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GEO stock plunged in the recent trading session: here’s why

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The GEO Group Inc. (GEO) stock recently traded at $6.21 which is a 20.38% downward movement, at the time of writing. The GEO stock previously closed at $7.80.

GEO Group owns prisons in USA and other countries

GEO Group is a real estate investment trust (REIT) firm that is fully integrated. It is a publicly traded trust that invests in private prisons and mental facilities. GEO also designs, finances and operates these processing centers and facilities in USA. Apart from USA this global REIT also has an operational setup in UK, South Africa and Australia. In total, it consists of 116 facilities in which it has ownership and management.

GEO announces suspension of quarterly dividend payment

The GEO Group Inc. has announced that its Board of Directors has decided to effectively and immediately suspend GEO’s quarterly dividend payment. The statement says that this was done for the reason of maximizing the use cash pay for the repayment of debt. The Board of Directors also stated that it wants to deleverage and promote internal growth.

What prompted GEO’s BOD to make this move?

This announcement of suspension of divided pay is an internal prospective decision that came as a reaction to external event. Since the Biden administration has taken up the governance of America, the sentiment towards profit-making company running the facilities has been that of disapproval. The Department of Justice has ordered for these facilities to stop being run by profit-making companies. The effects of this order are already being shown in the form of contracts cancellation and expiring-without-renewal. The Federal Bureau of Prisons and US Marshals are not agreeing to any for-profit company’s proposals.

Thus when assessing this decision by the Biden administration, it makes more complete sense to realize why GEO Group is taking this step. The Board of Directors currently decided to keep their corporate tax structure as a Real Estate Investment Trust however it has also stated to undertake an evaluation of this structure in near future. This will be one among many changes that have been taken under consideration to be made. When REIT structure has been changed it will transform GEO stock’s financial operations as well as Internal Revenue Code 1986’s amendment to US Corporations and REITs. Furthermore, if the REIT status is maintained then the Company will be required to make an additional dividend payment before year-end which needs to be done to uphold minimum REIT distribution requirements in the IRC Code 1986.

How will GEO’s financial operations for 2021 now look like?

GEO stock has had $291 million cash on hand while having a carrying capacity of $209 million and $450 million through its revolving credit facility and senior credit facility, respectively. Along with the suspension of quarterly dividend payment, GEO stock has reduced its capital expenditure planned for 2021 by $35 million. A minimum of $125-$150 million net debt has been set as a goal to be repaid. The board of directors is expecting to complete the evaluation of GEO’s corporate tax structuring.

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