You may remember that Prison Realty Trust was a spin-off from Corrections Corporation of America in 1997. Prison took the land, and CCA took the operating contracts in hopes of maximizing earnings through the REIT tax plan. Despite Wall Street disenchantment with REITs overall and a sorely lagging stock price, major investment houses were high on Prison Realty as recently as last May, when several firms had strong buy and buy recommendations on the stock. But with this week's announcement, the stock dropped another 10 percent and all bets were off. Investment houses now rank Prison Realty among market underperformers, now that obviously incompetent management is being combined with typical corporate tax treatment.
Shareholders can expect to see nothing but additional pain.
Dividends already had been watered down to a clear bullion through previous efforts to save the sinking ship. Now the new investors are offering the old a piece of the action that few will find attractive enough to take. And the rats immediately began to flee, with a 3 million plus share sell-off just hours after the announcement of the restructuring deal. This article reflects the opinions of Lesley Hensell only and not necessarily the views of this or any other publication, organization or Website owner. Lesley Hensell covers commercial real estate and financial issues for Realty Times.