Prisons’ Dilemma

October 20, 2009

Pershing Square Capital Management, L.P.

Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates have invested in common stock and total return swaps on Corrections Corporation of America (“CXW”). Pershing Square manages funds that are in the business of trading – buying and selling – securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding CXW. Pershing Square may buy, sell, cover or otherwise change the form of its investment in CXW for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

Corrections Corporation of America
Corrections Corp owns and operates private prisons Owns the land and building at most of its facilities
Ticker: “CXW” Stock price: $24.50 (1)

Largest private prison company Fifth largest prison manager behind California, the Bureau of Prisons, Texas and Florida

Capitalization:
Enterprise value: $4.1 billion Equity market value: $2.9 billion

Recent valuation multiples:
’09e Cap rate: 12.2% ’09e P / Free Cash Flow Per Share: 13.3x
1) All financials in this presentation assume a share price of $24.50.
2

Overview of CXW
CXW operates its business in two segments: Owned & Managed Facilities and Managed Facilities

Owned & Managed Facilities
■ CXW owns the land and building for the vast majority of its owned & managed facilities ■ 44 owned & managed facilities ■ 61,054 beds ■ ~35% Facility EBITDA margin ■ High-multiple, high-margin business

Managed Facilities
■ CXW operates facilities on the government’s behalf, but does not own the underlying property ■ 20 managed facilities ■ 25,916 beds ■ ~14% Facility EBITDA margin ■ Subject to higher competition

~90% of Facility EBITDA
________________________________________________

~10% of Facility EBITDA

Note: Facility EBITDA is before G&A.
3

4 .Strong National Footprint ________________________________________________ Source: CXW investor presentation. Aug. 2009.

the District of Columbia and multiple local agencies Other States Alaska Arizona Hawaii Kentucky Minnesota Oklahoma Vermont ________________________________________________ Source: CXW investor presentation.Tenants Unlikely to Default CXW provides services under management contracts to all three federal agencies. 19 state agencies. Aug. 2009. 5 .

controlling approximately 46% of the private prison and jail beds in the U. ________________________________________________ Source: CXW investor presentation. Spare Capacity (includes development projects not yet completed) He who has the beds gets the prisoners NA ~12.000 ~2. 6 .Market Leader CXW is the clear leader in privatized prisons.000 ________________________________________________ ~7. Aug. 2009.000 NA Source: Company filings and Pershing Square estimates.S.

2009.000 today (17% CAGR) ________________________________________________ Source: Bureau of Justice Statistic: Prison Inmates at Midyear 2008. of which only ~8% is outsourced. Privatized beds have grown from nearly 11.Large and Under-penetrated Market CXW addresses a total U.S. market that exceeds $65bn. Aug.000 in 1990 to over 185. CXW investor presentation. 7 .

Supply / Demand Imbalance Public-sector correctional systems are currently operating at. 2009. or in excess of. facilities are running at 170% of designed capacity 8 . Across the state of California. design capacity ________________________________________________ Source: CXW investor presentation. Aug.

9 . 2009. Aug. Private CXW has historically outperformed the public sector in safety and security ________________________________________________ Source: CXW investor presentation.Competitive Advantage: State vs.

10 .Competitive Advantage: State vs. States vary widely.5 yrs <$70k ~$16k New ________________________________________________ (1) Source: 2007 Pew Charitable Trusts report – “Public Safety. Private (Cont’d) As a private company. Public Spending – Forecasting America’s Prison Population 2007 – 2011. California had a $34k annual operating cost per inmate in 2005. for instance.” Annual Operating Cost per Inmate for the year 2005. CXW has cost and efficiency advantages compared with its largest competitor State / Federal Lead Time for Prison Build Cost to Build / Bed Annual OpEx / Inmate (1) Average Age of Facility Private 5 to 8 yrs ~$100-$150k $24k Old ~1.

Increasing Market Penetration Because of constraints in new public prison construction. private prison operators were able to capture 49% of the incremental growth in U. inmate populations in 2007 11 .S.

have grown regardless of economic factors 12 .S.Historical Prison Population Growth Historically. inmate populations in the U.

Prison Populations Expected to Rise 13 .

with just over 12. Immigration and Customs Enforcement (“ICE”) detainee populations have grown by over 300% to ~35. Assumes the shift from 137% to 115% takes place over the next three years. with a stated desire to operate closer to 115% The BOP projects that between 2008 and 2011 its population will grow by ~19.000 15.000 inmates from 2008 to 2011 but has only planned the development of ~12.000-65.000 7. Source: BOP website.000 beds.000 50. The BOP projects its inmate population will grow by ~19.000 and has grown 8%-10% per annum over the last five years Since 1994.000 inmates. 2009.000 bed inventory over the coming years The Federal Bureau of Prisons (“BOP”) is currently operating at 137% of rated capacity.Federal Demand Drives Growth Federal demand alone could fill CXW’s ~12. Federal Demand as % of Inventory Capture Rate Required to Fill Inventory ________________________________________________ (1) (2) Beds 28.572 beds not yet developed.979 417% 24% (3) (4) Based on 172. Assumes ~5% growth of USMS / ICE inmate populations over the next three years.000 14 Federal Demand Drivers BOP: Shift from 137% to 115% capacity (1) BOP: Undeveloped growth (2) USMS / ICE (3) Incremental Federal Demand CXW inventory (as of 8/1/09) (4) Incr.827 inmates in BOP facilities as of 9/26/09.000 11. .000 new beds planned for development by 2012 The United States Marshals Service (“USMS”) has a population of about 60. Aug. Includes 2. Source: CXW investor presentation.

” – Damon Hininger. CEO.State Demand Drives Growth State prison populations are projected to increase by more than 90. we are currently estimating that those states will have an incremental growth that will be twice as much as their funded plan capacity by 2013.000 over the next three years. Q1 Earnings Call 15 . If CXW can capture ~13% of this demand. it could achieve 100% occupancy “Of the 19 state customers that CCA does business with.

Source ('08-'12): In 2007.9 86.5% 159 4.3% 1.000 prisoners by YE 2012.0% 3.4 90.4 87.5% 2005a Potential Growth Opportunity 2006a 2007a 2008a 2009e 2010e 2011e 2012e We estimate CXW’s owned beds represent >40% of the industry’s spare capacity Incremental CXW Beds (Owned) 1.655 1.0% 3.2% 9.580 2.627 3. Excludes juvenile. This analysis assumes an incremental 140.S.5 98.000 prisoners by YE 2011.7% 8.4 Occupancy (Owned) 90.0 88.6% 7 18.7% 139 10. Private prison operators captured 49% of the growth in 2007 as state budget pressures have postponed new prison construction (Beds in thousands) 2004a Market Analysis Total Inmate Population (MM) (1) Growth Private Inmate Pop'n (000s) (2) Growth % Private Incremental Private Inmates Incremental Total Inmates Private Capture Rate (2) Incremental Private Inmates CXW Capture Rate (Owned only) 1.701 1.5 98.8% 35 25.0% 6.1% 107 5.2% 33 21.3% Potential upside to our estimates (1) Source ('04-'07): Bureau of Justice Statistics and Office of Detention Trustee Statistics.5% 1.1% 13 33.2% 26 25.3 88.0% 126 10.760 1.9% 168 5.4 94.7% 2. Pew Charitable Trust estimated there will be an incremental 153.0% 8 40. (2) Source ('04-'07): Bureau of Justice Statistics and Office of Detention Trustee Statistics.6% 4.3% 9.8% 7. inmate population.726 1.0% 2.0% 9 40.4 93. Excludes juvenile.1 93.0% 177 5. Assumes 35% private capture rate in 2008 and 25% private capture rate going forward.7% 7.9% 4.0% 6 40.3 91.4% 4.0% 6 40.5% 1.5% 1.5 98.5% 1.9% 32 16.1 93.2% 3.5 95.8% 22 35.0% 24 25.6% 1. CXW should achieve >98% occupancy in its Owned & Managed business by 2012.4 94.1% 9.3 88.7% 1.6% 8.2% 114 6.3% Memo: Pershing Square Forecast Incremental CXW Beds (Owned) Occupancy (Owned) 1.4% 27 49. jail and ICE population.6% 3.4% 153 4. 16 .6 89. jail and ICE population.795 2.6% 1.7% 48 25.0% 2.1% 5 27.5% 12 33.5% 3.8% 2.3% 1.677 1.Supply / Demand Imbalance Drives Growth If private prisons can capture just 25% of the incremental growth in the U.2% 9.0% 8 43.9% 1.546 2.3% 147 5.6% 4.0% 1.5% 34 25.

recidivism rates drive post-recessionary inmate population growth Of 300.Near-Term Catalysts: Post-Recession Growth Inmate populations have historically grown at an accelerated rate after recessions Increased crime during times of economic weakness and high U.S.000 prisoners released from 15 states in 1994.5% were rearrested for a new offense within three years (1) 17 . 67.

CXW management estimates its inventory of existing beds could generate an additional ~$100mm of EBITDA ________________________________________________ Source: CXW investor presentation. 18 . 2009. Aug.Near-Term Catalysts: Increased Occupancy Drives EBITDA At current margins.

88 (32.0% Implies ~$100mm of incremental EBITDA Implies ~$230mm of incremental EBITDA While this contribution margin analysis implies $230mm of incremental EBITDA. and therefore do not yet have associated fixed expenses.68) $23. (3) This analysis is illustrative. approximately 84% of the costs in CXW’s Owned & Managed Facilities segment are fixed CXW Facilities (Owned-only) Revenue per man-day Less: Fixed expense per man-day (1) Less: Variable expense per man-day (2) Facility EBITDA per Man-Day Margin Contribution Margin Analysis: (3) Revenue per man-day Less: Variable expense per man-day Facility EBITDA per Incremental Man-Day Contribution Margin Q2'09 $66. See page 33 of the CXW investor presentation for details of the assumptions used to derive management’s ~$100mm estimate. food. .88 (10.20 84.68) $56. We note that there will be some amount of incremental fixed expense associated with the ramp-up of CXW’s inventory as staffing requirements increase with occupancy. medical. repairs & maintenance and other similar expenses. property taxes. we believe the actual number will be somewhere between $100mm and $230mm ________________________________________________ Source: CXW Q2’09 financial supplement.74) (10. insurance.1% $66. (2) Includes legal.46 35. however. Also includes utilities. (1) The vast majority of CXW’s fixed expense is labor.Near-Term Catalysts: Operating Leverage Management derives its ~$100mm estimate by applying CXW’s Q2’09 margin to the lease-up of its existing inventory. 19 We further note that some of the beds in CXW’s inventory have not yet been developed. welfare and other similar expenses.

0%) 20 .6 21.6%) Q309e 117.3 (7.3%) Q409e 117.5 Quarter Ended.09 $15.0 $25.7 $16.4%) Q209a 115.1 1.4 87.61 $11.5 Q308a 126.4 8.5% of total shares) provides a tailwind for NTM free cash flow per share growth Recent Share Repurchases Timeframe November through December 31 January through February February through May Total Memo: Remaining Buyback Authorization Shares (mm) Amount (mm) 1.68 Q108a WASO Growth (YoY) 126.7 million shares in Q4 ’08 – Q2 ’09 (~8.2 10.7 (8.Near-Term Catalysts: Stock Buyback CXW’s repurchase of 10.3 (7.1 Q208a 126.0 $125. Q408a Q109a 126.1 120.29 $10.6 (4.0 Per Share $15.

2009.84 $0.53 $0.00 2003a 2004a 2005a 2006a 2007a 2008a $1.20 $1.40 $1.61 $0. depreciation expense meaningfully exceeds maintenance capex.Strong Free Cash Flow Generation Because prisons are made of concrete and steel. Aug.60 $1.00 $1. CXW’s free cash flow per share is substantially greater than earnings per share $2.80 $1.00 $0. As a result.40 $1. .64 $0.20 $1.86 $1.60 $0.80 $0.73 $1.06 $0.59 $0.40 $0.40 $0.07 Diluted EPS ________________________________________________ Normalized FCFPS 21 Source: CXW investor presentation.20 $0.

4x. CXW’s interest coverage ratio was 5.Strong Balance Sheet As of Q2’09. Its next debt maturity is not until 2012. Aug. 2009. Its cash interest expense is less than 6%. 22 . and more than 80% of its debt is fixed rate ________________________________________________ Source: CXW investor presentation.

Aug. 23 .High Returns on Capital ________________________________________________ Source: CXW investor presentation. 2009.

(2) William Rusak was succeeded by Brian Collins on September 14.295 144.410 1.166 97. Overby John R. Deems shares that could be purchased upon exercise of stock options as shares outstanding.124 5. Ferguson Donna M. 24 . Joseph V. Prann.934 83. Alvarado Lucius E. Seiter William K. Burch.500 100.012 shares outstanding as of March 1. Jr.998 47.453. (1) Includes shares that could be purchased upon exercise of stock options at March 1.489 134.282. (3) Based on 117.984 6.232 352.700 72. 2009. 2009 or within 60 days thereafter. Andrews John D.4% Source: CXW March 31. Puryear.Culture of Equity Ownership Board and management own more than 6 million shares of CXW (1) Name of Beneficial Owner William F.523 1. Jr. Wedell Damon Hininger Todd J.742 91.308 5. Russell Henri L.920 20. Mullenger G.377.072 159. Michael Jacobi Thurgood Marshall. III John D.284 87.A.916 1. Horne C. Rusak (2) All Directors & Exexutive Officers as a Group Percent of Common Stock Beneficially Owned (3) ________________________________________________ Title Director Chairman Director Director Director Director Director Director Director Director Director Director Director Chief Executive Officer Chief Financial Officer General Counsel Chief Corrections Officer Chief of Human Resources Total Beneficial Ownership (1) 525. 2009.711. IV Richard P. 2009 proxy and Bloomberg. Charles L.455 50. Correnti Dennis W. DeConcini John R.681.

Valuation .

73 23.340 88.2x 12. 26 .Maint Capex Margin 359 22.763 63.5% 362 22.50 117 $2.650 3.868 61.3% 419 24.657 445 12.212 (28) $4. Assumes CXW uses future free cash flow to repurchase shares at a premium to market.84 6.6x 2011e 8.3x 2010e 9.828 6.218 63.CXW Capitalization and Multiples CXW trades for ~13x free cash flow per share or at an implied cap rate of 12.6% Cap Rate Analysis TEV Less: Mgmt Business (1) PropCo TEV 2009e NOI (owned only) (2) Cap Rate $4.34 19.7% 12. except per share data) Capitalization Share Price FDSO Market Cap Plus: Debt Less: Cash & Equivalents TEV $24.1% 514 28.2% (US$ in mm.3% 518 26.873 1.4% $1.Maint Capex Implied Cap Rate P / Normalized FCFPS 10.9% $2.9x 12.2% EBITDA Margin 395 24.057 Summary Financials 2008a Avg Occupied Beds (owned only) Avg Total Beds (owned only) Occupancy (owned only) Revenue Growth 2009e 52.626 91.8x 9.5% $1.6% 8.0% 372 21.4% 2011e 58.0% $1.3% 462 25.7% 51.5% $1.2% 2010e 54.90 23.6x 15.0x multiple to Facility EBITDA from the management business.8% 14.626 95. NOI is defined as Facility EBITDA from CXW’s Owned & Managed segment (“owned only”).7% 470 24.043 86.1% NOI (owned only) (2) Margin 431 27.9% $2.723 4.3x 11.7% 402 24.8% Trading Multiples 2008a TEV / EBITDA TEV / EBITDA .6% $1.5x 2012e 7.3x 11.3% Normalized FCFPS (3) Growth $1.95 5.599 8.8x 14.889 62.5% $1.990 94.8% EBITDA .932 5.7x 10.6% $1.0% 467 27.1% 2012e 60.8x 8.6% 414 22.5x ________________________________________________ (1) (2) (3) Applies an 8.0% 10.2x 2009e 10. Assumes a 38% cash tax rate.0% 445 27.1x 11.057 (400) $3.2% 13.1% 571 29.005 53.

000 $35.464 59.000 $45.000 $95.000 $65.1 27 126.909 53.681 48.000 $24.5 120.000 $75.6 126.000 $55.7 .184 61.933 50.3 125.000 Jan-07 Jul-07 Feb-08 Stock Price Sep-08 TEV / Bed Mar-09 Oct-09 Owned & Managed Available Beds 46.054 Weighted Average Shares Outstanding 125.6 115.Historical Stock Chart $35 $30 $105.50 $25 $20 $15 $10 $5 $0 $85.

9% 28 89. Pershing Square estimates. .1% Source: Capital IQ.5x 9.Opportunity for Multiple Expansion CXW’s earnings quality has improved since 2007 as its Owned & Managed segment now accounts for more than 90% of Facility EBITDA TEV / Forward EBITDA 14x 11x Pre-Lehman Average: 11.8x 8x 5x Jan-07 Jul-07 Feb-08 Sep-08 Mar-09 Oct-09 Owned & Managed as % of Facility EBITDA (TTM) 85.1% 88.9% ________________________________________________ 87.6% 90.8% 89.

and enjoys excellent competitive dynamics – all features of a high quality real estate business .Key Attributes of Corrections Corp Principal Asset Primary Tenant Growth Opportunity Maint Capex as % of Revenue Tenant Allowances Return on New Development Competition for Existing Units Competition for New Construction Cyclicality Real Estate Government Secular ~2% None High Local Monopoly Oligopoly Low 29 CXW has creditworthy tenants. requires limited maintenance capex.

(2) Maintenance capex is low for health care REITs due to the triple-net leases associated with senior housing. 30 (1) We define typical health care REITs to include senior housing. hospitals and life sciences. MOBs. skilled nursing. .5% Aging baby boomers provide secular tailwind None Low Oligopoly Local Monopoly Minimal Low Medium Senior Housing: High MOBs / Hospitals: Local Monopoly Skilled Nursing / Life Sciences: Medium >12% ~7% Source: Green Street research and Pershing Square estimates. skilled nursing and hospitals.Health Care REITs are the Best Comp Typical Health Care REIT Primary Tenant Maint Capex as % of Revenue (2) Growth Tenant Allowances Cyclicality Competition for New Builds Competition for Existing Units Cap Rate ________________________________________________ (1) Government ~2% Supply / demand imbalance provides secular tailwind Government ~3.

062 518 (386) $132 6.692 462 (362) $100 5.349 25.4% .0% 386 $6.449 25.5% 2012e $1.0% 362 $5.7% $337 $337 100.8% $1.2% $386 $386 100.411 419 (337) $82 4.Illustrative Sum-Of-The-Parts Valuation CXW is composed of two businesses: an operating company (“OpCo”) and a real estate company (“PropCo”) Illustrative OpCo / PropCo Financials ($ in millions) 2010e OpCo CXW Revenue (owned-only) Rent as % of Revenue Illustrative Rent Per Bed CXW EBITDA Less: Rent PF EBITDA PF Margin PropCo Rental Revenue NOI Margin Less: Cash expenses AFFO Margin 31 2011e $1.0% 337 $5.0% (10) 376 97.0% (10) 352 97.0% $362 $362 100.0% (10) 327 97.543 25.

8% $5.0x $1.Illustrative Sum-Of-The-Parts Valuation (Cont’d) An OpCo / PropCo analysis suggests the stock could be worth between $40 and $54 per share ($ in millions) OpCo Valuation: 2012e PF EBITDA Multiple OpCo Value PropCo Valuation: 2012e NOI Cap Rate PropCo Value Memo: Dividend yield Total Value Per Share 32 $132 8.429 5.0x $1.822 7.0% $4.8% $7.057 $386 6.057 $386 8.485 $54 .0% $6.878 $40 $132 8.

trading at a ~5% cap rate and a ~4% dividend yield 33 . CCA Prison Realty Trust’s stock had moved up to the $40s. CCA Prison Realty Trust purchased 9 correctional facilities from Old CCA for $308mm. and Old CCA (the operating company) CCA Prison Realty Trust was a Huge Success IPO’d in July-97 at $21 per share and immediately traded up to $29 Upon its formation. CCA Prison Realty Trust used the remaining proceeds from its IPO and its revolver to purchase three additional facilities from Old CCA By December-97. It then leased the facilities to Old CCA pursuant to long-term.CXW used to be a REIT… From 1997 through 1999. noncancellable triple-net leases with built-in rent escalators Within five months of its IPO. CXW operated as two separate companies: CCA Prison Realty Trust (a REIT).

” In order for New Prison Realty to qualify as a REIT. “New Prison Realty. This was further exacerbated by a shareholder lawsuit stemming from the fall in the stock price By the Summer of 2000. New Prison Realty’s stock price declined precipitously. limiting its ability to raise liquidity. Old CCA and CCA Prison Realty Trust merged to form an even larger REIT.CXW used to be a REIT… (Cont’d) On January 1. OpCo’s operating fundamentals began to decline and occupancy fell OpCo struggled to maintain profitability and rental payments to New Prison Realty soon had to be deferred As a result. CXW was on the verge of default and had to raise dilutive capital to restructure and avoid bankruptcy May-05 Jun-07 Jul-09 . 1999. it had to spin off its management business (“OpCo”) $80 $70 $60 $50 $40 $30 $20 $10 $0 Jan-99 Feb-01 Mar-03 34 New Prison Realty was not a Success New Prison Realty saddled itself with debt to fund new prison builds Before the new prisons had been completed and could generate revenue.

it failed because: It had too much leverage It had an overly aggressive development plan Its tenant. the Operating Company lease rates were set so that Operating Company was projected to lose money for the first several years of its existence.Why Did New Prison Realty Fail? New Prison Realty did not fail because it was a REIT. was also over-leveraged (1) ________________________________________________ (1) “The rates on the Operating Company leases were set with the intention that the public stockholders of New Prison Realty would receive as much of the benefit as possible from owning and operating the correctional and detention facilities…. 35 .” Source: CXW 2002 10-K. In fact. OpCo.

4% 8.NOLs CXW has not been a large taxpayer for the last eight years because of substantial NOLs that are now exhausted Total: $149mm Total: $165mm $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 2001a 2002a 2003a 2004a 2005a 2006a 2007a 2008a 2009e 2010e Cash Tax Rate 9.0% Going forward.5% 37.4% 3.1% 22. CXW expects to be a 38% cash tax payer .4% 2.2% 36 24.4% 20.6% 38.

Owned vs.9% 18. Managed Since 2000.6% 10.4% 20% 15% 14.1% 10% 9.7% 19.9% 10.0% 25% 19.3% 5% 0% 2001a 2002a 2003a 2004a 2005a 37 2006a 2007a 2008a 2009e 2010e . CXW has increasingly shifted away from a business focused on the management of prisons toward a business focused on the ownership of prisons Managed EBITDA as a % of Facility EBITDA 30% 25.1% 11.7% 26.

we could go quite a ways.or highways selling at 50 times cash flow.” – Irving Lingo.Management Gets It “The other thing I would point out is before we'd even sell stock. Q2’06 Earnings Call 38 . I hear people talking to me about regional malls selling at six cap rates or parking garages selling at five cap rates or 20 times cash flow and you think about -. Former-CFO of Corrections Corp. that there's a lot of value in these assets. you think about prisons as infrastructure or some type of real estate asset. I think these could be even sold and harvested in some fashion to avoid selling stock in the future. but just with respect to cash flow and leverage. So there are a number of things that we could do to finance our growth.

Conclusions Market Leader / Competitive Advantage Secular Growth Opportunity Several Near-Term Catalysts Stable Free Cash Flow in Excess of EPS Strong Management Strong Balance Sheet Attractive ROC / Low Cost of Capital 39 High Quality Business at a Substantial Discount to Intrinsic Value .

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