Because of its existing relationship with the US Department of Justice, the locally based REIT intends to actively pursue opportunities now allowed under the new law. The company is eagerly monitoring Senate-confirmation hearings on the appointment of former Sen. John Ashcroft as US attorney general.
"Prior to this, the authority has been limited to very short contracts, which has made it difficult and expensive to access capital," Correctional Properties CEO Charles Jones tells GlobeSt.com in an exclusive interview.
This new authority means big dollars for companies such as Wackenhut Corrections Corp., Corrections Corp. of America Inc. and Correctional Properties. Since 1997, the Federal Bureau of Prisons has awarded an estimated $2 billion through just six privatized owner-operated prison contracts.
"The new authority is very important to the industry, because it will increase the flow of capital into the industry," Jones says. Although no one from the Justice Department responded to a request from GlobeSt.com for comment, Prisons Bureau Director Kathleen Hawk Sawyer discussed the issue of prison privatization in a recent memo sent to Federal prison workers and obtained by GlobeSt.com.
"Private prison companies often seek business by promising to Federal and state legislators that they can provide comparable services at a reduced cost," she said. "While these claims have not been proven, we cannot ignore them."
Sawyer adds, "Some legislators and other policymakers are convinced the cost savings are real. Many find the contention of cost savings very appealing in this time of balanced budgets and efforts to find ways to provide government programs and services more cheaply."
This new opportunity comes as Correctional Properties just reported an increase in total funds from operation but a decrease in net income for the 12 months ended Dec. 31. Through long-term triple-net leases, the company produces operation funds as the lessor of 11 correctional facilities in eight states with a total initial design capacity of 6,130 beds.
The company reported net of $8.4 million, or $1.93 a share, on total funds from operations of $13.8 million for the year ended Dec. 31, compared with net of $8.7 million, or $1.91 a share, on total funds from operations of $13.6 million.
Shares of the company's stock closed up 25 cents Friday at $11.50 on the New York Stock Exchange following release of the earnings report. The issue has traded as high as $12.56 and as low as $9 over the past 52 weeks.
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