Kevin Rippey, Analyst krippey@indiana.

edu 219-775-5075 6/11/2013

Rating Price Target Price: Fully Diluted Shares (mm): 52-Week High: 52-Week Low: Market Cap (bln) : Avg Daily Vol: Debt/Cap: Cash/Shr: Dividend Yield: Book Value/Shr:
Adj. EPS 2012A 2013E

Sell $26.25 $34.36 71.60 $38.84 $19.96 $2.48 643,050 53.3% $1.17 5.77% $14.52
2014E

GEO Group, Inc.

GEO NYSE

Recent REIT conversion has resulted in record high valuation despite questionable fundamentals; private state prison inmate populations experiencing low-single digit decline and immigration reform would likely threaten key revenue stream Highlights At 43% above historic average multiples, GEO trades at near record high valuation despite limited growth opportunities Inmate populations at privately operated state prisons experiencing low-single digit declinesassociated revenues represent 35% of company sales 40% of previous decades growth driven by a one-time transfer of immigrant detention facilities from public to private operation Immigration reform could drive declines in what had been key growth segment accounting for 32% of 2012 revenue

Mar Jun Sep Dec FY P/E AFFO/ Share Rev

$0.56A $0.65A $0.66A $0.67A $1.49A 23.2x $2.79A

$0.38A $0.43E $0.44E $0.45E $1.64E 21.0.x $2.61E

$0.30A $0.32E $0.33E $0.35E $1.30E 26.5.x $2.30E

Thesis The private prison industrys decade long growth was largely fueled by the privatization of a large number of federal facilities. Between 2000 and 2011, the number of privately housed federal inmates tripled from 9,381 to 29,776. Of the 20,395 private federal prisoners added in the past decade, an estimated 15,000 are being held for immigration related crimes. With more than two-thirds of the immigration detainee population now held in private facilities, it will be difficult to replicate previous growth. The growth in privately operated state prisons was much less dramatic. During the same period, the number of inmates in private state prisons increased by 17,104 from 75,291 to 92,395. Privately operated state prison population has been declining at 2% per year since 2010. The economics of private prison operation only allow for a relatively small subset of the overall prison population to be housed in private facilities. Healthy, non-violent inmates without ties to organized crime are the low cost input for the industry. Outside of this subset, the cost advantages provided by privately operated prisons disappear given the much larger potential liabilities associated with high-risk inmates. As such, GEO will not likely be able to offset the loss current inmates with others housed in state operated facilities. 40% of the past decades growth can be attributed to the one-time transfer of immigrant detainees from public to private facilities. In addition, the number of inmates in privately operated state prisons has been experiencing low-single digit decline. Despite these headwinds,

$1,409M

$1,1505M

$1,435M

The GEO Group, Inc. provides management of correctional, detention, mental health, residential treatment and re-entry facilities and the provision of community based services and youth services in the U.S., Australia, South Africa, the United Kingdom and Canada. The company operates correctional and detention facilities as well as security monitoring services.

Kevin Rippey, Analyst krippey@indiana.edu 219-775-5075 6/11/2013

investors seem to anticipate accelerating growth given the historic high multiples afforded to GEO and competitor CXW. The above analysis ignores the real possibility that currently proposed comprehensive immigration reform (CIR) could lead to a decline in the number of immigrant detainees as many undocumented immigrants would be able to gain a form of amnesty. As it pertains to GEO, 32% of the companys 2012 revenue was tied to immigration enforcement services. Contracts representing 80% of this total are set to expire by the end of 2014. The margin accretion provided by this revenue stream in addition to the companys operating leverage and debt loads exacerbate the effects of a top line decline. In its current form, CIR would create the status of Registered Provisional Immigrant. Individuals could apply for this status given they pay a $500 fine plus any owed back taxes, have no felony record, and can demonstrate they have resided within the U.S. since the start of 2012. This status could provide potential amnesty for approximately 70-75% of the 12 million undocumented immigrants residing in the U.S. REIT Premium Some investors argue that GEO shares are cheap given shares trade at a discount to other REITS specifically health care REITs on a price-to-FFO/AFFO basis. Given the unique operating risks of the private prison industry as well as their limited history as REITs, determining a proper premium or discount relative to the sector is an inexact science. Historic cash flow multiples likely provide a rough guide. The long run average FCF multiple for GEO is 9.5. This is a 45% discount to the long run average 17.5 multiple applied to health care REITs. This compares closely to the 40% P/AFFO discount that GEO currently trades at to the sector. Scenario Analysis An analysis of three scenarios gives a sense of the legislations potential magnitude on GEOs operating results (See next page for detailed income statement analysis of each scenario). Price targets derived by assigning 12x multiple to 2014 AFFO estimate. Scenario 1 (Bull case): CIR is not passed, GEO maintains current growth profile- PT: $30.00

Investors seem to assign 100% probability to this scenario given current valuation. Should immigration reform not pass, consensus is that revenues should increase in the lowsingle digits on flat bed count, slightly higher per diem rates, and mid-single digit growth in non-detention services. Scenario 2 (Mixed case): A mild form of CIR is signed into law and GEO is unable to fill 1,200 of its current 10,500 immigrant detention beds and revenue from immigrant monitoring declines 25%. All other business activity held constant relative to base case- PT: $26.50 This scenario results in a 5% decline in total revenue, 90bps operating margin contraction and an 11% decline in AFFO relative to base case. Scenario 3 (Bear case): CIR is passed in its current form and GEO losses its current immigrant monitoring contract and is unable to fill 1,200 of its current 10,500 immigrant detention beds All other business activity held constant relative to base case.- PT: $18.75 This scenario assumes an 18% revenue decline, 300 bps operating margin compression, and a 37% decline in AFFO relative to base case. Valuation $26 price target based on a probability weighted average of the above mentioned scenarios. 50% probability assigned to base case and 25% probability assigned to both mixed case and bear case. Conclusion GEO has demonstrated a track record of impressive growth. And in light of current valuation, investors believe this growth is likely continue if not accelerate. However, a large part of the industrys growth is due to a one-time shift from public to private operation of federal immigrant detention facilities. Without a similar catalyst, growth going forward is likely to be subdued as private state prison populations continue to experience mild decline. The risks associated with potential comprehensive immigration reform could provide additional headwinds. While GEO shares current 5.7% yield may initially appear attractive, the sustainability of this yield is highly suspect in light of challenging industry dynamics.

Kevin Rippey, Analyst krippey@indiana.edu 219-775-5075 6/11/2013

Immigration Reform Scenario Analysis for GEO Group CIR not passed 2011A Revenue Producing beds State and federal non-immigration beds Immigrat detention beds International GEO Community Services Total Beds Per Diem State and federal non-immigration beds Immigrat detention beds International GEO Community Services Occupancy State and federal non-immigration beds Immigrat detention beds International GEO Community Services Days in year Total Revenue State and federal non-immigration beds Immigrat detention beds International GEO Community Services ICE monitoring contract Revenue Total Revenue y/y change Gross Margins State and federal non-immigration beds Immigrat detention beds International GEO community services ICE monitoring Gross Profit State and federal non-immigration beds Immigrat detention beds International GEO Community Services ICE monitoring Total Gross Profit Gross marign Depreciation Corp. SG&A % of sales EBIT EBIT margin Interest expense Earnings before taxes Income tax expense Tax rate Net income Net margin y/y change Shares outstanding FFO per share less maintenace capex plus share based compensation AFFO per share Current Stock price Price-to-AFFO Price Target 37,002 9,519 7,149 3,936 57,606 1200 ICE bed reduction and 25% decline in monitoring revenue 2011A 2012A 2013E 2014E Revenue Producing beds State and federal non-immigration beds 37,002 38,357 37,781 38,281 Immigrat detention beds 9,519 10,719 11,319 10,119 International 7,149 7,149 7,149 7,149 GEO Community Services 3,936 3,916 3,779 3,779 Total Beds 57,606 60,141 60,028 59,328 Per Diem State and federal non-immigration beds Immigrat detention beds International GEO Community Services Occupancy State and federal non-immigration beds Immigrat detention beds International GEO Community Services Days in year Total Revenue State and federal non-immigration beds Immigrat detention beds International GEO Community Services ICE monitoring contract Revenue Total Revenue 1200 ICE bed reduction and loss of monitoring contract 2011A 2012A 2013E Revenue Producing beds State and federal non-immigration beds 37,002 38,357 37,781 Immigrat detention beds 9,519 10,719 11,319 International 7,149 7,149 7,149 GEO Community Services 3,936 3,916 3,779 Total Beds 57,606 60,141 60,028 Per Diem State and federal non-immigration beds Immigrat detention beds International GEO Community Services Occupancy State and federal non-immigration beds Immigrat detention beds International GEO Community Services Days in year Total Revenue State and federal non-immigration beds Immigrat detention beds International GEO Community Services ICE monitoring contract Revenue Total Revenue

2012A 38,357 10,719 7,149 3,916 60,141

2013E 37,781 11,319 7,149 3,779 60,028

2014E 38,281 11,500 7,149 3,779 60,709

2014E 38,281 10,119 7,149 3,779 59,328

$57.00 57.00 78.33 30.00

$57.00 57.00 81.56 31.00

$57.50 57.50 84.70 31.00

$57.50 57.50 87.00 31.00

$57.00 57.00 78.33 30.00

$57.00 57.00 81.56 31.00

$57.50 57.50 84.70 31.00

$57.50 57.50 87.00 31.00

$57.00 57.00 78.33 30.00

$57.00 57.00 81.56 31.00

$57.50 57.50 84.70 31.00

$57.50 57.50 87.00 31.00

95.6% 95.6% 99.7% 81.0% 365

95.5% 95.5% 99.7% 83.0% 365

96.0% 96.0% 99.7% 83.0% 365

96.0% 96.0% 99.7% 83.0% 365

95.6% 95.6% 99.7% 81.0% 365

95.5% 95.5% 99.7% 83.0% 365

96.0% 96.0% 99.7% 83.0% 365

96.0% 96.0% 99.7% 83.0% 365

95.6% 95.6% 99.7% 81.0% 365

95.5% 95.5% 99.7% 83.0% 365

96.0% 96.0% 99.7% 83.0% 365

96.0% 96.0% 99.7% 83.0% 365

736.0 189.3 203.8 34.9 245.0 $1,407.2

762.1 213.0 212.2 36.8 255.0 $1,479.0 5.1%

761.2 228.1 220.4 35.5 260.0 $1,505.1 1.8%

771.3 231.7 226.3 35.5 275.0 $1,539.8 2.3%

736.0 189.3 203.8 34.9 245.0 $1,409.0

762.1 213.0 212.2 36.8 255.0 $1,479.0 5.0%

761.2 228.1 220.4 35.5 260.0 $1,505.1 1.8%

771.3 203.9 226.3 35.5 195.0 $1,432.0 (4.9%)

736.0 189.3 203.8 34.9 245.0 $1,409.0

762.1 213.0 212.2 36.8 255.0 $1,479.0 5.0%

761.2 228.1 220.4 35.5 265.0 $1,510.1 2.1%

771.3 203.9 226.3 35.5 0.0 $1,237.0 (18.1%)

29.2% 29.2% 7.5% 28.0% 31.0%

29.2% 29.2% 5.9% 29.0% 32.0%

30.0% 30.0% 8.0% 29.0% 32.0%

30.0% 30.0% 8.0% 29.0% 32.0%

Gross Margins State and federal non-immigration beds Immigrat detention beds International GEO community services ICE monitoring Gross Profit State and federal non-immigration beds Immigrat detention beds International GEO Community Services ICE monitoring Total Gross Profit Gross marign Depreciation Corp. SG&A % of sales EBIT EBIT margin Interest expense Earnings before taxes Income tax expense Tax rate Net income Net margin y/y change Shares outstanding FFO per share less maintenace capex plus share based compensation AFFO per share Current Stock price Price to AFFO

29.2% 29.2% 7.5% 28.0% 31.0%

29.2% 29.2% 5.9% 29.0% 32.0%

30.0% 30.0% 8.0% 29.0% 32.0%

30.0% 30.0% 8.0% 29.0% 32.0%

Gross Margins State and federal non-immigration beds Immigrat detention beds International GEO community services ICE monitoring Gross Profit State and federal non-immigration beds Immigrat detention beds International GEO Community Services ICE monitoring Total Gross Profit Gross marign Depreciation Corp. SG&A % of sales EBIT EBIT margin Interest expense Earnings before taxes Income tax expense Tax rate Net income Net margin y/y change Shares outstanding FFO per share less maintenace capex plus share based compensation AFFO per share Current Stock price Price to AFFO

29.2% 29.2% 7.5% 28.0% 31.0%

29.2% 29.2% 5.9% 29.0% 32.0%

30.0% 30.0% 8.0% 29.0% 32.0%

30.0% 30.0% 8.0% 29.0% 32.0%

214.9 55.3 15.3 9.8 76.0 $371.2 26.4% 81.5 110.0 7.8% $179.69 12.8% 68.3 $111.4 43.2 38.8% $68.2 4.8%

222.5 62.2 12.5 10.7 81.6 $389.5 26.3% 91.7 113.8 7.7% $184.03 12.4% 75.5 $108.6 8.7 8.0% $99.9 6.8% 46.5% 61.3 $3.12 30.7 10.4 $2.79 34.61 11.1x

228.4 68.4 17.6 10.3 83.2 $407.9 27.1% 92.0 112.9 7.5% $203.02 13.5% 75.0 $128.02 10.2 8.0% $117.78 7.8% 17.9% 71.6 $2.93 30.0 7.0 $2.61 34.61 11.8x

231.4 69.5 18.1 10.3 88.0 $417.3 27.1% 92.0 123.2 8.0% $202.11 13.1% 75.0 $127.11 10.2 8.0% $116.94 7.6% (0.7%) 72.0 $2.90 30.0 7.0 $2.58 34.61 11.9x $29.70

214.9 55.3 15.3 9.8 76.0 $371.2 26.3% 81.5 110.0 7.8% $179.69 12.8% 68.3 $111.4 43.2 38.8% $68.2 4.8%

222.5 62.2 12.5 10.7 81.6 $389.5 26.3% 91.6 112.2 7.6% $185.71 12.6% 75.5 $110.2 8.8 8.0% $101.4 6.9% 48.7% 61.3 $3.15 30.7 10.4 $2.82 34.61 11.0x

228.4 68.4 17.6 10.3 83.2 $407.9 27.1% 92.0 112.9 7.5% $203.02 13.5% 75.0 $128.02 10.2 8.0% $117.78 7.8% 16.2% 71.6 $2.93 30.0 7.0 $2.61 34.61 11.8x

231.4 61.2 18.1 10.3 62.4 $383.3 26.8% 92.0 111.0 7.8% $180.37 12.6% 75.0 $105.37 8.4 8.0% $96.94 6.8% (17.7%) 72.0 $2.62 30.0 7.0 $2.30 34.61 13.2x $26.50

214.9 55.3 15.3 9.8 76.0 $371.2 26.3% 81.5 110.0 7.8% $179.69 12.8% 68.3 $111.4 43.2 38.8% $68.2 4.8%

222.5 62.2 12.5 10.7 81.6 $389.5 26.3% 91.6 112.2 7.6% $185.71 12.6% 75.5 $110.2 8.8 8.0% $101.4 6.9% 48.7% 61.3 $3.15 30.7 10.4 $2.82 34.61 11.0x

228.4 68.4 17.6 10.3 84.8 $409.5 27.1% 92.0 113.3 7.5% $204.24 13.5% 75.0 $129.24 10.3 8.0% $118.90 7.9% 17.3% 71.6 $2.95 30.0 7.0 $2.62 34.61 11.7x

231.4 61.2 18.1 10.3 0.0 $320.9 25.9% 92.0 99.0 8.0% $129.99 10.5% 75.0 $54.99 4.4 8.0% $50.59 4.1% (57.5%) 72.0 $1.98 30.0 7.0 $1.66 34.61 17.5x $19.10

63.4 $2.36 33.8 7.9 $1.95 34.61

63.4 $2.36 33.8 7.9 $1.95 34.61

63.4 $2.36 33.8 7.9 $1.95 34.61