By M. Marin
NYSE:CXW
READ THE FULL CXW RESEARCH REPORT
Pending acquisition of Farmville Detention Center adds capacity, revenue and…
CoreCivic (NYSE:CXW) intends to acquire the Farmville Detention Center located in Farmville, Virginia. The facility has capacity for 736-beds and was constructed in 2010, making it a modern center that is unlikely to require much, if any, upgrade by CXW. Farmville Detention Center provides transportation, care, and civil detention services to adult male detainees through a contract between Prince Edward County, Virginia and ICE that expires in March 2029.
The company expects to fund the $67.0 million purchase price using cash on hand and borrowing capacity under its revolving credit facility. CXW has a strong balance sheet and liquidity. CXW had $74.5 million of cash at the end of 1Q25 and $256.4 million available under its revolver, for liquidity of about $331 million. The acquisition is expected to close by July 1, 2025, subject to customary closing conditions. Given that CXW will therefore consolidate Farmville results beginning in 2H25 all else equal, we have revised our model, conservatively taking 2025 revenue to $2.040 billion from $2.024 billion before. Farmville is expected to produce total annual incremental revenue of about $40.0 million for CXW; we have modeled potential for some minimal delay.
…potential for some benefits of operating efficiencies
ICE has apparently used the Farmville facility for several years and occupancy has more than doubled since October of 2024, according to trade publications citing agency data. In addition to the above noted roughly $40.0 million annual revenue, CXW is also expected to add operating costs associated with maintaining the facility and adding more than 200 new employees. Down the road, we would expect CXW to obtain some operating efficiencies at the facility, given the company’s size, scale and broad operating footprint.
Transaction, along with reactivating idled facilities, illustrate CXW’s growing need for capacity
The transaction also underscores, we believe, CXW’s strong relationship with ICE, its largest government partner. The company recently has renegotiated one ICE contract and has a letter agreement on another. It also underscores CXW’s need for capacity. The company is in the process of reactivating idled capacity and has added capacity with the acquisition of this facility.
ICE is seeking to expand its nationwide capacity. Moreover, reflecting the limited supply of and older state of many government owned correctional facilities, CXW’s facilities are relatively new compared to about 57% of the Federal Bureau of Prisons (BOP) infrastructure built 30+ years ago (and about 31% 50+ years old). The BOP is a relatively small customer for CXW but we believe that the overall state of its facilities provides insight into the general state of government detention facilities in the U.S., reflecting budgetary constraints and other challenges to constructing newer facilities. Thus, over the past 5-years, retention rates on owned and controlled facilities is over 95% and the company is engaged in discussions for additional contracts with existing and potential partners, including federal, state, and local agencies.
In addition, the recently passed Laken Riley Act requires DHS (Department of Homeland Security) to detain certain non-U.S. nationals who have been charged, arrested, or convicted of certain crimes. According to CXW, ICE estimates that the act could require 60,000 to 110,000 incremental detention beds. The new administration also reversed an executive order implemented during the prior administration that directed the Justice Department to not renew direct contracts with private detention facilities.
CXW has recently entered into an amended intergovernmental services agreement (IGSA) with ICE and the City of Dilley, Texas to resume operations at the South Texas Family Residential Center in Dilley and care for up to 2,400 people. The amended contract runs through March 2030 and may be further extended through bilateral modification. The company has also entered into a new lease agreement with Target Hospitality Corporation, which owns the facility. As with the prior agreement between CXW and Target, the period contracted for leasing of the facility is co-terminus with the ICE agreement so that CXW has no exposure at the back-end of the contract once it ends. CXW will be able to largely match lease costs with expected revenue.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.