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Corrections Corporation of America Message Board

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  • flipper_58 flipper_58 Jul 5, 2000 1:08 PM Flag

    bloomberg link

    NewMK could answer but I thought I'd make a quick
    comment on the lease rates between CCA and PZN, as many
    of us hashed over this a LOT.

    When a State or
    county contracts CCA's services they contract for
    everything, guards, food, housing, etc.. The lease cost of
    the facility to the Gov't entity might represent a
    10-12% rate, roughly. The thing is when CCA leases from
    PZN they pay ALL the monies to PZN in the form of a
    lease payment. In reality much of the lease payment is
    actually management services, that's how you got a 40%
    rate. It's the crazy stuff that went on to make PZN a
    REIT. PZN took the stance they were leasing the service
    too as you would get garbage pick-up, heat, etc. when
    reanting an apartment. This is my understanding.

    So
    what happens between CCA and PZN makes no difference
    to the contracting Gov't entity. It's CCA "washing"
    management income into a passive lease to fit IRS rules of
    75%-25% passive to active receipts.

 
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