2018 financial guidance. We currently expect to generate normalized FFO per share of $2.24 to $2.30, and AFFO per share of $2.17 to $2.23. Dave will cover in detail the primary drivers of our guidance. However, it is important to note, our 2018 guidance does not include the potential impact of new contracts or acquisitions. These are important items to keep in mind given that we are seeing more opportunities to serve new and existing partners in the market than we have seen since before the recession of 2008. And some of those opportunities have the potential to have an impact this year. We believe these opportunities could lead to meaningful increases in our long-term cash flows because of our approximately 10,000 beds available in idle facilities and more than 4,000 beds in partially utilized facilities that could effectively provide solutions for these opportunities without the need for additional capital deployment. I'll first touch on state-level opportunities. During the first quarter, we continue to ramp up our new 996-bed contract with the State of Ohio at our 2,016-bed Northeast Ohio Correctional Center. Today's population under this new contract is approximately 850 inmates and the overall facility occupancy has increased to 87%. We anticipate the contract to reach normalized occupancy later in the second quarter, increasing the facility's overall occupancy to over 90%. Helping to meet this need for Ohio will positively impact our financial performance in the second half of 2018. We also spent the first quarter activating our 816-bed Lee Adjustment Center and began accepting inmates in mid-March. The activation of this facility, while still in progress, is going very well and we expect to continue to accept inmates through the second quarter until reach a normalized operations for the second half of the year. We are very pleased that the reactivation of this facility could help alleviate some of the serious overcrowding concerns they are facing in Kentucky, while also bringing 200 new jobs to Beattyville, Kentucky area. Of the 200 employees we've hired at the facility, over 30% were previously CoreCivic staff prior to the facility's closure in 2015. We're very happy to have so many well-trained, experienced staff rejoin the CoreCivic family. During the quarter, we also rapidly began our new facility development project in Lansing, Kansas, following the development and 20-year lease agreement we were awarded in January. Two weeks ago we held the official construction groundbreaking for this facility, which was a great event, attended by our construction partners, leadership from the Kansas Department of Corrections and multiple state and local elected officials, including Kansas Governor, Colyer. Having grown up in Lansing, it is so meaningful to me to be able to bring a solution to the state and to this community but more importantly, to me personally. This is another example of why we do what we do as a company. I am really proud of this project because we are replacing a 150-year-old-plus facility and creating a modern facility that will provide a safer environment for employees and more humane conditions and rehabilitation programs for the individual serving time at the facility. And just last week, we announced a private placement of $159.5 million in bonds that will be used to fund the construction cost of the new facility. I'll allow Dave to go into greater details about the bond issuance, but this truly is a groundbreaking transaction to which Dave and the entire finance team deserves a great deal of credit. To be able to issue 20-year bonds at 4.43% speaks to the mission-critical nature of the asset we are constructing, the confidence the market has in our ability to deliver the asset, and the strength of our lease agreement with the Kansas Department of Corrections. In addition to these new contract awards, we are also actively responding to many new market opportunities that are in various stages of the procurement process. As we discussed on our last conference call in February, late last year, Idaho issued an RFP to house and manage up to 1,000 adult male medium-security inmates outside the state. Proposals were due in February and we responded with several options. Although the state canceled our fee in April, we understand the state intends to reissue the RFP in the coming weeks with certain modifications but to include the same offender count. Earlier this year, the Commonwealth of Puerto Rico issued an RFP to move up to 3,200 inmates off the island in order to reduce the annual budget for the Department of Corrections and Rehabilitation. This budget reduction initiative is part of a larger effort by the Commonwealth Governor to address the territory's debt crisis, which is impacting essentially all of the island's government agencies and their operations. The RFP calls for an initial phase of 1,300 inmates to be housed off the island beginning July 1, 2018. Upon full implementation of the RFP, the Department of Corrections estimate annual budget savings of approximately $50 million. We are working on our response to the RFP for the initial phase of 1,300 inmates and believe our response will be compelling, not just for the cost savings for the Commonwealth, but also to provide a more humane and robust programmatic environment. In order to move populations, beginning July 1, we believe an award could be announced in relatively short order. And we believe, we are uniquely positioned to meet this urgent need. In Colorado, Minnesota and Oklahoma, we continue to pursue opportunities to lease existing idle capacities to these respective State Department of Correction, as all three have the need for additional correctional capacity in our system due to overcrowding. In the aggregate, the three idle assets under consideration in these states represent approximately 4,500 beds of our idle capacity. We also know there are significant opportunities to replicate our solution for the State of Kansas due to the overwhelming amount of correctional facilities in operation today that are well past their useful life and are in need of replacement. The primary reason this criminal justice infrastructure need is so pervasive, it's due to the fact – due to lack of funding necessary to finance large-scale expensive replacement projects. Collectively, we estimate $15 billion to $20 billion of required investments are desperately needed for these type of facilities to make them safer for staff and inmates alike, more efficient and provide the kind of reentry program and space, we know we can help people better prepare to rejoin their communities. We believe public-private partnerships similar to what we just entered into with Kansas are the key to solving this national infrastructure challenge. And we know that many governments were closely watching the developments out of Kansas throughout the RFP process, the subsequent award announcement and alternate financing methods utilized. In fact, we are in active discussions with numerous states as well as local governments, who are seeking and looking at similar public-private partnership solutions for their criminal justice infrastructure needs. Some interactions only began after the award announcement out of Kansas, primarily because there was skepticism in the market that this type of solution could be reached due to multiple past failures by other jurisdictions and service providers. We believe at least one of these jurisdictions could issue a formal procurement for a large-scale criminal justice infrastructure replacement project this year. Pushing gears and looking at the federal level, we also have seen multiple development starting first with the Federal Bureau of Prisons. The Bureau has two outstanding procurements. CAR XVIII is a rebidder of the managed-only 2,355-bed Taft Facility in California, which is currently operated by MTC. Responses were due to the bureau last year and follow-up discussion notices with the bureau have been ongoing. We expect an award announcement in the second or third quarter of 2018. CAR XIX is a procurement that was issued in 2017 and is intended to provide additional bed capacity for the private sector to alleviate overcrowded conditions in BOP-operated facilities and to increase utilization of the bureau's most cost-effective beds. We believe the award is expected to come late in the second half of 2018 or in early 2019. And as a reminder, today, we only have two contracts for the BOP for correctional capacity representing about 6% of our total revenue. Looking next at the United States Marshals Service, their average daily prison populations have been consistently increasing since the second half of 2017, and we expect this trend will continue throughout the rest of the year. Multiple CoreCivic facilities with Marshal contracts already in place have experienced an increase in Marshal populations and have capacity available to accommodate additional population growth, should the agency continue to have a growing need. We also continue to see a trend towards increased utilization of existing contracts and new contracts with Immigration Customs Enforcement. Southwest border apprehensions throughout the spring have returned to normalized levels, which is likely the reason we have seen increases in the facility utilization by ICE, since the second half of 2017. On March 23, 2018, the President signed a fiscal year 2018 Omnibus Funding Bill, which included $3.1 billion for ICE custody and detention operations, representing a 14% increase or $370 million increase over fiscal year 2017 enacted level. The bill provides funding capacity in approximately 40,500 immigration detention beds, an increase of approximately 1,200 beds or a 3% increase over fiscal year 2017. Additionally, fiscal year 2018 Omnibus Appropriation Law also includes sufficient funding for operations for BOP and The United States Marshals Service. U.S. Marshal populations have been increasing consistently since December 2017, so their bed request may increase in the future to ensure additional funds are available. However, as a law enforcement agency, the daily prisoner population in the custody of the marshals is more a product of criminal activity and enforcement trends than driven by the available budget. On February of 2018, the administration released its fiscal year 2019 budget request. Within the request, the Federal Prisoner Detention Program at the United States Marshals Service is proposed to be a $110 million increase over fiscal year 2018. Additionally, in fiscal year 2019, ICE Detention Operation Program is proposed to receive $2.8 billion for 52,000 essential beds, which include 49,500 adult beds and 2,500 family beds. Finally, the fiscal year 2019 bed request for the Bureau of Prisons is $10.1 billion, a slight increase over fiscal year 2018. Next, I'll briefly discuss developments within our CoreCivic Properties and CoreCivic Community business segments. Starting in the first quarter, we adjusted our financial reporting in order to provide you more financial performance metrics for each of these business lines. Dave will review these changes in detail shortly, but we hope these disclosures will be helpful to the investment community, as we know many of you had been requesting us to do this. We see tremendous growth potential for CoreCivic Properties, both through the aforementioned opportunities to leasing the existing idle capacity and develop new replacement criminal justice facilities to address the existing age stock of government-owned assets and through opportunistically acquired government-leased real estate. For quite some time, we have detailed our intention to expand our real estate portfolio into other government-leased assets with a bias towards those that are mission-critical, which will allow us to leverage the extensive real estate management capabilities we presently employ at nearly 100 facilities, totaling over 17 million square feet of real estate as well as our 35-year history of developing real estate solutions for federal, state and local governments. The acquisition of the 261,000 square-foot Capital Commerce Center in Florida in January of this year is reflective of this effort. Between the real estate assets leased by the federal government through the GSA and similar real estate leased by states and local government agencies, the addressable market for potential acquisitions is very substantial. And our M&A pipeline has expanded materially, as we continue to pursue opportunities in this market. We are pleased to continue to expand our CoreCivic Community business footprint, while also adding the capability to provide nonresidential community-based correctional alternatives following our acquisition of Rocky Mountain Offender Management Systems in January. We continue to pursue acquisition opportunities in this space and have a pipeline of acquisition targets. And our expanded scope of services in this business segment should present additional future opportunities as jurisdictions increasingly look at alternatives to detention and interventions to avoid incarceration. Keeping with our reentry efforts, I like to take a minute to discuss the release of our company's first reentry report two weeks ago. This report goes well beyond our work through the CoreCivic Community to encompass significant reentry efforts going on across our entire portfolio. As you may remember, more than three years ago, I gave a company-wide speech in which CoreCivic made several specific commitments unprecedented in the public or private sectors to strengthen our reentry programming. I'm proud to announce that with this release of the company's first reentry report, which details out CoreCivic through the incredible efforts of our dedicated employees and volunteers has met or even exceeded many of the goals that we set in that 2014 speech. We also have work to do in some areas, which is part of our process to constantly get better. But for me personally, I couldn't be more proud of the progress that has been made and the impact it's having in the lives of the many entrusted into our care. The report is available on our website and provides a transparent look of CoreCivic's performance in five program areas, educational services, treatment and behavioral programs, chaplaincy and religious services, reentry services and victim impact programs. It examines where CoreCivic has met and exceeded expectations and where our programs need to be strengthened. It also includes insightful interviews with program leaders on lessons learned and moving stories from staff about their life-changing work with inmates. I hope you will take a moment to review the report to gaining a better understanding of the efforts our workforce undertakes every day to embrace and further admission to reduce recidivism and better the public good. This mission to reduce recidivism and like the Kansas solution highlighted earlier and a bigger opportunity to modernize aging government infrastructure nationally, these are reasons why I do what I do. And finally, I just want to say about our employees, who are chaplains, nurses, mothers, veterans and many others. These are really good people doing a great job. To them, I'm sincerely honored to serve alongside you all. With that, I'd like to turn the call over to Dave to review our first quarter 2018 financial results and provide additional details on our updated full year 2018 financial guidance. Dave?

Thank you, Damon, and good morning, everyone. In the first quarter, we generated $0.32 of adjusted EPS compared to our guidance range of $0.31 to $0.33 and a $0.01 ahead of first call consensus estimates. Normalized FFO totaled $0.53 per share at the high end of our guidance range of $0.51 to $0.53, and $0.01 ahead of first call consensus estimates. AFFO totaled $0.50 per share compared to our guidance range of $0.51 to $0.53. AFFO during the first quarter reflected the acceleration of certain capital expenditures compared with our forecast. We have not changed our capital expenditure forecast for the full year 2018, and therefore, expect AFFO in future quarters to be higher than previously estimated, with no change to our full year AFFO forecast. Adjusted EBITDA was $1.7 million, higher than the midpoint of our guidance for the first quarter. As mentioned in the press release, our per share results were lower than the prior year quarter, principally due to the expiration of a contract with the Federal Bureau of Prisons at our Eden Detention Center in April of last year, and start-up expenses in the current year quarter at our Lee Adjustment Center, where we prepared to receive inmate populations from the Commonwealth of Kentucky pursuant to a new contract. We began receiving offenders under this new contract in March and are on track to complete the ramp in the third quarter of 2018. We experienced an operating loss at this facility of almost $0.03 per share during the first quarter and I expect to incur an operating loss of a $0.01 per share during the second quarter until the facility ramp is complete and becomes profitable beginning in the third quarter of 2018. In addition, the prior-year quarter reflected a surge of detainees from ICE, creating a challenging comparative quarter for Q1 2018. Even though our ICE populations have increased for the last two sequential quarters, Q1 2018 ICE populations did not reach levels in the prior year quarter, but exceeded level prior to the surge, which began in the third quarter of 2016 and extended through the first quarter of 2017. Per share results from the prior-year quarter were also negatively impacted by our decision to reduce exposure to variable-rate debt and extend our weighted average maturities, resulting in an increase in interest expense from the repayment of borrowings under our revolving credit facility with net proceeds from the issuance in October 2017 of $250 million 10-year unsecured notes at a fixed interest rate of 4.75%. Our floating rate debt remains at the lowest level it has been in over six years at $280.5 million at March 31, 2018, which provides a level of earnings protection in a rising interest rate environment. These declines were partially offset by higher populations from the U.S. Marshals Service, which have been rising fairly significantly nationwide since last summer, and new contracts with the States of Nevada at our Saguaro Correctional Facility in Arizona, and Ohio at our Northeast Ohio Correctional Center. We began receiving offenders from the State of Ohio in the third quarter of 2017 pursuant to a contract for up to 996 offenders, and expect to achieve normalized occupancy in the second quarter of 2018. Financial results also included seven M&A transactions throughout 2017 and two during the first quarter of 2018, with the investment totaling just over $100 million for eight residential reentry centers, four government-leased properties and a company that provides nonresidential correctional alternatives, including electronic monitoring and case management services. Of these 12 properties, six are residential reentry centers that we own and operate under our CoreCivic Community portfolio and six are real estate-only properties operated by third-party tenants under our CoreCivic Properties portfolio. Our CoreCivic Community portfolio generated 5.9% of our adjusted EBITDA during the first quarter of 2018, which as of March 31, comprised of 26 residential reentry centers, we owned and managed with a total design capacity of 5,214 beds in six states, and the aforementioned nonresidential correctional alternative subsidiary providing electronic monitoring and case management services. Our CoreCivic Properties portfolio generated 9.2% of our adjusted EBITDA during the first quarter of 2018, which as of March 31, comprised of 13 properties leased to third parties totaling 1.4 million square feet in six states. The CoreCivic Properties portfolio was 99.5% leased during the first quarter of 2018 with very stable cash flows under leases with fixed monthly rents. We have restructured our financial reports to include segmented data among our CoreCivic Safety, CoreCivic Community and CoreCivic Properties portfolios so that you can monitor these percentages in our public filings and in our supplemental disclosure report. This presentation also resulted in reclassifications to the prior data to include certain net expenses of CoreCivic Safety that were not previously allocated to either of our segments. We have added a schedule to the supplemental disclosure report to include the per-mandate statistics for each quarter of the prior year under this new methodology. Continuing with the discussion of our capital structure, on April 17, 2018, we closed on a new $1 billion amended and restated credit agreement, which provides for a $200 million term loan and a revolving credit facility and an aggregate principal amount of up to $800 million. The facility replaces our $900 million revolving credit facility and $100 million term loan. The new credit agreement extends the maturity from July 2020 to April 2023 and increases the total leverage covenant from five to five-and-half times with no change in pricing. While the additional half turn of leverage came at no cost and gives us additional covenant cushion, our banks were very supportive of a potential increase in leverage associated with our growth and diversification strategy, particularly for the acquisition of government-leased assets through our CoreCivic Properties portfolio, which generate cash flows through fixed monthly rents and has a higher leverage profile than our CoreCivic Safety and CoreCivic Community portfolios. A few days later on April 20, 2018, we priced $159.5 million of nonrecourse senior secured notes in a private placement at a yield to maturity of 4.43%, which was 1.5% above the 10-year treasury rate. We will use the proceeds from the private placement to fund the previously disclosed construction of a new 2,432-bed correctional facility in Lansing, Kansas, along with cost and expenses of the project. The new correctional facility will replace the 2,405-bed Lansing Correctional Facility, the state's largest correctional complex for adult male inmates, which was originally constructed in the 1860s. The maturity of the notes will be approximately 20 years following construction of the new facility, expected to occur during the first quarter of 2020. Upon completion of the construction, we will lease the new facility to the Kansas Department of Corrections for a 20-year term. We believe the exceptional execution of this innovative financing reflects the mission-critical nature of the real estate, credit quality of the tenant, our capabilities to deliver the real estate and maintenance services over the 20-year term, along with the strength of the lease. The private placement is expected to close in the second quarter of 2018. There will be no P&L impact on 2018, as the facility will be under construction and interest on the private placement will be capitalized. The unlevered cash flow yield on this project is in the upper single digits, so with essentially 100% debt financing of the project at 4.43%, we are generating returns in excess of the cost of capital by several percentage points. At March 31, we had $56 million of cash on hand and nearly $700 million of availability on a revolving credit facility and no debt maturities until 2020. We have a strong balance sheet with leverage of 3.7x and fixed charge coverage of 5.6x using the trailing 12 months. We 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. Our capital expenditure forecast, which is included in the press release includes approximately $55 million to $60 million of capital expenditures in 2018 for the construction of the new Lansing Correctional Facility in Kansas, which has a total estimated project cost of $155 million to $165 million, all of which will be financed with our aforementioned private placement and a construction timeline of about two years, under a guaranteed maximum price contract with the developer. Moving next to a discussion of our earnings guidance. As indicated in the press release, adjusted EPS for the second quarter of 2018 is in the range of $0.33 to $0.35. Normalized FFO per share guidance for the second quarter is $0.53 to $0.55 and AFFO per share guidance for the second quarter is $0.50 to $0.52. For the full year, adjusted EPS guidance is a range of $1.42 to $1.48. Full year normalized FFO per share guidance is a range of $2.24 to $2.30 and full year AFFO per share guidance is $2.17 to $2.23. As a reminder, because of projected lower inmate populations in the state system, the proposed budget issued by the Governor of California in January 2018, contemplated the removal of all of the California inmates from one of our two out-of-state facilities by June 30, 2018, and the removal of inmates from our other out-of-state facility by fall of 2019. Although we expect a revised draft budget for the State of California to be released in the coming weeks, our guidance generally conforms with the state's January draft budget, reflecting the removal of all of the California inmates from our 2,672-bed Tallahatchie facility by June 30, 2018, and a reduction in California inmate populations from our 3,060-bed La Palma Correctional Center in Arizona beginning in the third quarter of 2018 to 1,500 inmates by December 31, 2018. The California offender populations decreased at Tallahatchie from 1,300 at December 31, 2017, to 825 at March 31, 2018, and stood at approximately 500 as of last night. Revenue from California's out-of-state program is expected to generate 4% of our revenue in 2018. As previously mentioned, our Q2 2018 guidance reflects $0.01 of operating losses at our Lee Adjustment Center for startup-related expenses associated with the new contract. As Damon further described, we continue active discussions with potential customers at both the federal and state level to utilize our idle facilities and available capacity. However, our guidance does not include any new contract awards beyond those previously announced, because the timing – excuse me, of government actions on new contracts is always difficult to predict. Depending on the location, new contract awards could also come with start-up costs that are not included in our guidance. Further, although, we continue to pursue a number of attractive investment opportunities that are accretive to 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. The adjusted EBITDA guidance in our press release enables you to calculate our estimated effective income tax rate of 2.5% to 3.5%. And provides you with our estimate of total depreciation and interest expense for the second quarter and full year 2018. We expect G&A expenses to be approximately 5.5% to 6% of total revenue. Based on our 2018 full year guidance, our dividend payout ratio is 77% to 79% of AFFO, slightly below our guided dividend payout ratio of 80% of AFFO. This payout ratio reflects the 2% increase in the dividend, our board declared in the first quarter of 2018, which is currently yielding 8.2%. I will now turn the call back to Mindy to open the lines for questions.

And we'll go first to Tobey Sommer with SunTrust.

I appreciate the color and detail around public procurement opportunities. I was curious if you could update us to the extent you're having any nonpublic ones because the public procurement process can sometimes carry with it some obstacles that elongate the timeline. Whereas, nonpublic ones can occasionally surprise us. So I'd appreciate an update there.

Absolutely, Tobey. This is Damon, and thanks for your question. So I would say – let me maybe answer it this way kind of all the opportunities we see in CoreCivic Safety and CoreCivic Property that break them into kind of 4 buckets. So the first two buckets are the public ones, but just to highlight them again, the first bucket is Oklahoma, Colorado and Minnesota. Those are opportunities for lease capacity we've got in those 3 respective states. Oklahoma and Colorado, as you know, is probably the most public about they're attractive – being attracted to capacity we've got in those respective states. So those are collectively about 4,500 beds. So that's number one. The second bucket is also again, kind of the known procurement opportunities for CoreCivic safety, so utilization of existing capacity. And so that's Puerto Rico, Kentucky, Vermont, which I didn't note on the script, but that is an active procurement and is in Idaho, which we expect that procurement come out shortly. Those beds, collectively of those 4 opportunities could be in a range of 4,000. If Puerto Rico does 1,300 beds, but it tends to up to 6,000, if they do the ultimate 3,000-bed award. So 4,000 to 6,000 is the number in that second bucket. The third, to your question, nonpublic and these are states, so no federal or local jurisdiction. These are just states. We've got active discussions with some states. And I'd say the collective range of need there is about 1,500 to 3,000 beds. And these states that we're talking to, we do think that they potentially could act this year, so in 2018. And then finally, the fourth – again, this is more not necessarily a procurement, so it's just a fourth that we see potential opportunities near term. One of which is public and that is BOP. So BOP has got CAR XIX and offer 9,500 beds. We've talked about increased utilization for ICE, so that's a well-known opportunity. Marshal service has increased by about 5,000 prisoners in their system nationally, since the summer of last year. And that's a notable number because they haven't been that high, which is about 55,000 prisoners nationwide. They haven't been to that number since late 2013, early 2014. And then what all the other headlines in the Marshal Service that was probably missed just because of all the new cycle activity in the last 24 hours. But Attorney Jeff – Attorney General, Sessions, announced late yesterday afternoon that he is repositioning 35 new U.S. attorneys or assisting U.S. attorneys to the Southwest border, in addition, moving about 18 judges to the Southwest border. So that activity looks like that will happen fairly soon. So Marshal Service like today have increased by about 5,000 last summer, but there's clearly efforts by the Department of Justice to put more resource on Southwest border. So there is a little more than you wanted, but that just give you kind of a good overview of kind of what we see as the market opportunities both in Safety and Community.

Thanks for that news on the Justice Department. I did not see that. I'm curious, you highlight the funding, in that attractive rate associated with your win in Kansas. How big a deal is this for other opportunities? Is this influential in a way prospective customers think about moving forward?

Great question. Yes, it's huge. We started this process and we didn't talk about this much publicly, but we started this process couple of years ago about alternative financing mechanisms for these type of projects. Didn't get a lot of interest to be honest with you, and we were somewhat surprised by that because there was ton of financing at the federal level for GSA lease properties. I mean, that's a very robust market and a lot of investors who want to invest in those type of leases that are utilized by the federal government. So we are somewhat surprised that there wouldn't be a lot interest in this initially. But in the last – probably last six to twelve months, and I am looking at David as I say this, we started getting a lot more interest, especially where we can point to a national life procurement with the one that was going on within the State of Kansas. So when this deal got done or priced, I should say, there was huge demand. I mean, we actually, as you know, did the deal for $159 million, but there was about $900 million in interest on this financing. So a huge demand, once I think investors got educated to the kind of characteristics of the project. I mean, clearly, it's very efficient way for a government to accomplish their goal. In this case, Kansas to really replace a very old antique facility. So I think, Kansas learned pretty quickly through the procurement process that they can achieve their goal a lot more efficiently by partnering with the private sector. But I think to the financing, you're really just marrying up two things that made this a very attractive investors. You're marrying up the tenant and the credit quality of the tenant, in this case, State of Kansas with a partner of us, who has got deep real estate experience and very efficient on developing and construct the facilities and will make sure it's well-maintained during the lease cycle. And I think marrying those two things together made us a very attractive to investors. In fact, some of the help that we are getting externally on this project, when this price, we found out that a major metropolitan area. In fact, this is a city that's in the top-five relative to population in the United States, recently did a bond deal for $250 million for a Police Department station. And what we learned is that they did it for a shorter term, so we did our's for 20, they did for eight. They had a higher rate of deal, but the pricing was higher. And again, we think it's just up or perfect marriage where you've got the Public Sector, in this case, Kansas and the credit quality. Again, with a developer that's got deep real estate expertise and can deliver and maintain the asset, those two things together, we think enjoins us the opportunity to have a longer term and a lower price. So we're really tickled by the action on this. We've gotten – I say we – Dave's got a lot of inbound interest from others to say hey, this is something really interesting to us. We may – we got money that would be interested in these type of projects going forward – how do we get in the fall or future opportunities. I don't know, if there is anything you want to add to that Dave?

No, I think, that's pretty much says it all. And we were very pleased with the execution, and as Damon mentioned it, yes the strength of a tenant, the lease, just all came together very nicely for us.

Okay. And then on the CoreCivic Properties, what's the pipeline like for available properties and what's your acquisitions or what you're looking at? Just trying to get a sense for whether this is going to be like the buildup in reentry or there is an opportunity for something a little bit more sizable over time?

Absolutely. So give you a little bit of a sense, since the first year. So when we announced the transaction down in Tallahatchie, it clearly woke up a lot of folks. We have had a lot of brokers inbound calls saying, "hey, we've got a owner of an asset, it's 100% leased to X government, good quality asset, long-term lease." So we've had a lot of inbound interest. So kind of give you – kind of what we're seeing in the pipeline really caught up in two categories. So probably, we've seen about a dozen individual properties and I'd say the average kind of price of those properties are in kind of the $50 million range. So we've obviously did the one, first, this year, but don't be surprised if we announce another one later this summer going into last part of this year. So that's one kind of group. We've also looked at several portfolios and the portfolios that we've looked at in the spring have been in a range of about $100 million, up to $500 million. So that gives you a sense of portfolios a size that we have seen so far in the spring, and again, I think we are sensing to that some of these owners either of individual assets or portfolios seeing us as a potential buyer, I think, we'll have a lot more inbound interest in potential opportunities for transaction. I don't know if there is anything you want to add to that. David?

No, no. I think that covers that. We talked about the returns that we expect on those. We're seeing cap rates in the 5% to 8%. We're targeting above the midpoint of that. So again, assuming, we get some attractive financing for them, those returns will exceed our cost of capital on a blended basis.

And let me ask you question, if I could, about the Justice Department moves and I'll get back in the queue. You drew a connection to U.S. Marshals, is there anything relative to ICE populations to draw from that change in kind of forward deployment, let's say?

Yes, great question. So yes, if you look at the detail from the Attorney General's statement, he lays out, so 35 new Assistant U.S. attorneys in about five different districts. Again, primarily just from kind of Brownsville, Texas over to San Diego. But the judges, I think, are going to primarily be focused on kind of immigration-related offenses. So I think that, obviously, we'll have an impact potentially on Marshal Service, but also with ICE. So yes, I think, there is a connection there.

[Operator Instructions] We'll go next to Rob LaQuaglia with Wells Fargo.

Just one for Damon, maybe on Puerto Rico. Is there any way they handicap that contract. Do you think you're still kind of the frontrunner there? And do you have any idea how many other bidders potentially might be vying for that contract?

We've worked with Puerto Rico several times in the last 20 years, since I've been with the company. And I think I have a pretty good appreciation to answer your question about how viable or unviable this opportunity is, and this sounds pretty viable. And we're talking about the pressure the Commonwealth is facing from a budget perspective but, as you know, with these hurricanes last year, we've heard some pretty dire kind of circumstances these facilities are under right now because of – not only infrastructure impacting the utilities, but also the actual physical plan. So this feels like a pretty viable opportunity and it feels like they are also very encouraged by various stakeholders to move as quickly as possible. So I'd say, I feel good about our chance. I think we are in a good position, because we got beds notably in the Southeast, so it makes it easy from a transportation perspective. That I think, we're well suited for this population. So I think, to be able to deliver a solution urgent or quickly, I think, gives us great competitive advantage. Is there anything to add to that, Dave?

Yes, again, we've got facilities that have that kind of capacity with experienced qualified staff in place today. So for us, we think, we have a competitive advantage, where they want to begin ramping in July, which is what they've expressed, we could accommodate that. So we certainly will be competitive in that RFP.

Okay. And are you still expecting sort of the May 17. I think, that was the date they put forward, is that kind of still intact?

Yes, that's – it's moved just a little bit, I think, just because of them accommodating the questions through [indiscernible] process, which is pretty normal. But yes, we're still kind of expecting kind of that mid to say the 20th of May kind of be in the due date.

I think it was expected June – middle of June. June 15, I think.

Okay. And then, I guess, just on the South Texas facility, any color on how populations have been trending there?

There has been activity, if you go globally on Southwest border. Populations have been notable. I think kind of normal though for families coming across the border. But yes, the South Texas has been kind of in the range of kind of 1,500 to 2,000 beds occupied in the spring and kind of early part of the summer months, I guess we're not quite there, but we'll get close.

Which is a strong population given its a 2,400-bed facility, but there are restrictions on how – who you can house together on the same housing unit. So really, it's pretty close to maximum occupancy, which, again, I think everybody, at least most people on the call know that, that's a fixed-price contract. But certainly, the demand has been very strong over the past several months.

Okay. And then just last one from me, as it relates to CAR XIX, is it still your current expectation that the award will be given for all the beds, or do you think that there is a chance that it could be sort of a partial award?

Yes, great question. As you know, kind of leading indicator for potential need for BOP of Marshal Service populations. So I go back to earlier saying that, you've clearly seen investments with some of these U.S. attorney vacancies being filled. Got the announcement yesterday from Sessions on additional resources being deployed on the Southwest border and you're seeing populations from the summer going into this year for the Marshals increasing by about 5,000. So that being kind of the first step for a federal prisoner before they go to BOP, that tells me that I think there is probably a – definitely a likelihood that they're going to need most, if not all, of those 9,500 beds.

[Operator Instructions] And we'll have a follow-up question from Tobey Sommer with SunTrust.

In terms of the budgets question, separate one here on ICE. What does the budget imply for ICE's potential for bad procurement? I'm aware that we talked about your ICE populations being up on existing contracts, but investors are focused on growth and the way the different budget line items kind of appeared for ICE, it was a little bit difficult to kind of draw conclusions?

Yes, another good question. It's hard to be precise on this, but if you are kind of thinking about where they're at today, so just over 40,000 beds that they've got budgeted for this fiscal year. And they're proposing a budget for next year of about 52,000 beds, so say about 11,000 to 12,000 additional bed increase. It's our feeling, again, this is not precise, Tobey, but it's our feeling that they've got capacity under contracts we have and also maybe some other contracts they have, where they don't have to do a new contract, and it can get to about 44,000, maybe 45,000. So we think may be the tipping point is kind of, at that point, I should say, which is kind of 44,000, 45,000. That's the point where they'll need to may be go out and do new procurements. Again, that's not precise. It could be the case where they've got it at a very specific location where they got a capacity. Then they may have to go quicker on doing some contracts and not wait for kind of that overall number to reach a certain point. So again not precise, but I'll give you kind of at least a ballpark of at least what we're thinking.

So what does that mean to the prospects for the RFI that existed for a while to move down a path towards actually generating some new business for the industry?

Yes, I think if it's, again, can't be precise on this. I think there is a view within ICE that again, if they are starting to see activity with these resources on the south of border being deployed, maybe they'll move on those sooner rather than later. And I think if you would have asked me probably 3 months ago, I would have said probably it's going to be tied more to the actual appropriation being approved, in this case fiscal year 2019. But again, I think, with some of the activity we've seen in the Marshals, again, there is some lot of linkages there and also deployment of resources. You could see some activity kind of in the summer and the fall months. Again, not precise, but I think, it's just something we have to continue kind of monitor based on the numbers and the needs.

Sure. And last question for me. With respect to the Southwest border crossings, the timing of the Justice Department announcements seems interesting. What are you hearing from ICE in the Department of Justice about their expectations for Southwest border crossing this year, kind of just – excuse me this summer? And maybe if you could comment on the root causes for the upturn like sort of what are you hearing is happening in Central America that it is spurring the greater numbers?

I think, and Dave help me out here. I'd say, it's generally more just resources. There has been – as we think about the numbers, coming across the border, I'd say the numbers are pretty, pretty similar to historical standards. So with that, I think, it's just maybe the resources being kind of brought up to a point where it really kind of meets the demand that's already been there. And so I think that's just few kind of the general view from the Department of Justice and Homeland Security, not only with some of these directives, but also the appropriations they've got in last fiscal year, this fiscal year and next fiscal year. Do you have anything to add to that, David?

Yes, I mean, the border apprehensions right now in March anyway were almost right on top of where they were in 2014, which for – at least for family immigration that's one we entered into our contract with the South Texas Family Residential Center. So ICE population certainly, as I mentioned in my script, they've been growing for the past couple of quarters. So they kind of returned to a more normal level. It wasn't, again, the levels that we reached in the prior year quarter, but in the summer of last year, they were down significantly there. We have not seen a downturn in this summer. So – and as Damon mentioned that and I mentioned that, U.S. Marshal populations have been growing. I can't point to any particular reason for that or conditions in Central America when it comes to either U.S. Marshal populations or the family migration, but conditions – the economy of United States is very strong. The conditions in Central America are not improving. So this is an attractive place to be for those folks and trying to seek asylum and trying to get entry into the United States.

I'd like to turn the conference back to Mr. Hopewell for any additional or closing remarks today.

Alright. Thank you, again, Mindy. And thanks to everyone for joining our call today. We look forward to reporting to you throughout the rest of the year as we execute on our growth and diversification strategies. Have a great Thursday, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.