Will CoreCivic's Buyout of Baltimore SSA Property Bear Fruit?

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In a bid to expand its portfolio of government-leased real estate assets, CoreCivic, Inc. CXW recently acquired a Social Security Administration (SSA) office building in Baltimore, MD, spanning 540,566 square feet of area. The company has shelled out $242 million for this purchase.

The property, located at 6100 Wabash Avenue, has been built under SSA specifications, and is leased for a 20-year period, ending January 2034. The lease is fully backed by the U.S. government through the General Services Administration (GSA). Further, being one of the latest SSA properties in Baltimore lends longevity to the long-term lease.

The campus boasts a Level IV U.S. federal building security classification and consists of two arcing segments - one comprising seven levels, and the shorter one of five levels. It also offers a fitness center, cafeteria, convenience store, and a stand-alone SSA field office facility.

Financing Details

The company has also assumed an in-place funding arrangement worth $157.3 million that was raised to support the facility's construction in 2014. The debt, due in February 2034, carries a fixed interest rate of 4.5%. It requires monthly principal and interest payments, along with a lump-sum payment of $40 million at maturity.

Furthermore, liquidity under the company's revolving credit facility has been used to meet the remaining purchase price.

Benefits of the Buyout

Per management, "SSA-Baltimore is a critical component of SSA's Central Office operations, and provides us with accretive growth and diversification."

Importantly, this acquisition is expected to improve the company's 2018 funds from operation (FFO) per share by 0.01 to 0.02 cents. The acquisition also highlights the company's focus to grow its portfolio on the back of accretive buyouts.

Management also noted that the recently-added facility expands the rentable square feet of CoreCivic's Properties segment portfolio by nearly 36%. This business segment offers development and maintenance solution to the government, and after considering this acquisition, the segment is anticipated to account for 10% of CoreCivic's facility net operating income on an annualized basis.

Our Viewpoint

Notably, the CoreCivic Properties segment produces consistent cash flows by offering leases to high credit-quality government tenants. Hence, efforts to fortify this segment complement the company's existing portfolio of government-leased realties and place it well for long-term growth.

Further, CoreCivics has an extensive knowledge of developing and maintaining governmental real estate solutions. This will likely help the company focus on opportunistic acquisitions.

Also, shares of this Zacks Rank #1 (Strong Buy) company have outperformed the industry over the past six months. The stock has appreciated 20.2% compared with the industry's gain of 11%.

Other Key Picks

Other top-ranked stocks from the REIT space include NorthStar Realty Europe Corp. NRE , Park Hotels and Resorts, Inc. PK and PS Business Parks, Inc. PSB . While NorthStar Realty flaunts a Zacks Rank of 1, Park Hotels and Resorts and PS Business Parks carry a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

NorthStar Realty's Zacks Consensus Estimate for 2018 FFO per share has been revised 5.5% upward over the past 30 days. Its shares have gained 34.9% in the past six months.

Park Hotels and Resorts' FFO per share estimates for 2018 witnessed 1.3% upward revision in 30 days' time. Its shares have appreciated 24.4% over the past six months.

PS Business Parks' FFO per share estimates for the current year moved up marginally in the past 30 days to $6.39. The stock has rallied 17% in six months' time.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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