The GEO Group Announces Change in Corporate Structure

The GEO Group (NYSE: GEO) (“GEO”) announced today that its Board of Directors (the “Board”) has unanimously approved a plan to terminate its Real Estate Investment Trust (“REIT”) election and become a taxable C corporation, effective for the fiscal year ending December 31, 2021. The decision stems from the Board’s evaluation of GEO’s corporate tax structure and REIT status, which was announced on April 7, 2021.

The Board also voted unanimously to discontinue GEO’s quarterly dividend. The change in corporate status from a REIT to a taxable C Corporation is expected to give GEO additional flexibility to allocate free cash flow towards reducing net recourse debt. GEO has made efforts to reduce net recourse debt over the last two years. In 2020, GEO reduced net recourse debt by approximately $100 million, and in the first three quarters of 2021, GEO reduced net recourse debt by an additional $175 million.

George C. Zoley, Executive Chairman of GEO, said, “The decision made by our Board to de-REIT is consistent with the proactive and multifaceted approach we have implemented to address our future debt maturities, which includes our focus on net recourse debt reduction and deleveraging, our review of potential sales of Company-owned assets and businesses, and our ongoing evaluation of capital structure alternatives with the assistance of our financial and legal advisors. We believe that these are prudent steps, which are in the best interests of our shareholders and other stakeholders. Following our objective of net recourse debt reduction, we expect to allocate free cash flow to fund quality growth opportunities and potentially return capital to shareholders in the future.”

Updated 2021 Guidance

As a result of GEO’s restructuring to a taxable C corporation in fiscal year 2021, during the fourth quarter of 2021, GEO expects to incur a one-time, non-cash deferred tax charge of approximately $75 million. GEO also expects to incur approximately $34 million in incremental income tax expense in the fourth quarter of 2021 due to the resulting higher corporate tax rate for 2021, including a catch-up tax expense of approximately $26 million in connection with the first three quarters of 2021.

Due to the tax related corporate restructuring items, GEO expects to report a loss in Net Income Attributable to GEO for the fourth quarter of 2021 of approximately $69 million. Excluding the one-time, non-cash deferred tax charge and the portion of additional income tax expense associated only with the first three quarters of 2021, GEO expects fourth quarter 2021 Adjusted Net Income to be between $0.29 and $0.31 per diluted share and fourth quarter 2021 AFFO to be between $0.58 and $0.60 per diluted share, which reflects the higher quarterly corporate tax rate GEO expects to pay as a taxable C corporation.