Prison REIT is no steal

NEW YORK Wall Street money managers lined up Tuesday to go to prison
and they paid a premium to get in.

CCA Prison Realty Trust, a realestate investment trust that owns private
prisons and hopes to benefit from a governmental privatization trend, opened
at $30 and closed at $28.88 after being priced at $21 in an initial public offering.

The deal was oversubscribed, though underwriters led by J.C. Bradford & Co.
declined to specify by how much.

Some securities firms said they put in orders for shares in CCA Prison Realty
Trust, but they weren't able to get a piece of the deal. That's a telltale sign that
the deal was gobbled up by major investors.

``Nobody in the selling group got shares. This was so well received and
oversubscribed. We didn't retain any shares,'' said Jeffrey Nelson of GS2
Securities, which underwrote part of the IPO.

As the only REIT that specializes in prisons, it's hard to make a precise
comparison of CCA Prison with another publicly traded company. The closest
comparison is perhap Corrections Corp. of America, which manages prisons
for government agencies. The stock trades at $43. Corrections Corp., in fact, is
selling prisons to CCA Prison and will manage those properties. Both
companies have the same chairman.

``The liability is that CCA Prison Realty Trust is pretty much tied to a single
lessor . . . and there is some danger of potential conflict of interest between the
two entities,'' said Robert Natale, an analyst at Standard & Poor's.

A positive aspect of the deal is that CCA Prison is going public without any
debt and Natale said that could provide some upside in dividend growth over
the next few years that other REITs can't provide.

Indeed, CCA Prison plans to begin paying quarterly dividends of $1.70 a share,
Nelson said. ``The revenue stream that you get from a prison is generally
going to be pretty predictable. And, there's definitely a strong demand for
prison beds,'' Nelson said.

As for the company's stock price, an analyst at Cowen & Steers, a mutual fund
firm, said, ``It's at the high end of the range of companies in the netlease
arena, but it's got a unique story.''

Published Wednesday, July 16, 1997, in the San Jose Mercury News

©19967 Mercury Center.