CCA could pay out $700M+ in REIT conversion

Prison manager needs IRS ruling soon to complete move by Jan. 1; Q3 results beat Street

Shareholders of Corrections Corp. of America could receive up to $750 million in special dividends if the company converts to a real estate investment trust, something it hopes to do before the end of this year.

The biggest hurdle to making that happen before Jan. 1 is the Internal Revenue Service, which must still sign off on the plan's tax intricacies. If that ruling comes soon, CCA can move ahead with plans to pay out what it expects will be $700 million to $750 million in past earnings in the form of both new shares and cash. It also plans to incur about $25 million in one-time costs and issue new debt to help fund the 20 percent cash portion of that payment.

"However, this is a complex process, and as time continues to pass without a favorable ruling from the IRS, the probability of electing REIT status effective January 1, 2013 diminishes," the company said in its earnings release.

A year's delay in converting to a REIT — tax law says such a switch can only happen on Jan. 1 — could cast a cloud over shares of CCA, which have climbed steadily this year in part because of investor enthusiasm over the REIT conversion. The stock (Ticker: CXW) fell about half a percent to $34.05 in after-hours trading following the release of its update.

CCA executives released details of the planned REIT changeover as part of their third-quarter earnings report, which showed profits rising 8 percent to $42.3 million and revenues growing 3 percent to $445 million. Adjusted earnings per share came in at 43 cents, a little better than analysts had expected. But CEO Damon Hininger tightened his team's fourth-quarter guidance. Avondale Partners analyst Kevin Campbell said the move was expected because the U.S. Marshals Service has been reducing its inmate count with CCA in recent months.