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GEO Shares Fall as it Drops REIT Structure and Turns C Corp.

The switch to C corporation from REIT 'is expected to give GEO flexibility to allocate free cash flow toward reducing net recourse debt,' it said.
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Geo Group  (GEO) - Get GEO Group Inc Report shares fell on Thursday after the prison developer said it was changing structure to a taxable C corporation from a real estate investment trust and dropping its dividend.

“The change in corporate status from a REIT to a taxable C corporation is expected to give Geo additional flexibility to allocate free cash flow towards reducing net recourse debt,” the company said in a statement.

“GEO has made efforts to reduce net recourse debt over the last two years. In 2020, GEO reduced net recourse debt by approximately $100 million. And in the first three quarters of 2021, GEO reduced net recourse debt by an additional $175 million.”

The stock of the Boca Raton, Fla., company recently traded at $7.40, down 8.6%. It has traded on Thursday down as much as 15% at $6.85.

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“The decision made by our board to de-REIT is consistent with the proactive and multifaceted approach we have implemented to address our future debt maturities,” said George Zoley, executive chairman of GEO.

That includes “our focus on net recourse debt reduction and deleveraging, our review of potential sales of company-owned assets and businesses, and our ongoing evaluation of capital structure alternatives with the assistance of our financial and legal advisors,” he said.

“Following our objective of net recourse debt reduction, we expect to allocate free cash flow to fund quality growth opportunities and potentially return capital to shareholders in the future.”

The biggest REIT ETF is Vanguard Real Estate ETF  (VNQ) - Get Vanguard Real Estate ETF Report. It has climbed 26% year to date. REITs have benefited from the economic recovery this year, though concern about rising interest rates abounds.