Good morning. My name is Lauren and I will be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to Corrections Corporation of America's Fourth Quarter and Full Year 2015 Financial Results Conference Call. All lines have been placed on mute to avoid any background noise.

After the speaker's remarks, there will be a question and answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Cameron Hopewell, CCA's Managing Director of Investor Relations. Mr. Hopewell, you may begin your conference..

Thanks Lauren. Good morning ladies and gentlemen and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer, and David Garfinkle, Chief Financial Officer.

During today's call, our remarks will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act.

Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our fourth quarter 2015 earnings release and in our Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.

You are also cautioned that any forward-looking statements reflect management's current views only and that the Company undertakes no obligation to revise or update such statements in the future. This call will include a discussion of non-GAAP measures.

A reconciliation of the most comparable GAAP measurements is provided in our corresponding earnings release and included in the supplemental financial data on the Investors page of our website at www.cca.com. With that, it's my pleasure to turn the call over to Damon Hininger..

Thank you, Cameron and good morning, to everyone and thank you for joining our call today. In addition to Dave and Cameron joining us we also have Brian Hammonds, who is our VP of Finance and John Ferguson, who is our Chairman of the Board.

I will touch on some key highlights which drove our fourth quarter 2015 financial performance and provide an update on development in our business since our last call in November.

Following my remarks, Dave will provide an in-depth review of our financial performance in the quarter and will lay out the details of our financial guidance for 2016 which was disclosed in our earnings release last evening.

In the fourth quarter we generated revenue of $448 million representing a 5.8% increase from the prior year period and normalized funds from operations of $0.63 per share, $0.03 above the high end of the fourth quarter guidance we provided in November.

Dave will provide a full overview of these metrics and the primary drivers of our financial performance at the conclusion of my remarks. Next, I'll provide an update on our recent facility construction projects before moving on to new contracts and updates on our acquisition of Avalon Correctional Services in October 2015.

We discussed on our third quarter call that the full transition of operations from the San Diego Correctional Facility to the newly constructed 1500 bed Otay Mesa Detention Center was temporary delayed in the third quarter resulting in a modest increase in transition related expenses to be recognized in the fourth quarter.

As an update prior to the end of the fourth quarter we successfully completed the full transition to the Otay Mesa facility and have transitioned the San Diego Correctional Facility back to the county and we are completing some final minor repairs.

We know that the additional 500 bed capacity at the new facility will be attractive long-term solution to our partners at the United States Marshals Service and Immigration and Customs Enforcement as they have historically expressed their need for the added capacity in this area.

In December we completed the construction of our 2500 bed Trousdale Turner Correctional Center in Tennessee and on-time completion of the facility allowed us to begin ramping operations in time to accept the first offenders from the state during the first week of January. The new facility is the fourth facility CCA operates on behalf of the state.

The contract called for a six month ramp schedule to achieve full utilization of the facility and as of today it is housing over 600 offenders.

Beginning in the fourth quarter of 2015 and continuing through the first half of 2016 we are ramping up staffing levels well in advance of increases in offender populations at the facility which has impacted our financial results in the fourth quarter and is included in our 2016 financial guidance.

Also in December we announced that the State of Arizona had awarded CCA a new contract to house up to additional 1000 State inmates at our Red Rock Correctional Center.

As we currently house approximately 1000 Arizona inmates at the 1594 bed Red Rock Facility we have begun expanding this facility to a total capacity of 2024 beds to accommodate the new contract.

We currently expect expansion project to cost between $35 million to $38 million and the facility to be ready to accept inmates under the new contract beginning in late third quarter or early fourth quarter of 2016.

We are extremely pleased to be selected by the state to help alleviate overcrowding in their state owned facilities and address their need for additional capacity.

At the end of October we announced the acquisition of Avalon Correctional Services a leading provider of residential re-entry services, constituting 3157 beds across 11 facilities in three states. This acquisition significantly expanded our residential reentry platform which now stands at 17 facilities with nearly 4400 beds.

We see additional opportunities to continue to expand our residential re-entry platform as we have developed a meaningful acquisition pipeline over the last few years. Most acquisition targets in this market are smaller in scale than Avalon transaction typically ranging between 200 to 600 beds.

However, we believe this portion of our capital allocation strategy will supplement our primary lines of business as the residential re-entry market is closely aligned with the services provided by our core business and CCA's commitment to provide evidence-based programs that help reduce recidivism.

Our government partners are seeking ways to help offenders better gain the tools and skills needed to return to their communities successfully which reduces recidivism and improves the quality of life for former inmates their families and communities and we believe we are positioning CCA to be the ideal partner to provide these solutions.

I will move next to discuss developments with our federal and state partners starting first at the federal level.

On December 18, Congress passed a final budget for the federal government's fiscal year 2016 which was ultimately signed into law and replaced with the temporary continue resolution which had maintained government funding at prior year levels for the first few months of the Government's fiscal year.

The final budget maintained funding levels for all contract bids at all three of our federal partners As for fiscal year 2017, President Obama released his budget proposal earlier this week.

This being his last budget proposal and it being a presidential election year, we would not be surprised that the congressional appropriations process bows down once again this year or. Barksdale once again this year or that congressional appropriators would make substantial changes and revisions to the President's request.

The appropriations process is likely to drive at the beginning of the fiscal year on October 1 with a continue resolution until after the November elections or possibly until after the inauguration of the new president in January.

As we have discussed on the last few conference calls, in November the Federal of Bureau of prisons released approximately 6000 offenders who received sentence reductions qualifying them for immediate release. This was a result of a change to the Federal Sentencing guidelines for certain drug trafficking offenses that were approved by the U.S.

Sentencing Commission in 2014. Most of these releases came from BOP operated facilities because these facilities continue to operate at near 120% occupancy levels. However, we did experience modest population declines for the BOP during the fourth quarter. As a reminder, the Federal Bureau of Prisons car '16 procurement remains outstanding.

This procurement is advertised for 10,800 beds which is for the renewal of existing contracts for a number of facilities operating in the State of Texas. CCA is currently operating under contract for one of these facilities our 1400 bed Eden Detention Center which have a contract running through April 2017.

We provided our initial response to the RFP in 2015 and believe we are well-positioned to compete for this award given the number of available stories included in our response. We expect this procurement to be highly competitive and anticipate an award announcement to come during the calendar year of 2016 with performance beginning in 2017.

Looking next at the United States Marshals Service, we experienced lower Marshals populations in the fourth quarter, both sequentially and year-over-year. Among other things, the United States Marshals Service has observed a substantial curtailing of number of prisoners received for prosecution.

And for 2016 we are forecasting [indiscernible] increases in system utilizations by the Marshals Service. Our populations from Immigration and Customs Enforcement in the fourth quarter remained relatively consistent with the prior quarter as we anticipated.

Our utilization of our South Texas Family Residential Center fluctuates regularly due to the shortened average length of stay at the facility.

The latest data issued by the Department of Homeland Security indicates the amount of apprehensions of unaccompanied minors and family units at the southern border is significantly elevated from prior year levels, suggesting a continued need for the safe, appropriate and humane housing we provide for these individuals at our facility.

I'd also like to provide an update on the ongoing legal proceeding related to the Federal Government's policies dictating family detentions.

As we discussed in our call in November a Federal District Court judge in California issued a final ruling in August which stated that ICE and DHS policies with respect to family detention violate the parameters of a 1997 legal settlement known as the Floors [ph] Agreement. Governing the way, DHS handles undocumented minors in its custody.

However, the judge's ruling provided a number of provisions which would permit families apprehended at the border to be processed at family residential centers like our South Texas Family Residential Center. In September 2015 DHS filed a notice of appeal to the judge's ruling.

Then in December the government filed a motion asking the Ninth Circuit to expedite the briefing hearing and consideration of its appeal due in part to the ongoing significant surge of accompanied and unaccompanied migrant children illegally crossing the southern border making an expedited resolution of the appeal imperative.

The Government's request for the appeal process to be expedited was granted by the court and an appeal could now potentially be heard beginning this spring. Ahead of the anticipated hearing, the Government filed its formal brief with the appellate court asking the court to overturn the initial ruling on January 15, 2016.

A response from the lawyers representing the plaintiffs is due by February 16, setting up the potential for a spring hearing of the appeal.

While DHS is seeking an appeal, operations at our South Texas Family Residential Center continue and our government partner continues to highlight the need for this facility as it provides high quality services in an open, safe and appropriate environment for the resident at the facility.

We continue to track progress of the appeal over next few months. Generally we expect 2016 to be relatively muted year in terms of opportunities with our federal partners aside from the opportunity with the CAR 16 rebid largely due to the Presidential election process.

History has shown that we rarely see significant policy decisions made by our government partners leading up to a change of administration as they await the direction of new leadership.

In addition, it is hard for us to see any dramatic changes this year because the position of Director for the United States Marshal's Service and the Director for the Bureau of Prisons are both vacant at this time and have individuals serving as acting leaders for these two agencies.

Looking next to update at the state level I will begin reviewing recent developments with California and outlook for utilization of our safe beds and continuing our lease at the Cal City facility. In January, Gov.

Brown issued the state's initial budget proposal for the fiscal year beginning on July 1, 2016 which included funding for out-of-state beds and the lease of our California City Correctional Center.

The governor clearly indicated the need to maintain at least 4900 beds out-of-state the target population for the out-of-state program at the end of the stated current fiscal year and maintain access to our Cal City facility in order for the state to remain in compliance with the court order population cap due to the safe projection for increases in offender populations.

Also in January the California Department of corrections and rehabilitation issued an update of future planning document which reiterated the governor's stated his intention to continue to use at least 4900 out-of-state beds and continue to lease our Cal city facility.

This update provided the department's latest projections for populations by security level which indicates that higher security level housing will be in shorter supply than lower security housing.

This is notable for us because higher-level security housing requires celled capacity which is the capacity that CCA provides through the out-of-state program and at our Cal City facility. An additional topic of discussion and report focused on the state's infrastructure needs.

This section indicated the majority of the permanent facilities are over 30 years old and require major repairs and capital replacements to continue to operate effectively.

As a result, the governor's budget includes additional funding for the completion of a study to evaluate the existing conditions at the state's prisons and the development of plans for renovation or replacement of facilities which could result in long-term for public-private partnerships.

In terms of state-level opportunities we continue to believe the State of Ohio will be soon issuing an RFP for the purchase of their North Central Correctional Institution in Marion, Ohio which is privately operated by MTC.

While the details of the RFP have yet to be released, it is expected to be an opportunity for ownership of the facility and MTC would maintain operations under their current contract.

We continue to pursue opportunities to assist federal, state and local partners in meeting the challenges facing their correctional systems and are actively marketing CCA's buildings to a number of potential partners. We will provide updates throughout the year should opportunities materialize.

With the first quarter and the full year 2016 guidance we have issued you can see that we expect some continued headwinds through the first half of 2016 predominately as a result of lower California populations on a year-over-year basis and startup related expenses at our new Trousdale Turner Facility.

However, we have better visibility of growth in the second half of the year due to the full ramp of Trousdale Turner Facility expanded that capacity at Otay Mesa facility, our new state contract with Arizona and a full year contribution from our recent acquisitions.

Our dividend yield is extremely attractive and our payout remains consistent with our capital allocation policies due to our continued cash flow generation and our access to capital provides us the capacity to capitalize on additional and future growth opportunities.

Now I'd like to turn the call over to Dave to review our fourth quarter financial performance and 2016 guidance in more detail.

Dave?.

Thank you, Damon and good morning everyone. In the fourth quarter, we generated $0.43 of adjusted EPS compared to our November guidance range of $0.39 to $0.41 and $0.04 ahead of the First Call Consensus estimates.

Normalized FFO totaled $0.63 per share, exceeding our November guidance range of $0.58 to $0.60 and AFFO totaled $0.58 per share ahead of our November guidance range of $0.54 to $0.56.

The adjusted or normalized 2015 results exclude $2 million of M&A expenses primarily incurred for the acquisition of Avalon Correctional Services which closed October 28, 2015, while the 2014 quarterly results exclude $27.7 million of asset impairment charges on two non-core assets.

The most significant factors affecting fourth quarter results compared with the prior year quarter include the decline and inmate populations from the State of California, refinancing short term debt with long term debt in the third quarter of 2015 and the previously announced termination of the contract with the Federal Bureau of Prisons at our Northeast Ohio Correctional center effective May 31.

The decline in California populations which were consistent with our projections contributed to a reduction in per share results by about $0.08 from the prior year quarter.

The negative financial impact of these events was mitigated by a full quarter of operations at our South Texas Family Residential Center with the contract commenced late in the fourth quarter of 2014. And an increase from the prior quarter and average daily populations from the State of Arizona by about a thousand inmates at our Red Rock facility.

The increase in populations at the Red Rock facility resulted from a new contract that commenced in 2014 as well as a short term contract that begin in July, 2015 and ended in December 2015.

Q4, 2015 includes approximately $0.03 in start up expenses incurred to prepare the new Trousdale Turner Correctional Center in Tennessee for the receipt of inmates which began last month and expenses for the transition of inmate populations from the San Diego Correctional Facility to our newly constructed Otay Mesa Detention Center.

These expenses were always included in our guidance. Operating margins declined from the prior year primarily because of necessary staffing required during the decline in California inmate populations and due to the transitional expenses incurred at the Otay Mesa Facility.

Our balance sheet remained strong with leverage of 3.5 times and fixed charge coverage of 8.7 times. At December 31 we had $65 million of cash on hand and $446 million of availability on our $900 million bank credit facility and no debt maturities until 2020.

As we look into 2016 now that construction of the Trousdale Turner and Otay Mesa Facilities is complete, the only substantial capital commitment we have is for the expansion of our 1596 bed Red Rock Correctional Center pursuant to a new contract that was awarded in late December 2015 from the State of Arizona for an additional 1000 inmates.

As we currently have approximately 1000 inmates at the facility pursuant to – were Arizona that commenced in 2014 we will be expanding the design capacity of the facility to 2024 beds at an estimated incremental cost of $35 million to $38 million including additional space for inmate reentry programming and support services.

Construction is expected to be completed late in the third quarter or early fourth quarter of 2016 at which time we expect to begin receiving inmates under the new award. The new contract contains an initial term of ten years with two five-year renewal options upon mutual agreement.

Moving next to a discussion of our guidance, as indicated in the press release, adjusted EPS guidance for the full year is a range of $1.76 to $1.84 while Q1 adjusted EPS guidance is a range of $0.37 to $0.39. Full year FFO per share guidance is a range of $2.54 to $2.62 and full year AFFO per share guidance is $2.47 to $2.55.

As you may recall from prior years Q1 EPS is seasonally weaker because approximately 75% of our unemployment taxes are incurred during the first quarter resulting in a $0.03 decline from Q4 to Q1.

We also expect an operating loss during the first quarter of about a penny per share during our ramp of the Trousdale Facility turning profitable by the end of Q2. Therefore our earnings are somewhat backend loaded as we ramp up the Trousdale Turner Correctional Center during the first half of 2016.

We will also incur modest startup expenses in the third quarter for the new contract at Red Rock amounting to approximately one penny per share. We are projecting relatively stable inmate populations from the State of California declining slightly from current levels and averaging just under 5000 inmates for the year.

This projection is consistent with the State's draft budget and updated report of inmate population projections released by the State last month. As a reminder, we have a contract with the State of California for up to 6562 inmates expiring June 30, 2019 should they have the need for additional inmates over that time period.

The contract also includes renewal options to extend beyond the expiration by mutual agreement. Our guidance does not include any new contract awards or any contract loses. Finally, although we continue to pursue a number of attractive investment opportunities our guidance does not include any new M&A activity or capital markets transactions.

The magnitude and timing of our M&A activities is difficult to predict and therefore we will update our guidance on a quarterly basis if and when we successfully complete such transactions.

As we discussed last quarter, we completed a number of refinancing transactions in the third quarter of 2015 that positioned us to take advantage of investment opportunities that we identified. Then on October 28, we closed on the acquisitions of 100% of the stock of Avalon along with the facility operated by Avalon.

On November 4, we closed on the acquisition of the last facility Avalon operated. These transactions added 11 community corrections facilities containing over 3,100 beds in three states at an aggregate purchase price of $157.5 million including two earn outs that we expect to be achieved.

The integration is substantially complete and we continue diligence on our acquisition pipeline. Absent additional M&A activity any capital markets transaction s we execute would be opportunistic.

Once again we have provided EBITDA guidance in our press release which enables you to calculate our estimated effective income tax rate and provides you with our estimate of total depreciation and interest expense for both the first quarter and full year. We expect G&A expenses to be between 5.5% and 6% of total revenue.

Finally each quarter we review with our Board our dividend levels and our dividend policy as part of the quarterly dividend declaration process. The next Board meeting is scheduled for February 19. We are certainly comfortable with our current dividend level.

Our discussion with the Board of our future dividends will include factors such as our forecasted AFFO payout ratio, the trajectory of our quarterly cash flows and opportunities to deploy capital into new investments including our M&A pipeline.

Our press release is expected to be issued shortly after that meeting announcing the amount of the next quarterly dividend that would be paid in April. I will now turn it back to Damon before opening up for questions..

Thank you, Dave. So before we open it up for questions, I just wanted to make a comment about our Chairman of the Board, John Ferguson.

As you all know as shareholders, John has announced his retirement this spring and I wanted to just to say that he is an individual that came to us almost 16 years ago, we had the company, really that challenging situation really where company was in a ditch and we had our employees, myself included had lost confidence in what we do and what we provided a solution that would be attractive going forward with all the turmoil going on with the company.

So he came up into the organization and quickly restored the confidence of the employees, but also went about the business restoring trust with our investors and with our partners and I clearly can just tell you that over the last 16 years we wouldn’t be the company we are today without John’s leadership.

To John, he is a mentor, he is an advisor, but he is really someone I’m honored to call as a friend. So John I appreciate all your leadership over the last 16 years and really wish you very best wishes in the next chapter of your life..

Thank you, Damon..

So with that, we will now open the lines for questions from our investors and analysts. Thank you..

Thank you, sir. [Operator Instructions] Our first question comes from Kevin McVeigh with Macquarie..

Great, thank you and congratulations John as well.

Hey Damon, is there any way to size what the potential opportunity could be on the residential reentry coupled with just the County opportunities relative to the core business as we think about the over the next kind of three to five years if you would?.

Good morning Kevin, so a couple ways to answer that. Let me first on the residential reentry side, so as we’ve tried to explain to investors there is a lot of great operations going on today that are locally owned kind of mom and pop operations maybe with one or two facilities and so it’s very fragmented.

And so our strategy on growing into this market really is going to be an acquisition strategy, it’s not going to be a development strategy.

So the outlook during the course of this year, I wouldn’t be surprised if we have one, two, maybe three companies that we buy again in that range of beds, I mentioned earlier, kind of 200 to 600 beds during the course of 2016.

I feel like that is probably pretty good cadence for this year, and maybe for the next couple of years as we think about acquisitions in that part of the market.

For the local market, I think you’re referring little bit to the opportunities of providing the real estate solutions so local jurisdictions, that market continues to be very interesting to us, we are seeing more and more local jurisdictions kind of grapple with age infrastructure, being over crowded, maybe their system is not right-sized, they have got a main jail and annex that the can excess they can consolidate and get some efficiency.

So we’ve got, I'd would say about a handful of jurisdictions that have expressed interest to us for us to come in and provide a solution and be kind of a real estate partner as they think about continuing the operations themselves..

Got it.

And then just in terms of is, we kind of transitioned through presidential cycle, any maybe not necessarily procurements, but how does that impact ongoing operations, would it be where you get a series of just extension to existing budget to keep facilities going or how does that work?.

Yes if I was going to look into the crystal ball, I think what we’re going to probably see for the coming fiscal year at the federal level, so that starts on October 4 as you know that likely they will do continued resolution, Congress and Federal continued resolution which basically funds the government at levels of the previous fiscal year, so no increases, no decreases basically on par with the previous fiscal year.

And as I said earlier, my guess is that that continued resolution goes past at least the elections, but I think there is a pretty good chance also since we are also going to have a change in the administration [ph] ratio so that it goes into January and February until the new President is inaugurated.

So my thinking is from kind of October 1 continued to January and February, it’s kind of straight funding from the previous year and no road changes relative to contracts and new contracts also..

Got it, thank you..

You bet, Kevin. Thank you..

Our next question comes from Michael Curtis with Canaccord Genuity..

Hey good morning guys.

And thanks for taking my questions here, just first off on the public private partnerships, I was wondering if you could just give a little bit more color on what that opportunity would look like more from a size perspective? And then also just kind of what jurisdictions maybe you’re looking at that type of arrangement? Thanks..

Regards and good morning, this is Damon. We’ve got a couple of jurisdictions that are not public and it’s hard also to put a number to it.

The first part of your question, again I go back to California, so you got a State that has got over half of their systems that are operated facilities that are 30 years old or older and so the opportunity is that they think about how they deal with that aging infrastructure probably inefficiency from a staffing and operations perspective and a lot of dollars being appropriated for CapEx, is it an opportunity to work with the private sector to be a real solution, so only a couple of states are looking at that.

As I mentioned earlier have a lot of interest on the local level, so as I think about kind of the total opportunity providing real estate solution, I would say it is probably more predominant in local level than it is at the state level over next couple of years..

All right, that is helpful.

And moving on to sensing reform, are there any jurisdictions which you guys operate in where you’re seeing more threat than others or maybe even looking to get into just kind of what are you guys seeing in there?.

California has been most notable and you know the history there. There has been a lot of changes over the last couple of years and as I look at the rest of the United States, a little I would say tweaks and changes over some states versus others.

Texas probably is another good example about four, five years they did make some meaningful reforms within their State and affected their population. But as I think about 2016 we’re not really seeing or hearing a lot of activity and I think that’s kind of goes back to being a year of National Election.

So I think both at the State level and at the Federal level I don’t think you’re going to see any rules kind of sweeping efforts on policy not just in criminal justice.

I think anything that is controversial or going to require a lot of discussion and the debate, I just don’t see a lot of that activity in 2016 until the election is finalized and we've got a new President in the White House in 2017..

Yes fair enough, that makes sense too.

And then just on the election, have you guys met with any of the campaigns to kind of discuss their views on sentencing reform or general criminal justice platforms and maybe what that would look like for either you guys or just the private industry in general?.

No we have not and wouldn’t really be appropriate of course we’re in the middle of primary season, so you got two candidates on the democratic side, many candidates on the Republican side, so as the primary process kind of work through the course and you get a nominee on both Democrats and Republicans if appropriate we may educate a little bit their campaigns on what we do but it wouldn’t be appropriate right now since you’re in kind of full swing with the primary season.

And I would also say, lot of these candidates John Casey of Ohio who is Governor, a lot of these candidates know the value proposition and the work we do already and aware of our track record and quality of our operations.

So part of these candidates are up the learning curve in a fairly meaningful way about CCA and what we do with the respective jurisdictions..

Any thoughts on Bloomberg’s track record financials?.

I do not, I am aware obviously if will see it is tenure as Mayor in New York and nothing I could share as an opinion or thought or a view Robert [indiscernible] candidate..

Fair enough, fair enough and then just one more for me here, so on the Dallas transitional center we are just trying to get an idea of when that would be completed exactly how many beds that would be and then just kind of the timing of that $5.5 million earnings payout?.

Yes, I will take that one Michael. The facility was actually completed in December with the exception of some punchlist items, so we actually transitioned populations over from the least facility in Dallas to the newly constructed facility.

That is about 300 beds, so all the inmates have transitioned over and really I think all we have now are some punchlist items and a finalization of the cost before we ultimately make that better earn out payment, but I would expect to make that earn out payment later in the first quarter certainly by early second quarter..

All right, I appreciate all the color guys. Thanks..

Thanks Michael..

Our next question comes from Tobey Sommer with SunTrust..

Thank you. Do you consider local business as attractive as State and Federal businesses in terms of contract length, durability of demand and the population outlook in pricing? A - Damon Hininger Tobey, good morning, it is Damon..

Good morning..

And the short answer is yes, depends on the jurisdiction and exactly what kind of solution they were providing. But if we've got a jurisdiction that is looking for real based solution clearly the solution we potentially bring is the only solution and they’re interested in say a long-term lease where they’re the operator and we’re just the landlord.

And yeah, I think that could be very attractive to us and again I think that the agreement we worked out at the State level, State of California and talked about with some up-states like Ohio, again I think that type of agreement and that type of relationship and to your question durability of the agreement, portability of the opportunity or durability of the opportunity could be very attractive..

Okay. Could you refresh us on the dividend payout ratio target and where you stand with that relative to the 2016 guidance for backend loaded, I’m just trying to get a sense for what how the board may look at things soon? Thanks..

Sure, I will take that one, yes when we convert it to a REIT and throughout 2014 and 2015 we have announced kind of a targeted AFFO payout ratio of around 80%. The 2016 guidance is around 86%, but as I mentioned in my comments our 2016 results are somewhat backend loaded, we’re a little bit north of 80% for 2015, I think it was on 83%.

So as we exit 2016, I would expect us to be back below that 83% AFFO payout ratio, if you are looking on a quarterly basis. So it has ticked up a little bit really because of the decline in California populations, but certainly comfortable at that AFFO payout ratio and the current dividend levels.

So I think really the discussion with the Board will be, what is the optimal timing for a dividend increase given the trajectory of our cash cash flows and alternative uses of capital..

Thanks.

To follow up on another question, previous question on your revenue mix shift as you grow in I guess acquire non-correctional businesses are you targeting size or a percentage of sales over time?.

Not sure if I'm following completely your question Tobey but the acquisition opportunities primarily we think it's on the residential reentry and you've got to have the kind of parameters and also kind of the size that we think that we typically could have during the course of this year and in the coming years.

And so that's really kind of been our focus, there could be additional acquisition opportunities outside that business most notably that [indiscernible] talked about coming in Ohio where we could acquire a state owned asset. So it could be some opportunities like that, that I'd say really kind of fits in those kinds of two buckets..

Yes I'd say we certainly see more rapid growth in the residential reentry center business from a macro perspective now there are pockets of exceptions like our contract in December with the State of Arizona so that could create some fluctuations.

But I think if you look at the country as a whole the residential reentry center business the populations are growing and the bipartisan support is more toward the residential reentry center business and hence that's our reason for pivoting in that direction..

Yes, one more thing to that Tobey is that the Avalon that we acquired is 11 facilities in three states.

A majority of those operations are in Texas and so Texas is one of those states that I mentioned earlier, they have done some meaningful reforms in their system on sentence reductions and early releases, so it is effective there total prison population pretty meaningful in the last couple of years, but on a parallel path if you go back to 2005 there amount of hedge used in reentry facilities has grown by 50%.

And so that was a state that clearly sees the value of reentry facilities, wants to do more, has done more and so that was one part of our strategy going after Avalon since they have a big part of their footprint operationally in Texas taking advantage of those opportunities in Texas provides additional solutions..

Okay, thank you.

I guess what I was getting at is are you targeting a percentage of sales maybe to expand that business or you mean could it be 10% or 15% or 20% of sales at some point down the road or it is a small opportunity?.

We really haven’t set a number to it. It is really more opportunistic on the acquisition side. We've put a lot of feelers out. We've had a lot of inbound interest. So I think it really is just going to be a case of we find the right time to make sense for us and the shareholders to make those acquisitions.

So it's hard I think to put an exact number during a course of say a 12-month period or a couple of year period..

We're taking a look we're just looking at the percentage of sales, we're obviously focused on the bottom line. So we're certainly not going to grow the business just to grow the top line, but we'll be judicious and prudent in trying to capture the bottom line opportunities..

Okay, strategically is there an advantage to having these lines of business kind of side by side in one organization?.

Yes, there is a lot to that, again go back to Avalon, I mentioned part of the strategy was because of the opportunity and in the State of Texas. Another part is the benefit and the attractiveness to us is that we already had relationships in Oklahoma and Texas, so they know us. They had confidence in us.

So I think that is providing some consistency in operations between the other facilities and our facilities I think is attractive to our partners. And it is also great benefit to the employees.

So you got Avalon who had 400 employees and now they are part of a family with 15,000 employees so they are excited about the prospect of being part of the company in 20 states and clear opportunities and so we think that also can create a little bit of kind of retention and turnover in a positive way at those facilities because they are part of our big organization with more clear advancements.

So, yes lot of benefits we saw for customers and for the operations and for our employees..

And my last question is just kind of a broad one on competition, is there a different set of competitors or a changing competitive landscape as you are looking at different opportunities including sort of the real estate solution at the local level? Thanks..

No, I would say not the GEO of course had competed with us on Arizona and so I think kind of in the core business I think the landscape has not changed that much. MTC is still obviously a very important competitor within the industry.

But on the real estate side now GEO has done some work recently, most notably the Montgomery County in the State of Texas which is a solution like that. So no, I wouldn’t say that the landscape or the competition changes dramatically for those type of solutions..

Thank you, very much..

Oh sorry Tobey, thank you..

[Operator Instructions] Our next question comes from Andrew Berg with Post Advisory Group..

He guys, I just want to go back to startup costs related to both San Diego and Trousdale you just confirm how much was the impact in 4Q and how much is the expected impact in the guidance numbers for 2016 on an actual dollar basis?.

Yes, I'll take that one, this is David. There were three sets in Q4 and we have about a penny in Q1 of cash flow drag. I mean, at some point I'm not sure when startup becomes ongoing operations, but at Trousdale facility we've begun taking in inmates from the State of Tennessee, but it will be a cash flow drag of about a penny in Q1.

Likewise at Red Rock we've already got staff there and an inmate population at our Red Rock facility, but it will, because we'll have to hire staff in advance of the inmates coming in late Q3 or early Q4 that will generate about a penny drag in cash flows in Q3..

Okay and then the $0.03 is Trousdale or $0.03 was San Diego?.

In Q4 it was probably $0.02 Trousdale, $0.01 for Otay Mesa, so a total of three..

Got it, okay, perfect thank you..

Welcome..

It appears there are no further questions at this time. Mr. Hininger, I'd like to turn the conference back to you for any additional or closing remarks sir..

All right, thank you very much and to all of our investors, thanks for calling in today, but more importantly, thank you for your investment in CXW and we are looking forward to reporting our progress during the course of 2016, so thanks again. Enjoy your day..

This concludes today's conference. You may now disconnect..