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Feds Slam Prison REITs Again

Homeland Security To Review Use of Private Detention Facilities
August 29, 2016
A bad August just got worse for prison REITs The Geo Group and Corrections Corporation of America. This afternoon Homeland Security Secretary Jeh C. Johnson announced it would be reviewing its use of detaining immigrants in private detention facilities.

The news follows the U.S. Department of Justice announcement this month that it would be phasing out its use of private prisons by the U.S. Bureau of Prisons.

“I directed our Homeland Security Advisory Council, chaired by Judge William Webster, to evaluate whether the immigration detention operations conducted by Immigration and Customs Enforcement should move in the same direction [as the DOJ],” Johnson said. “Specifically, I have asked that Judge Webster establish a Subcommittee of the Council to review our current policy and practices concerning the use of private immigration detention and evaluate whether this practice should be eliminated. I asked that the Subcommittee consider all factors concerning ICE’s detention policy and practice, including fiscal considerations.”

The evaluation is expected to be completed by Nov. 30, 2016.

The new Homeland Security review is in addition to Homeland Security’s Office of Inspector General’s announcement this spring that it would periodically inspect spot audit of Custom Border Patrol and Immigration & Customs Enforcement’s detention facilities through 2018.

The OIG initiated its inspection program in response to concerns raised by immigrant rights groups and complaints to the DHS OIG Hotline regarding conditions for aliens in CBP and ICE custody.

Through the two agencies, the Department of Homeland Security oversees approximately 230 detention centers nationwide. It could not be determined how many are operated by the Geo Group or Corrections Corp.

The GEO Group, said it “welcomed” today’s announcement by the U.S. Department of Homeland Security.

“Over the last 30 years, our company has partnered with the federal government to develop special-purpose facilities that provide needed services in safe, secure, and humane residential environments,” said George C. Zoley, GEO’s Chairman and Chief Executive Officer. “Our public-private partnership has allowed ICE to transfer services from older public jail facilities that did not meet the most up-to-date national standards to GEO’s highly rated, cost-effective facilities.”

“We are confident that this independent review will show that GEO has provided needed, cost-effective services that have resulted in significantly improved safety outcomes for the men and women in ICE’s care and custody,” Zoley added.

Corrections Corp. and GEO stock values dropped on the Homeland Security’s announcement. Geo stock was down 5%; Corrections, down 7%.

Correction Corp.’s stock is trading at about $16.25 share, $19 off its 52-week high. Geo stock is trading at about $21/share, off about $14 from its 52-week high.

As of year-end 2015, GEO Groups operated 26 federal prison centers with a capacity for 35,692 prisoners making up 45% of its revenue.

For Corrections Corp., federal correctional and detention authorities made up 51% of its revenues in 2015. It operated 22 federal facilities with the capacity for 25,851 prisoners.

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