Target Hospitality Shares Climb on CoreCivic Lease Deal for South Texas Facility

Target Hospitality Corp. (Nasdaq: TH) shares surged on Wednesday, March 5, following the announcement of a new lease agreement between corecivic, Inc. (NYSE: CXW) and target hospitality for the South Texas Family Residential Center in Dilley, Texas. The agreement, which is co-terminus with the amended intergovernmental services agreement (IGSA) between the City of Dilley, the U.S. Immigration and Customs Enforcement (ICE), and CoreCivic, is expected to have a significant positive impact on both companies' financial outlooks.

Under the terms of the agreement, CoreCivic will resume operations and care for up to 2,400 individuals at the South Texas Family Residential Center. The facility, which was purpose-built for ICE in 2014, will again be managed by CoreCivic, who will provide residential services, onsite medical care, and other support services. Food services will be provided by Target Hospitality. The agreement expires in March 2030 and may be further extended through bilateral modification.

The new lease agreement provides for a fixed monthly payment structure based on the gradual activation of each neighborhood within the facility. Once fully activated, the facility is expected to generate approximately $180 million in annual revenue, inclusive of medical services. This represents a significant revenue opportunity for both companies, as it accounts for roughly 9% of CoreCivic's $1.98 billion market capitalization.

CoreCivic anticipates that this award will be accretive to earnings beginning in the second quarter of 2025. The company's Chief Executive Officer, Damon T. Hininger, commented on the announcement, stating, "With this award and the additional capacity provided to ICE through four contract modifications we announced last week, we are grateful for the trust our government partner has placed in us. We have an extensive supply of available beds, either owned directly or provided by third parties like Target, that provides our government partners the flexibility to satisfy their immediate and long-term needs in a cost-effective manner. We are entering a period when our government partners -- particularly our federal government partners -- are expected to have increased demand. We anticipate continued robust contracting activity throughout 2025 that will help meet their growing needs."

Patrick Swindle, CoreCivic's President and Chief Operating Officer, added, "We are offering our staff the opportunity to transfer to the Dilley Facility and expect many who accept transfer opportunities will be professionals who previously provided services at the facility prior to its closure last year, expediting the activation process. We are also pleased to again work with Target, which has been a fantastic partner since our relationship began in 2014."

The activation of the South Texas Family Residential Center is a materially important development for both CoreCivic and Target Hospitality, as this single contract represents a significant revenue opportunity. The contract structure includes several positive elements, such as a fixed monthly payment schedule, a five-year term with extension possibilities, and a graduated activation approach that mitigates operational risks. Management explicitly states that this contract will be accretive to earnings beginning in Q2 2025.

Target Hospitality's shares gained 15% in post-market trading on Wednesday, March 5, following the announcement of the new lease agreement. Through the close, shares have fallen 36% over the past 12 months. The company's stock price may continue to be volatile as investors assess the potential impact of this new contract on Target Hospitality's financial performance.



In conclusion, the new lease agreement between CoreCivic and Target Hospitality for the South Texas Family Residential Center represents a significant revenue opportunity for both companies. The contract structure includes several positive elements, and management explicitly states that this contract will be accretive to earnings beginning in Q2 2025. Investors should closely monitor the progress of this contract and its impact on both companies' financial performance throughout 2025.

Ask Aime: What impact will the new lease agreement between CoreCivic and Target Hospitality have on their financial performance?