In one of his first acts as the nation's CEO, President Joe Biden has taken aim at private prisons. And two of the major players in that game are real estate investment trusts (REITs).
On Tuesday, Biden issued four executive orders aimed at addressing racial inequity in the United States. One of them ordered the Justice Department not to renew contracts with privately operated prisons.
"This is a first step to stop corporations from profiting off of incarceration," Biden said.
The Associated Press reported that there are more than 14,000 inmates housed in such facilities, compared with 152,000 total federal inmates. And the Federal Bureau of Prisons (BOP) had already opted out of some contract renewals as the inmate population declined and thousands were released to home confinement because of the coronavirus pandemic, The AP said.
Many of those contracts belong to CoreCivic Inc. (NYSE: CXW) and GEO Group (NYSE: GEO).
BOP go the contracts, but the business impact may be muted
"The BOP has experienced a steady decline in inmate populations over the past several years, so today's announcement was no surprise considering the agency's diminished need for capacity. It's a trend we've watched carefully, and we've worked hard to diversify the solutions we provide," CoreCivic said in a statement.
That includes a focus on Immigration and Customs Enforcement (ICE) facilities, residential reentry centers, and electronic monitoring, offering the government more diversified and less controversial services, says a report from Nonprofit Quarterly.
"Mass incarceration has become increasingly unpopular in current cultural consciousness, evident in a newly developed online tool that enables people to check if their investments include private prisons," that article adds.
GEO Group, meanwhile, said in a statement, "Given the steps the BOP had already announced, today's executive order merely represents a political statement, which could carry serious negative unintended consequences, including the loss of hundreds of jobs and negative economic impact for the communities where our facilities are located, which are already struggling economically due to the COVID pandemic."
Total return for both REITs long on the rocks, and one pays no dividends
The Biden announcement hasn't particularly rocked those stocks, since CoreCivic and GEO Group weren't doing that great anyway.
CoreCivic's total return as of market close on Jan. 26 was -4.43% year to date, -58.72% for the past year, and -24.90% for the past three years. Hardly a compelling performance. CoreCivic stock closed on Jan. 26 at $6.26, well off its 52-week high of $17.90 and somewhat above its 52-week low of $5.76.
For GEO Group, the story's much the same. Total return as of market close on Jan. 26 was -2.82% year to date, -36.14% for the past year, and -14.12% for the past three years.
The only positives here look to be yield. And that's just for GEO Group, which on Jan. 15 declared a quarterly cash dividend of $0.25, giving it a yield of 12.44% at mid-day on Jan. 27.
CoreCivic suspended its dividend in June.
The Millionacres bottom line
The political pressure on for-profit prisons is not likely to help matters on a lot of levels. As Millionacres' Matt DiLallo says in an October piece titled "Is CoreCivic a Buy?": "A growing number of banks have stopped lending to private prison operators due to concerns that private prison operators are part of the problem with the country's criminal justice system, not the solution."
The Biden administration also may well be inclined to look at the heavy privatization of border detention facilities, too.
David Fathi, director of the American Civil Liberties Union's National Prison Project, pointed to that possibility in the AP article.
"The order signed today is an important first step toward acknowledging the harm that has been caused and taking actions to repair it, but President Biden has an obligation to do more, especially given his history and promises," Fathi said.