GEO - The GEO Group Inc. (GEO) - Suspends Dividend Evaluating Corporate Structure

Dividend Suspension. In a not so surprising move, GEO Group announced it is immediately suspending the quarterly dividend. The suspension eliminates approximately $30 million in quarterly dividend payments. Management expects to use the dividend savings and lowered capital expenditure plans to repay a minimum of $125-$150 million of net debt in 2021.Evaluating Corporate Structure. The Company also announced it is undertaking an evaluation of the current REIT structure. The evaluation is expected to be completed in the fourth quarter of 2021. Obviously, uncertainty swirling around the current operating and the prosed increase in the corporate tax rate will both be important considerations.A Side "Benefit"? The suspension of the dividend should eliminate, at least in the short-term, the additional dividends to be paid on the recent exchangeable senior notes due 2026 offering. This could have run to $21 million, based on the current dividend payout.USMS. GEO continues to work with the USMS and the DoJ to better clarify how contracts will be handled going forward. Currently, GEO has two additional contracts that come up for renewal in 2021. As we have mentioned previously, USMS does not own any beds and we do not see how the government can eliminate contracts with the private operators without significantly impacting USMS operations. Nonetheless, USMS is a key customer of GEO.Favorable Risk/Reward. Predictably, GEO shares sold off significantly on the news. Nonetheless, we are maintaining our Outperform rating and a $15 per share 12-month price target. While COVID and the political rhetoric remain headwinds, we believe the Company's real estate assets and high quality contracts eventually will be properly valued.Read More >>