Pershing Square Looks at Prison...as a Real Estate Play

With the jails filling up with his colleagues, William Ackman has decided to invest in incarceration.

Ackman’s activist hedge fund shop, Pershing Square Asset Management, has taken a 9.5% stake in private prison company Corrections Corp. of America (CXW). While Ackman joked that it's a “hedge against your hedge fund business… as the SEC ramps up” its investigations into the industry, he told the Value Investing Congress that his investment had less to do with reforming criminals and more to do with real estate.

Ackman said the Nashville-based company is among the best-available real-estate plays in the market. He said the company’s stock should be trading at between $40 and $54 per share; it currently trades at about $25.

“The biggest risk for Corrections Corp. is that suddenly lots of people stop committing crimes,” Ackman said.

The stake, built up since the end of the second quarter, makes Pershing Square the largest shareholder in CCA.

Ackman said the hedge fund is also shorting real-estate investment trust Realty Income (O) as a pairs trade with its CCA stake.

Comments

[davidbdc:]

If all the trends continue then his premise would be correct. But, there is a fairly strong move to start cutting the expense associated with prisons......not by doing more outsourcing but rather by releasing non-violent offenders. I think we'll see more of that, drug users primarily. The first step was the government's announcement this week that they wouldn't enforce federal laws about producing pot where states allow it. Its not a big jump forward for cash strapped states to decide to let out those that are simply drug users rather than pay to incarcerate them.

So the biggest risk isn't that people stop committing crimes but whether we as society change the definition of a crime.

Oct 25 05:18 PM

[Rhino Realty:]

I suspect that prison facilities have wear and tear much like an office building or a shopping center. Also, ask yourself what you do with a prison at the end of its life cycle...I suspect uses could include renting it out for 30 days a year as a Haunted House or maybe a nursing home.Nonetheless, I won't be investing in this asset class any time soon. I prefer investments in sites leased to companies like Walgreen's, CVS, and AutoZone.

Oct 25 05:29 PM

[Lightway:]

Sorry, but prisons are the last thing that need to be privatized and opened up for investment. You have a non-market driven set of goods and services which is dependent on putting more people in prison. There is absolutely no place for this in society. We already have seen the entire world economy melt down because of unbridled economics, and this was in areas (banking, investment, finance, housing) where free market economics were supposed to be the most efficient. Do we really think privatization and investment in prisons is a smart thing to do? We've already seen rampant abuse of security contractors in places like Iraq.

The fact that Ackman even makes jokes about it is sad commentary.

“The biggest risk for Corrections Corp. is that suddenly lots of people stop committing crimes,” Ackman said.

That says it all. Sorry, the market is not the place for EVERYTHING. Besides, there are better places to invest your money.

Oct 25 07:58 PM