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REAL ESTATE TRANSACTIONS | 12 Months Ended
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Dec. 31, 2015
REAL ESTATE TRANSACTIONS |
5. | REAL ESTATE TRANSACTIONS
Real Estate Closures and Idle Facilities During May 2015, the state of Vermont announced that it elected to not renew the contract that would have allowed for Vermont’s continued use of CCA’s owned and operated 816-bed Lee Adjustment Center. The contract expired on June 30, 2015. During the first six months of 2015, the offender population at the Lee Adjustment Center averaged 308 offenders, compared with 458 offenders during the same period in 2014. CCA idled the Lee Adjustment Center following the transfer of the offender population during June 2015, but continues to market the facility to other customers. Upon receiving notice from the customer during the second quarter of 2015, CCA performed an impairment analysis of the Lee Adjustment Center property, which has a carrying value of $10.8 million as of December 31, 2015, and concluded that this asset has a recoverable value in excess of the carrying value. During the first quarter of 2015, the adult inmate population held in state of California institutions decreased below a federal court ordered capacity limit. Inmate populations in the state continued to decline below the capacity limit throughout 2015. As a result of the decrease in inmate populations within the state of California’s correctional system, California inmate populations housed in out-of-state programs, such as CCA’s, also declined during 2015. The reduction in California inmate populations in CCA’s program resulted in CCA idling the 2,400-bed North Fork Correctional Facility during the fourth quarter of 2015. CCA performed an impairment analysis of the North Fork Correctional Facility, which has a carrying value of $74.8 million as December 31, 2015, and concluded that this asset has a recoverable value in excess of the carrying value. CCA continues to market the facility to other customers. CCA also has five additional idled core facilities that are currently available and being actively marketed to other customers. CCA considers its core facilities to be those that were designed for adult secure correctional purposes. The following table summarizes each of the idled core facilities and their respective carrying values, excluding equipment and other assets that could generally be transferred and used at other facilities CCA owns without significant cost (dollars in thousands):
|  | Design |  |  | Date |  |  | Net Carrying Values at December 31, |
Facility |  | Capacity |  |  | Idled |  |  | 2015 |  |  | 2014 |
Prairie Correctional Facility |  |  | 1,600 |  |  |  | 2010 |  |  | $ | 17,961 |  |  | $ | 18,748 |
Huerfano County Correctional Center |  |  | 752 |  |  |  | 2010 |  |  |  | 18,276 |  |  |  | 19,033 |
Diamondback Correctional Facility |  |  | 2,160 |  |  |  | 2010 |  |  |  | 43,030 |  |  |  | 44,480 |
Otter Creek Correctional Center |  |  | 656 |  |  |  | 2012 |  |  |  | 23,270 |  |  |  | 24,089 |
Marion Adjustment Center |  |  | 826 |  |  |  | 2013 |  |  |  | 12,536 |  |  |  | 12,978 |
Lee Adjustment Center |  |  | 816 |  |  |  | 2015 |  |  |  | 10,840 |  |  |  | 11,365 |
North Fork Correctional Facility |  |  | 2,400 |  |  |  | 2015 |  |  |  | 74,805 |  |  |  | 76,544 |
|  |  | 9,210 |  |  |  |  |  |  | $ | 200,718 |  |  | $ | 207,237 |
From the date each of the aforementioned seven core facilities became idle, CCA incurred approximately $7.3 million, $6.5 million, and $5.6 million in operating expenses for the years ended December 31, 2015, 2014, and 2013, respectively. The operating expenses incurred in 2014 and 2013 exclude the incremental expenses incurred in connection with the activation of the Diamondback facility which began in the third quarter of 2013 and continued until near the end of the second quarter of 2014, when anticipated opportunities to activate the facility were deferred. CCA also has four idled non-core facilities with carrying values amounting to $5.1 million and $5.5 million as of December 31, 2015 and 2014, respectively. CCA considers the Shelby Training Center, Queensgate Correctional Facility, Mineral Wells Pre-Parole Transfer Facility, and Leo Chesney Correctional Center to be non-core facilities because they were designed for uses other than for adult secure correctional purposes. CCA idled the Leo Chesney Correctional Center in the fourth quarter of 2015 following the termination of the lease at that facility effective September 30, 2015. CCA performed an impairment analysis of the Leo Chesney Correctional Center, which has a carrying value of $4.0 million as December 31, 2015, and concluded that this non-core asset has a recoverable value in excess of the carrying value. CCA continues to market the facility to other customers. CCA considers the cancellation of a contract as an indicator of impairment and tested each of the aforementioned facilities for impairment when it was notified by the respective customers that they would no longer be utilizing such facility. Upon notification of cancellation by the respective customers, CCA concluded in each case that no impairment had occurred. CCA updates the impairment analyses on an annual basis for each of the idled facilities and evaluates on a quarterly basis market developments for the potential utilization of each of these facilities in order to identify events that may cause CCA to reconsider its most recent assumptions. As a result of CCA’s analyses, CCA determined each of the seven core assets to have recoverable values in excess of the corresponding carrying values. In the fourth quarter of 2014, CCA made the decision to actively pursue the sale of the Queensgate Correctional Facility, idle since 2009, and the Mineral Wells Pre-Parole Transfer Facility, idle since 2013. CCA reviewed comparable sales data and concluded that either the exit value in the principle market or comparable sales prices for similar properties in the respective geographical areas represented the fair value of these non-core assets. CCA determined the principle market for these non-core assets will be buyers who intend to use the assets for purposes other than as correctional facilities. The aggregate net book value of these facilities prior to the evaluation for impairment was $28.8 million and, as a result of the impairment indicator resulting from the potential sale of the facilities, CCA recorded non-cash impairments totaling $27.8 million during the fourth quarter of 2014 to write down the book values of the Queensgate and Mineral Wells facilities to the estimated fair values using Level 2 inputs for quoted prices of similar assets and assuming asset sales for uses other than correctional facilities. Sales In the third quarter of 2014, CCA entered into a purchase and sale agreement with a third party to sell its idled Houston Educational Facility in Houston, Texas for $4.5 million. The Houston Educational Facility was another non-core asset that was previously leased to a charter school operator. CCA closed on the sale during the fourth quarter of 2014. The net book value of this facility prior to the evaluation for impairment was $6.4 million and, as a result of the impairment indicator resulting from the potential sale of the facility, CCA recorded a non-cash impairment of $2.2 million during the second quarter of 2014 to write-down the book value of the facility to the estimated fair value using Level 2 inputs. The ultimate sale price was used as a proxy for the fair value of the facility. Construction of New Facilities In order to retain federal inmate populations CCA managed in the 1,154-bed San Diego Correctional Facility, CCA constructed the 1,482-bed Otay Mesa Detention Center in San Diego. The San Diego Correctional Facility was subject to a ground lease with the County of San Diego. Under the provisions of the lease, the facility was divided into different premises whereby, pursuant to an amendment to the ground lease executed in January 2010, ownership of the entire facility reverted to the County upon expiration of the lease on December 31, 2015. CCA completed construction of the Otay Mesa Detention Center for approximately $157.0 million and transitioned operations during the fourth quarter of 2015 from the San Diego Correctional Facility to the new facility. CCA transferred operations of the San Diego Correctional Facility to the County of San Diego by the lease expiration date of December 31, 2015. In November 2013, CCA announced its decision to re-commence construction of a correctional facility in Trousdale County, Tennessee. CCA suspended construction of this facility in 2009 until it had greater clarity around the timing of a new contract. In October 2013, Trousdale County received notice from the Tennessee Department of Corrections of its intent to partner with the County to develop a new correctional facility to house state of Tennessee inmates. In April 2014, CCA entered into an agreement with Trousdale County whereby CCA agreed to finance, design, build and operate a 2,552-bed facility to meet the responsibilities of a separate IGSA between Trousdale County and the state of Tennessee regarding correctional services. In July 2014, CCA received notice that Trousdale County and the state of Tennessee finalized the IGSA. In order to guarantee access to the beds, the IGSA with the state of Tennessee includes a minimum monthly payment plus a per diem payment for each inmate housed in the facility in excess of 90% of the design capacity, provided that during a twenty-six week ramp period the minimum payment is based on the greater of the number of inmates actually at the facility or 90% of the beds available pursuant to the ramp schedule. CCA invested approximately $144.0 million in the Trousdale Turner Correctional Center and construction was completed in the fourth quarter of 2015. Activations In September 2014, CCA announced that it had agreed under an expansion of an existing IGSA between the city of Eloy, Arizona and ICE to house up to 2,400 individuals at the South Texas Family Residential Center, a facility leased by CCA in Dilley, Texas. Services provided under the amended IGSA commenced in the fourth quarter of 2014, have a term of up to four years, and can be extended by bi-lateral modifications. The agreement provides for a fixed monthly payment in accordance with a graduated schedule. Under terms of the amended IGSA, ICE can terminate the agreement for convenience, without penalty, by providing CCA with at least a 90-day notice. In addition, terms allow for ICE to terminate the agreement with CCA at any time, without penalty, due to a non-appropriation of funds. ICE began housing the first residents at the facility in December 2014, and the site was completed during the second quarter of 2015. Under the fixed monthly payment schedule of the amended IGSA, ICE agreed to pay CCA $70.0 million in two $35.0 million installments during the fourth quarter of 2014 and graduated fixed monthly payments over the remaining months of the contract. As described in Note 2, CCA used the multiple-element arrangement guidance prescribed in ASC 605, “Revenue Recognition” in determining the total revenue to be recognized over the term of the amended IGSA. CCA determined that there were five distinct elements related to the amended IGSA with ICE. The lease revenue element, representing the operating lease of the site and constructed assets, was valued based on the estimated selling price of the land and building improvements provided to ICE and is recognized proportionately based on the number of beds available. The correctional services revenue element, representing the correctional management services provided to ICE, was valued based on the estimated selling price of similar services CCA provides and is recognized based on labor efforts expended over the contract. The food services revenue element was valued based on the TPE of the contracted outsourced service and is recognized proportionately based on the number of beds available. The educational services revenue element, representing the grade-level appropriate juvenile educational program prescribed under the IGSA, was based on the TPE of the contracted outsourced service and is recognized on a straight-line basis over the period educational services are required to be performed. The construction management services revenue element, representing CCA’s site development and construction management services, was valued based on the estimated selling price of similar services CCA provides and was recognized on a straight-line basis during the first seven months of the IGSA representing the period over which the construction activity was ongoing. During the years ended December 31, 2015 and 2014, CCA recognized $244.2 million and $21.0 million, respectively, in revenue associated with the amended IGSA with the unrecognized balance of the fixed monthly payments reported in deferred revenue. The current portion of deferred revenue is reflected within accounts payable and accrued expenses while the long-term portion is reflected in deferred revenue in the accompanying consolidated balance sheets. In June 2015, ICE announced a policy change with regards to family detention that has shortened the duration of ICE detention for those who are awaiting further process before immigration courts. In addition, numerous lawsuits, to which CCA is not a party, have challenged the government’s policy of detaining migrant families. In one such lawsuit in the United States District Court for the Central District of California regarding a settlement agreement between ICE and a plaintiffs’ class consisting of detained minors, the court issued an order on August 21, 2015, enforcing the settlement agreement and requiring compliance by October 23, 2015. The court’s order clarifies that the government has the flexibility to hold class members for longer periods of time during influxes of large numbers of undocumented migrant families via the southern U.S. border. After announcing its intention to comply fully with the court’s order, the federal government appealed and was granted an expedited briefing schedule by the Ninth Circuit Court of Appeals. Any court decision or government action that impacts this contract could materially affect CCA’s cash flows, financial condition, and results of operations. Other Leasing Transactions In October 2013, CCA entered into a lease for its California City Correctional Center with the CDCR. The lease agreement includes a three-year base term that commenced December 1, 2013, with unlimited two-year renewal options upon mutual agreement. Annual base rent during the three-year base term is fixed at $28.5 million. After the three-year base term, the rent will be increased annually by the lesser of CPI (Consumer Price Index) or 2%. As a result, CCA is recognizing rental revenue under ASC 840 on a straight-line basis over the expected term of the lease. The straight-line rent receivable was $3.3 million as of December 31, 2015, and is included in other assets in the accompanying consolidated balance sheets. CCA is responsible for repairs and maintenance, property taxes and property insurance, while all other aspects and costs of facility operations are the responsibility of the CDCR. CCA also provided $10.0 million of tenant allowances and improvements which is being amortized as a reduction to rental revenue over the expected lease term. During December 2013, CCA elected to terminate the lease from the City of Gainesville, Georgia, of the land and building at the North Georgia Detention Center and make replacement beds available at the Stewart Detention Center in Lumpkin, Georgia for the ICE detainees housed at the North Georgia facility. CCA reported an asset impairment of $3.8 million in the fourth quarter of 2013 primarily for renovations CCA made to the North Georgia facility, as well as $1.0 million of expenses associated with the lease termination. All of the detainees were transferred out of the facility and control of the facility was returned to the City of Gainesville near the end of the first quarter of 2014. Acquisitions On August 27, 2015, CCA acquired four community corrections facilities from a privately held owner of community corrections facilities and other government leased assets. The four acquired community corrections facilities have a capacity of approximately 600 beds and are leased to Community Education Centers, Inc. (“CEC”) under triple net lease agreements that extend through July 2019 and include multiple five-year lease extension options. CEC separately contracts with the Pennsylvania Department of Corrections and the Philadelphia Prison System to provide rehabilitative and re-entry services to residents and inmates at the leased facilities. CCA acquired the four facilities in the real estate-only transaction as a strategic investment that expands the Company’s investment in the residential re-entry market. The consideration paid for the asset portfolio consisted of approximately $13.8 million in cash, excluding transaction related expenses of $0.2 million. In allocating the purchase price, CCA recorded $13.4 million of net tangible assets and $0.4 million of identifiable intangible assets.

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- Definition The entire disclosure for real estate transactions including acquisitions, real estate closures and idle facilities, sales, construction of new facilities, activations, and other leasing transactions. + References No definition available. + Details
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