CoreCivic’s $83M Acquisition of GSA-Leased Assets

The deal, structured through a DownREIT, covers 28 properties mostly situated in the South.
Image via Pixabay

CoreCivic Inc. has completed its acquisition of a portfolio of 28 properties, all leased to the federal government through the General Services Administration, for a total consideration of $83.2 million, excluding transaction-related expenses.

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The 445,000-square-foot portfolio serves numerous federal agencies, but primarily the Social Security Administration, the Department of Homeland Security and Social Security’s Office of Hearings Operations. Each of the 28 buildings was built-to-suit for its federal tenant. The buildings range from 4,885 to 52,221 square feet and are located in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina and Tennessee.

CoreCivic was unable to disclose the seller, which was the properties’ original developer and their owner and manager since construction. The properties were all completed between 2000 and 2010. The portfolio’s average property age is 15 years, and the portfolio’s weighted average remaining lease term is 5.6 years.

Damon Hininger, CoreCivic’s president & CEO, noted in a prepared statement that the transaction relied on a DownREIT partnership structure, which gave CoreCivic a form of capital outside its traditional debt and equity securities. The arrangement also provided CoreCivic with the flexibility to complete an accretive transaction at an above-average cap rate, while limiting the cash required to complete the acquisition.

CoreCivic financed the acquisition with $7.7 million in cash, as well as the assumption of $52.2 million in debt and the issuance of 1.3 million limited partnership units that are convertible after two years into cash or shares of common stock. The assumed debt carries a fixed interest rate of 4.9 percent, with fixed monthly payments extending through November 2025, and a balloon payment of $46.2 million due at maturity. 

The off-market transaction was arranged after CoreCivic was introduced to the portfolio’s ownership group by Colliers International’s Rossi-Campton team, based in Orlando, Fla.

Private prison woes

CoreCivic, based in Brentwood, Tenn., was formerly known as Corrections Corporation of America. This past September, Gabriel Foguel of Fitch Ratings outlined the risks the private prison REIT sector faces in terms of ESG (environmental, social and governance) issues, including banks limiting access to capital. That July, Fitch had downgraded CoreCivic as a result of this. Foguel noted that heavy use by U.S. Immigration and Customs Enforcement of private prisons to detain immigrants has led activists to target the prison REIT sector.

In May of last year, Easterly Government Properties purchased the FBI’s field office in New Orleans from Karlin Real Estate for an undisclosed amount. The building, which includes substantial security features, is leased by the GSA on behalf of the FBI.