What happened
Shares of GEO Group (GEO 1.99%) were jumping 10% higher in afternoon trading after the private prison operator reported second-quarter earnings that beat analyst expectations.
So what
GEO Group, which is organized as a real estate investment trust, or REIT, reported adjusted funds from operations of $0.70 per share, up 6% from last year and well ahead of analyst expectations of just $0.58 per share.
FFO is an important metric for REITs, which are also required to return to shareholders almost all of their profits as dividend payments. However, GEO Group suspended its dividend in April and said it would reevaluate whether it will remain a REIT. A decision is expected by the fourth quarter.
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Industry peer CoreCivic previously restructured itself to drop its REIT status. It said at the time the money it was paying on borrowed funds as a REIT could be better spent on growing the business, reducing debt, and returning capital to shareholders.
Now what
The private prison industry has been under pressure since the election of President Joe Biden. During the first days of his administration, he issued an executive order directing the Justice Department to not renew its contracts with private prison operators.
Although it was not as sweeping as expected, since many of the government's contracts are with Immigration & Customs Enforcement, which operates under the Department of Homeland Security, not the Department Justice, it still has weighed on the industry. Wall Street expected GEO Group's earnings to reflect that.
Don't be surprised, though, if the private prison operator follows its peer and eventually eliminates its REIT status.
