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CoreCivic, Inc. (CXW) Q3 2018 Earnings Conference Call Transcript


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CoreCivic, Inc. (NYSE: CXW)
Q3 2018 Earnings Conference Call
Nov. 06, 2018 , 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to CoreCivic's Third Quarter 2018 Earnings Conference Call. Today's conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Cameron Hopewell, Managing Director of Investor Relations. Please go ahead, sir.

Cameron Hopewell -- Managing Director of Investor Relations

Thank you, Ryan. 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 Dave 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 2018 earnings release and in our Securities and Exchange Commission filings, including forms 10-K, 10-Q and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current views only and that the Company undertakes no obligation to revise or update such statements in the future.

On this call, we will also discuss certain non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data that we have on our Investors page at www.corecivic.com.

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

Damon T. Hininger -- President and Chief Executive Officer

Thank you, Cameron and good morning and thank you to everyone for joining our third quarter 2018 conference call today. We are also joined here in the room by our Vice President of Finance, Brian Hammonds.

CoreCivic is a diversified, real estate investment trust specialized in delivering government real estate solutions to serve the public good. We are the country's largest private owner of government leased real estate assets with 104 facilities totaling over 17 million square feet of real estate and a 35-year history of delivering a broad range of solutions to help solve tough government challenges in flexible, cost effective ways. Our assets generate a consistent cash flow stream underwritten by investment grade government tenants.

We have three complementary business segments, each of which is anchored in providing specialized real estate to government tenants. Our Safety segment focuses on corrections and detention facility ownership and management and includes 51 correctional and detention facilities with a design capacity of nearly 73,000 beds.

Our Community segment is a growing network of residential reentry centers that helps address America's recidivism crisis and includes 26 residential reentry facilities with a design capacity of 5,214 beds.

Finally, our Property segment is a quickly growing portfolio of mission critical government leased properties that as of the end of the third quarter includes 27 properties representing nearly 2.3 million square feet of real estate. Across all of our segments we have active agreements with over 125 government agencies that have a variety of core missions. This provides a meaningful diversification, not only in our real estate assets but also in our customer base. Each of our business segments leverage core competencies we have developed in delivering real estate solutions and each has a significant runway for continued growth. As we continue to execute on our strategies for growth in each business segment, we expect the Company to benefit from an increasingly diverse stream of growing cash flows on a per share basis.

To briefly summarize our third quarter financial performance, total revenue of nearly $463 million increased 4.5% from the prior-year quarter. While it is important to highlight that each business segment experienced year-over-year revenue growth, most notable was the growth of our Properties and Community segments.

CoreCivic Properties revenue of $15.3 million represented a 50% increase year-over-year and CoreCivic Community revenue of $25.1 million was up 31% from the prior year quarter. Our normalized FFO of $0.58 per share during the quarter fell within the range of our guidance and represented a 3.6% increase in per share results versus the prior year.

Our adjusted EBITDA in the third quarter of $99.7 million also fell within the middle range of our guidance for the quarter and represented a 6.8% increase year-over-year. Our third quarter growth was driven by a combination of organic growth in CoreCivic Safety due to seven new contract wins with state and federal partners representing approximately 4,500 beds and accretive M&A transactions to expand our community and property portfolios.

These positive developments more than overcame a decline in average daily California inmate populations, increased interest expenses in a rising rate environment, incremental debt from the recent M&A transactions, and incremental salary and benefits expenses. Those personnel expenses were chiefly at our Tallahatchie County Correctional Facility and La Palma Correctional Center, where we anticipate new contracts and projected increases in capacity utilization under existing contracts. Dave will describe these in more detail, following 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 $2.29 to $2.31. Our updated guidance represents a modest adjustment from our previous guidance of normalized FFO per share of $2.29 to $2.33 due primarily to our election to incur higher personnel expenses in the fourth quarter as certain facilities in anticipation of new contract awards and higher utilization of certain existing contracts that we believe could materialize in the near term.

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 aside from the new contract with Vermont, we announced in September. This new contract will have minimal impact this year given the timing of the contract award. However this additional contract brings our total new contract wins in CoreCivic Safety over approximately the last 18 months up to eight new contracts, representing roughly 4,800 beds.

We continue to see a large number of opportunities to serve government partners and we are actively pursuing attractive acquisition targets, all of which can contribute to the future growth and diversification. And our business development over the course of 2018 has positioned us well to continue to generate meaningful earnings growth next year, which is notable as we haven't been able to forecast fiscal year, year-over-year growth since 2015.

Of the eight new contracts in CoreCivic Safety, six are with state agencies that utilize existing capacity representing incremental utilization of approximately 2,500 beds. In the first half of the year, we completed the ramp of the new contract with the State of Ohio for 996 beds at our 2016 bed Northeast Ohio Correctional Center and a new contract with Kentucky for the full activation and utilization of our 816-bed Lee Adjustment Center.

We also added new contracts with Nevada, Wyoming, South Carolina, and more recently Vermont for a total of approximately 700 beds. Each of the four contracts are for out of state capacity to assist with overcrowding in each state's correctional system. The remaining two new CoreCivic Safety contracts were signed over the summer with agencies of the federal government. In June, we were awarded a new contract with United States Marshals Service at our Tallahatchie County Correctional Facility to house 1,350 inmates with the option of housing additional population should capacity be available. Immigration and Customs Enforcement and United States Marshals are each currently housing 600 detainees under this contract.

In July we were awarded a new contract with the federal government to utilize a portion of our 3,06-bed La Palma Correctional Center in Arizona, under which Immigration and Customs Enforcement or ICE currently expects to house up to 1,000 adult detainees up from approximately 900 detainees currently. The facility today houses roughly 1,900 offenders (ph) from the State of California. However, the state has indicated intents to take advantage of the flexibility that our business model offers and active (ph) facility in early 2019 due to projected population reductions in their system.

As you can see, 2018 has been a year of strong demand for CoreCivic Safety and we have been successful on winning a high percentage of new contract opportunities in the market. We continue to execute on our diversification strategy, expanding our two other business segments primarily through M&A and development opportunities. CoreCivic Community includes 26 reentry facilities with a design capacity of 5,214 beds and provides nonresidential correctional alternatives to municipal, county and state governments in six states. Community generated 6% of our adjusted EBITDA in the third quarter and grew its top line 31% year-over-year accomplished through the acquisition of four additional residential reentry facilities, representing 514 additional beds and our acquisition of Rocky Mountain Offender Management Systems, a non-residential electronic monitoring and case management services business in January of 2018. While the pace of residential reentry facility acquisitions has slowed due to fewer attractive candidates, we have an attractive pipeline of acquisition targets to continue our measured expansion in this market. This expansion will likely include both residential and nonresidential service providers as we aim to offer jurisdictions a portfolio of solutions to combat recidivism and complete the cycle of rehabilitation.

CoreCivic Properties 50% year-over-year revenue growth was primarily the result of two acquisitions, the purchase of the 541,000 square foot Social Security Administration building in Baltimore, Maryland in August and the 261,000 square foot Capital Commerce Center in January. These are the two largest non-correctional properties in our portfolio of government leased assets. Both the assets have attractive long-term leases in place with government agencies that will produce predictable long-term cash flows.

In late September we acquired a 217,000 square foot steel frame warehouse in Dayton, Ohio for $7 million that was built to suit for the National Archives and Records Administration and leased through the GSA. While this acquisition is not individually material, it represents a great example of our ability to leverage one of our competitive advantages, which is our comprehensive real estate expertise to close a transaction with higher than average complexity and simultaneously generate above average returns. The Dayton property required certain physical plant modifications to remediate a legacy structural issue, which we had the internal expertise to complete quickly and efficiently.

After accounting for approximately $1 million of additional day one capital expenditures, this property is expected to generate a cap rate of approximately 15%. While we don't always expect to encounter cap rates that high for properties leased to the federal government through the GSA, we are seeing accretive good return acquisition targets with cap rates from the high single digits to the low-double digits with the potential for higher returns depending on the individual properties characteristics and transaction complexity.

So far this year we have invested $305 million in M&A transactions to expand our CoreCivic Properties portfolio, adding 15 properties and have a robust pipeline of additional near-term accretive acquisition targets in excess of $200 million. We ended the third quarter with a total portfolio of 27 properties representing nearly 2.3 million square foot of real estate. Our CoreCivic Properties segment generated over 11% of our adjusted EBITDA during the period.

As noted, both of our diversified business segments have completed positive developments that are showing up in our financial results on both the top and bottom line. We are confident in our ability to build upon this positive momentum as we execute on many new business opportunities these segment have.

I'd like to touch on two important ongoing facility development projects before discussing market developments and new business opportunities. First site work for our new facility development project in Lansing, Kansas is progressing on schedule. We were awarded the development of this new build-to-suit facility, the first of its kind nationally, by the State of Kansas in January of this year. Secured by a 20-year lease agreement, this $160 million project will contribute to the expansion of our CoreCivic Properties portfolio and serve as a model for other states. The project will replace Kansas existing 150-year-old correct facility and has a first quarter 2020 completion date and we are pleased with the progress of our team and our constructive partners.

The second ongoing development project is our 1,482-bed Otay Mesa Detention Center in California, which kicked off in the third quarter. For many years United States Marshals Service and ICE have managed their operations with limited detention capacity in this region and continue to have excess demand for detention capacity. When we initially built Otay Mesa facility, which opened in 2015, its 1482-bed capacity added an incremental 500 beds to Marshals and ICE existing capacity as their previous facility. We designed Otay Mesa, so that it could be efficiently expanded to nearly 3,000 beds in case our government partners experienced growing or changing needs in the region.

The current expansion project is slated to add 512 beds to facility at an estimated cost of approximately $43 million, which is more cost efficient than adding capacity through a Greenfield development. The initial development cost for the Otay facility was approximately $105,000 per bed and our expansion project will allow us to construct the additional 512 beds at a savings of approximately 20% per bed. The project is expected to be completed during the fourth quarter of 2019. So we anticipated incremental revenue and cash flows to benefit our CoreCivic Safety segment beginning in 2020.

Aside from these known development projects, we also have the capacity and capability to complete for near-term opportunities using our inventory of eight idle, correctional detention facilities representing 9,800 beds, which can be quickly activated to meet government partner needs without significant CapEx investments. We continue to see a significant number of near-term market opportunities and I'll review state level opportunities before discussing developments at the federal level.

CoreCivic Safety continues to pursue the opportunity to again work with the Department of Corrections and Rehabilitation of Puerto Rico as part of a formal procurement process. Earlier this year, Puerto Rico issued an RFP to move up to 3200 inmates off to Ireland 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 governor to address the territories debt crisis, which is impacting essentially all of the government agencies and their operations.

The RFP called for an initial phase of 1,300 inmates to be housed off the island. Upon full implementation of the RFP the Department of Corrections estimates an annual budget savings of approximately $50 million. We have responded to the RFP and believe our response is compelling, not just for cost savings for the Commonwealth, but also to provide a more humane and robust programmatic environment. We believe an award to be announced shortly and we believe we are uniquely positioned to meet the Commonwealth's urgent need. With the successful ramp of our 816-bed Lee Adjustment Center and the Commonwealth of Kentucky's need for additional capacity to alleviate overcrowding we have the opportunity to market our two remaining idle facilities located in that state. The Marion Adjustment Center and Southeast Kentucky Correctional Facility have a combined capacity of approximately 1,500 beds, which Kentucky's need for additional capacity far exceeds. We believe meaningful discussions on the potential to use these facilities to alleviate overcrowding will restart when the Legislature returns to session in January.

In many instances, we are having ongoing discussions with potential government partners that have not led to a formal public procurement process. Currently, we are in active discussions with a number of other states that have correctional capacity needs that could materialize over the next 12 months. We estimate these states could, in aggregate utilize 1,000 to 2,000 beds and the discussions are focused on solutions from our CoreCivic Safety segment. We also have existing idle correctional facilities in Colorado, Oklahoma and Minnesota where we continue to pursue opportunities to lease capacity to address the problems of overcrowding and/or aged infrastructure. These three properties being considered represent approximately 4,500 idle beds. Should we successfully enter into a lease agreement, the facility would be moved to the CoreCivic Properties portfolio as we would not be providing correctional operations under the contemplated agreements.

In CoreCivic Properties we are tracking additional development project opportunities similar to the Lansing, Kansas build-to-suit development of more than a half a dozen other states that are publicly exploring private sector solutions to replace their aging prison infrastructure. The runway for opportunities of this kind, looking only at the replacement of out-of-date criminal justice infrastructure is substantial.

In total, we estimate that $15 billion to $20 billion of required investments are desperately needed to make these facilities safer for staff and inmates alike, more efficient and to provide the kind of reentry program in space, we know can help people better prepared to rejoin their communities. Private sector solutions in collaboration with governance, similar to what we just accomplished in Kansas, are the key to solving these national infrastructure challenges.

Turning to the federal level, CoreCivic Safety's recent contract wins with the United States Marshals Service and ICE at Tallahatchie and La Palma clearly indicate both agencies' increased capacity requirement which are projected to grow. United States Marshals average daily prisoner populations have grown substantially from 52,000 at the beginning of this year to approximately 58,000 as of September 30. Multiple CoreCivic facilities with Marshals contracts already in place have experienced an increase in Marshals populations and we have the capacity available to accommodate additional growth.

For example, our new 1,350-bed contract with the Marshals at Tallahatchie was nearly fully utilized between the Marshals and ICE by the end of the third quarter. Should the agency have additional capacity needs we have multiple facilities that could be activated to accommodate this growth if our existing capacity is insufficient.

ICE has also gradually increased its utilization of our detention capacity through the first three quarters of 2018 with a 1,000 bed contract at La Palma facility in July. We saw apprehension rates increase meaningfully in September, resulting in rising capacity needs. Should ICE continue to have increased needs for detention space, we have the ability to provide incremental capacity at facilities already operating under contracts with the agency and can also activate idle facilities across our portfolio.

Finally, we are awaiting an announcement from the Federal Bureau of Prisons on CAR XIX procurement that was issued in 2017 and is intended to provide an additional 9,540 beds from the private sector to alleviate overcrowded conditions at BOP operated facilities and to increase utilization of the Bureau's most cost effective beds. We believe an award announcement for this opportunity will come in the first half of the federal fiscal year. As a reminder, today we only have two contracts with the BOP for correctional facility capacity, representing 5% of our total revenue. As you can see we have experienced very positive developments across all three business segments through new contract awards, increased utilization and accretive M&A transactions. Coupled with the fact that the utilization of existing contracts have been mostly stable, these positive developments show that we have the right strategies to grow the business and serve our partners and we have put the Company on a trajectory of cash flow growth over the next year.

At this time, I'd like to turn the call over to our CFO, Dave Garfinkle to provide an overview of our third quarter results and updated full-year 2018 financial guidance. David?

David Garfinkle -- Executive Vice President and Chief Financial Officer

Thank you, Damon, and good morning everyone. In the third quarter, we generated normalized FFO of $0.58 per share compared to our guidance range of $0.57 to $0.59 and AFFO totaled $0.54 per share compared to our guidance range of $0.55 to $0.57. Adjusted EBITDA of $99.7 million came in at the midpoint of our guidance for the third quarter. Although FFO per share was in line with our guidance, our third quarter results were negatively impacted by higher salary expenses than forecasted due to retention of staff at our Tallahatchie facility in Mississippi and at our La Palma facility in Arizona. We retained higher staffing levels to ensure a smooth transition for two proposals, Vermont and Puerto Rico, that could potentially utilize approximately 1,700 beds in the aggregate that became available due to declines in California populations of these facilities or to be ready for opportunities to utilize the available capacity under existing contracts.

While this decision created some inefficiencies and negatively impacted operating margins during the quarter, retention of experienced staff is important to ensuring an expedited, efficient and high quality transition when we are able to secure new opportunities for existing capacity. We have successfully secured new contracts in the past when we have retained staff like this to position us for growth prospects. On September 19 we announced we did win the contract award from Vermont to care for up to 350 inmates at our Tallahatchie facility. We were also able to accept US Marshals prisoners quickly at our Tallahatchie facility following a new contract award in June and ICE detainees quickly at our La Palma facility following a new contract award in July, where we retained staff despite reductions in California populations.

We remain optimistic about the additional contract award from the Government of Puerto Rico as well as increasing opportunities to utilize the available capacity due to increasing demand on the Southwest border. In addition, while the new contract with ICE at La Palma is no doubt beneficial for the long-term financial performance of the facility, it did have a transitory impact on revenue in the third quarter at our Central Arizona Florence Correctional Complex where we care for both US Marshals prisoners and ICE detainees. The combination of maintaining higher staffing levels and the transitory impact on revenue at our Central Arizona Complex negatively affected our per share results by approximately $0.03 relative to our prior guidance. When compared with the prior year quarter, total revenue increased to $462.7 million in the third quarter of 2018, compared with $442.8 million in the prior year quarter, an increase of 4.5%. This increase, the largest quarterly increase in 10 quarters, was achieved despite reductions in revenue totaling $19.6 million resulting from the expiration in the third quarter of 2017 of three low margin managed-only contracts in Texas and the reduction in California populations.

FFO per share increased from the prior year quarter by $0.02 and AFFO increased by $0.01. Adjusted EBITDA increased $6.4 million or 6.8% from the prior year quarter and EBITDA margins improved to 21.5% in Q3 2018 from 21.1% in Q3 2017. Net operating income increased across all three business segments by $5.4 million or 4.4%, most notably in our CoreCivic Properties segment, which increased $3.7 million or 48%.

Financial results in our CoreCivic Properties segment were favorably impacted by the acquisition on August 23 2018 of the 541,000 sq.ft. SSA Baltimore property. Earnings from our CoreCivic Safety segment were positively impacted by higher contract utilization by the US Marshals Service across the portfolio, a new contract with the State of Ohio for up to 996 offenders at our Northeast Ohio Correctional Center, which began during the third quarter of 2017 and new federal populations at our Tallahatchie and La Palma facilities, resulting from new contract awards executed in June and July 2018 respectively. Although still ramping during the third quarter, the new contract to Tallahatchie for up to 1,350 offenders essentially replaced the California inmate populations at this facility that were transferred back to the state during the first half of 2018.

Over the past 18 months, we have also executed six new state contracts for correctional capacity in our CoreCivic Safety segment, including the aforementioned contract with Ohio and the contract we just signed with Vermont. Five of these contracts are with new state partners, which we believe reflects the value proposition we provide to states with correctional capacity and programming needs. We also maintained an average contract retention rate of 94% at our own facilities over the past 5.75 (ph) years, which we believe reflects the long-term durability of our solutions and the quality of services we provide.

These financial results were partially offset by higher interest expense primarily resulting from the repayment in October 2017 of variable rate short-term borrowings under our revolving credit facility with net proceeds from the issuance of $250 million 10 year unsecured notes at a fixed interest rate of 4.75% as well as a $242 million acquisition of SSA-Baltimore financed partially with an assumed $157.3 million mortgage note with a 4.5% fixed rate, with over 15 years remaining. The remaining balance was funded with our revolving credit facility. In addition to this acquisition, we completed five accretive M&A transactions since the end of the third quarter of 2017 with investments totaling $92.5 million.

These acquisitions included three residential reentry centers, a company that provides nonresidential correction alternatives including electronic monitoring and case management services as reported in our CoreCivic Community portfolio and 14 government lease properties operated by third-party tenants under our CoreCivic Properties portfolio. During the third quarter of 2018, our CoreCivic Community portfolio generated 6.2% of our adjusted EBITDA and our CoreCivic Properties portfolio generated 11.3%. Our CoreCivic Properties portfolio was 99.7% leased during the third quarter with very stable cash flows from fixed monthly rents.

Since the platform acquisition of SSA-Baltimore, our brokerage network has grown and our pipeline of government leased properties has increased. We are evaluating acquisitions with cap rates from 7% to the low double digits with a potential for higher returns depending on individual property characteristics and complexity like we achieved with the 12-property portfolio acquisition completed in July and the property we acquired in September leased to the GSA through the National Archives and Records Administration dedicated to the IRS. The cap rates on these acquisitions were 10% and 15% respectively.

To the extent we can continue to identify properties like these, we will be able to execute our growth strategy of accretive acquisitions without relying on non-recourse secured debt and instead using our corporate balance sheet to finance many of these acquisitions, leaving our balance sheet largely unencumbered and growing our availability of contingent liquidity.

At September 30, we had $94 million of cash on hand and nearly $600 million of availability on our revolving credit facility and no debt maturities until 2020. Our capital expenditure forecast, which is included in the press release, includes $27 million of capital expenditures for the remainder of 2018 for construction of the new Lansing Correctional Facility in Kansas. This project has a total estimated cost of $155 million to $165 million, $31.8 million of which has been incurred through September 30, under a guaranteed maximum price contract with the developer. The project will be 100% financed with the previously disclosed private placement and will be drawn in quarterly installments to align with construction expenditures.

As disclosed in yesterday's press release, our capital expenditure forecast also includes $11 million in capital expenditures for the remainder of 2018 for the 512 bed expansion of our 1,482-bed Otay Mesa Detention Center in California. This facility is currently utilized by both Marshals and ICE under a contract that expires in June 2023 inclusive of extension options, which we have held since 1998. This facility has had long-standing demand from both federal partners in a strategic location with limited capacity. The expansion is expected to be complete in the fourth quarter of 2019 at a total estimated cost of $43 million, including $5.8 million incurred through September 30, 2018.

Moving next to discussion of our earnings guidance. As indicated in the press release, EPS guidance for the fourth quarter of 2018 is a range of $0.39 to $0.41, normalized FFO per share guidance for the fourth quarter is $0.61 to $0.63 and AFFO per share guidance for the fourth quarter is $0.59 to $0.61. For the full year, adjusted EPS guidance is a range of $1.44 to $1.46, full-year normalized FFO per share guidance is a range of $2.29 to $2.31 and full-year AFFO per share guidance is $2.18 to $2.20. At the midpoint, our fourth quarter guidance reflects increases over Q4 2017 an EBITDA of 9%, normalized FFO per share of 3% and AFFO per share of 13% and setting up an attractive run rate as we head into 2019.

Our updated guidance contemplates higher salaries for a tight labor market and includes continued current staffing levels at our Tallahatchie and La Palma facilities that will be needed if we secure further opportunities to utilize available capacity of these facilities, which impacted our prior guidance by about $0.06 per share for the full-year 2018. The negative impact of these assumptions was largely overcome through revenue growth, including the new contract with Vermont, higher populations from US Marshals and ICE and from accretive acquisitions, which we believe will also generate sustainable growth and higher per share results in 2019.

Our guidance does not include any new contract awards beyond those previously announced because the timing of government actions on new contracts is always difficult to predict. Our updated guidance includes an additional $0.01 of FFO and AFFO per share for the SSA-Baltimore acquisition, which is $0.01 dilutive for EPS because of the non-cash real estate depreciation and amortization expense impact on earnings, but not FFO or AFFO.

Although our California populations were slightly below our forecast for the third quarter, we have recently seen an uptick in such populations on some days, and the general pace of decline has slowed. Our guidance therefore reflects a range of assumptions for California populations, which averaged approximately 2,200 during the third quarter. The adjusted EBITDA guidance in our press release enables you to calculate our estimated effective income tax rate of 4.5% to 5.5% for the fourth quarter and provides you with our estimate of total depreciation and interest expense for the fourth quarter and full-year 2018. We expect G&A expenses to be approximately 5.5% of total revenue.

Finally, our dividend is currently yielding a very attractive 7.8%. Each quarter, we review with our Board, our dividend and factors potentially affecting the dividend, including the trajectory of our cash flows, our forecasted FFO payout ratio, leverage levels and opportunities to deploy capital into new investments. We have traditionally announced any dividend increases in February, like we did this past February when we released our year-end results, and projections for the upcoming year.

I will now turn the call back to Damon for closing comments before opening up the lines for questions.

Damon T. Hininger -- President and Chief Executive Officer

Thank you, Dave. Before we move to the Q&A, I want to take a moment to recognize our employees who are teachers, chaplains, nurses, mothers, veterans and many others. These are really good people doing great work for our government partners and individuals entrusted in our care. You know over the last five years here at CoreCivic, we have helped more than 38,000 individuals in our care further educations by earning GEDs and industry-recognized certifications that prepares them to restart their lives, but also as studies have shown they are 40% less likely to come back to prison. So it's not lost on me that to have this type of success if helping people get their lives back on track, it takes a talented and passionate team making reentry at day one priority. So to the CoreCivic's team I'm sincerely honored to serve alongside you all and I'm grateful for all of your efforts.

So, Ryan, we will turn it over to you now for Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) It looks like our first question will come from Kevin McClure with Wells Fargo Securities.

Kevin McClure -- Wells Fargo Securities -- Analyst

Hey, great, thanks. Good morning, thanks for taking the question. Amount of pockets (ph) so I apologize if I missed a couple of things. But Dave you said on the -- at the end of your script that you're looking to finance some of the new office acquisitions on an unencumbered basis with the balance sheet capacity. Is that correct?

David Garfinkle -- Executive Vice President and Chief Financial Officer

Yeah, it's correct, yes, for the most part. I mean, we are finding attractive acquisitions like the 12 property portfolio that we bought in July was a 10% cap rate. The National Archives and Records Administration property was a 15% cap rate. So to the extent, we continue to identify properties like these, I think there are a building a little bit of an outsized cap rate, but to the extent we're able to find opportunities like these where the cap rates exceed our cost of capital we will fund (ph) them off of our corporate balance sheet.

Damon T. Hininger -- President and Chief Executive Officer

Yes, and I'll just add to it. This is Damon, that we have been pleasantly surprised by the opportunities for these type of properties that have these really nice cap rates. We've mentioned the two that we have done here recently the 10% for the portfolio and the 15% for the property up in Ohio. And Dave and I actually just said this together yesterday when we did our deal review on potential transactions. We've been really, really pleased by the amount of inbound interest we're seeing for these properties that are kind of unique, maybe have some complexity, maybe have some CapEx needs kind of day one. We can quickly and efficiently go in with our real estate team, take a look at these properties and be not only a efficient buyer but also kind of do whatever the needs are, is it renovation or expansion or improvement, very quickly for the tenants. So I can't put a complete number to it, but I think we've been pleasantly surprised in kind of this M&A market that we've got these opportunities for some nice returns for these transactions.

Kevin McClure -- Wells Fargo Securities -- Analyst

And how many people would you say you're bidding against for some of these properties because there are some fairly high cap rates for office assets (multiple speakers) market.

Damon T. Hininger -- President and Chief Executive Officer

That's a -- I think that's a -- yeah, that's a great question and I think that's kind of the opportunity there as there is really not much competition. I think you've got some of these properties where kind of these typical owners too maybe just looking at just the return, but don't have any kind of expertise to evaluate not only the real estate, but also have the kind of deep government relations expertise we've got both at the federal, state and local level where we can quickly pick up the phone and talk to some of these tenants. We're seeing not a lot of competition. So that allows us again to be very thoughtful on the pricing and get somebody's good returns. I don't know you want to (ph) add to that.

David Garfinkle -- Executive Vice President and Chief Financial Officer

Yeah, I guess Kevin (inaudible) expectations at every asset we're going to buy between 10% and 15% cap rates. So as I mentioned in my script, we're evaluating properties with cap rates typically around 7%, maybe to 10% except the narrow buildings a little outside that and we don't expect to see many of those. But to the extent we're able to find cap rates between 7% and 10%, a good number of those or perhaps majority in that rate -- in that cap rate, we would be able to finance off of our corporate balance sheet.

Kevin McClure -- Wells Fargo Securities -- Analyst

Got it, OK. I know it's still early, you haven't released 2019 guidance, but can you maybe give us a preliminary view on how much you're willing to spend on acquisitions and next year in CapEx?

David Garfinkle -- Executive Vice President and Chief Financial Officer

Yeah, we're going through the budget process right now. So you're right, it's a little bit premature to talk about 2019 guidance or capital expenditures. We do have an active pipeline. I think Damon said in his script, we're evaluating a couple of $100 million. Obviously that's market close on a couple of $100 million. But what's interesting to me is the pipeline turns over relatively quickly. So we see new deals coming online every week. There are some number of attractive opportunities, so not quite ready to disclose what we expect for an acquisition pipeline. We actually haven't done that in the past, but I think as we go into 2019 that might be something we'd be willing to do. We really haven't matured the M&A pipeline in this market and I think it's getting there to the point where we may be able to do that and provide some guidance in February.

Kevin McClure -- Wells Fargo Securities -- Analyst

Got it, OK. And last one for me, just kind of switching gears talking about immigration side of your business. Obviously today is the election day. Do you anticipate any movement from Congress in the lame duck session to address immigration? And then also, I mean ICE clearly has a need to (inaudible) on the way. Apprehensions have been elevated, but Congress has traditionally been the bottleneck, reluctance to fund additional detention capacity or a meaningful expansion detention capacity, do you expect that to change in the lame duck or the next Congress?

Damon T. Hininger -- President and Chief Executive Officer

Yes, this is Damon. Let me give you a couple observations. I think one just to highlight, we are in active conversations with ICE, really going back 35 years, but here more nearly (ph) here last 24 months it's almost a daily conversation on kind of what their needs are within the Southwest border as I think also we are always there if they've got a kind of natural disaster or hurricane they are preparing for where they need to vacate facility. So we're constantly talking about kind of emerging need either on the Southwest border or something else you need to happen within their system. So I see that continuing even after today's election I think that's going to continue going into the lame duck session.

The second part of your question I think is a little bit about your kind of funding and the bottleneck potentially on funding from the Congress on increased needs. As you know, the current funding bill expires on December 7. It's our view that probably after today, there will probably some activity from now till the end of this year into this calendar year, I should say, on a funding bill and we think there's probably a pretty good chance that the funding bill is for the full fiscal year. So they completed funding bill through September 30 next year and I think during that deliberation with houses, senate and administration, there is probably a likely discussion about kind of immigration needs and what's going to happen (inaudible) quarter and those are increased funding that needed during this coming year or this current fiscal year. (inaudible) add to that, David?

David Garfinkle -- Executive Vice President and Chief Financial Officer

That's all right.

Kevin McClure -- Wells Fargo Securities -- Analyst

Okay, and final question for me. Has your thoughts around family detention changed? Do you guys have more appetite to expand family detention purpose-built capacity or are you content with the South Texas facility at sole location ?

Damon T. Hininger -- President and Chief Executive Officer

Let me first say that our South Texas facility that's now been operational about four years, we've been really pleased with operations. And I think if you talk to ICE leadership and folks within the field office, they've been very pleased also. We think it's really no other facility like it in the United States that is built day one for this mission and it's a very safe and humane way to how these families that are coming across Southwest border. And with that, if there is increased needs from ICE for that type of solution, we think we've got potentially some expansion capacity at that facility to kind of meet their needs. Nothing to report on that today. Again it's an overarching kind of conversation with ICE on kind of overall needs that they have got potentially now or forecasted at any period of time, so we're always talking about potential solutions we could do, but also other facilities that we've got within portfolio.

I mean you've pleased with our operation, and if there was an increased need from ICE potentially had, we think we're well equipped to do that and happy to do that.

David Garfinkle -- Executive Vice President and Chief Financial Officer

I mean, you've seen the news articles and presumably you've seen the September numbers on family apprehensions and they are off the charts. So there is certainly a high demand for that facility at this point.

Kevin McClure -- Wells Fargo Securities -- Analyst

Got it. Thank you for the time.

Damon T. Hininger -- President and Chief Executive Officer

Thanks, Kevin.

David Garfinkle -- Executive Vice President and Chief Financial Officer

Thanks, Kevin.

Operator

Thank you. (Operator Instructions) This concludes the Q&A session. As there are no more questions at this time, I will turn the conference back over to Damon Hininger.

Damon T. Hininger -- President and Chief Executive Officer

Thank you, Ryan. I would like to thank everyone for joining us on today's call and we look forward to reporting to you our full-year results in February and provided an initial outlook for 2019. Thanks again.

Operator

Thank you. Ladies and gentlemen, thank you for joining today's conference call. The call is now concluded. Please disconnect your phones and have a great day.

Duration: 46 minutes

Call participants:

Cameron Hopewell -- Managing Director of Investor Relations

Damon T. Hininger -- President and Chief Executive Officer

David Garfinkle -- Executive Vice President and Chief Financial Officer

Kevin McClure -- Wells Fargo Securities -- Analyst

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This article appears in: Personal Finance , Stocks
Referenced Symbols: CXW



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