Anyone here investing in Prison REITs?

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mikemikemike
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Anyone here investing in Prison REITs?

Post by mikemikemike » Sat Jul 06, 2019 4:48 pm

I was curious about the companies behind the private prisons. At least two of them are publicly traded REITs: GEO and CXW, and they return 8% and 9% dividends right now. That's insanely high. The market for prisons is also unlikely to dry up. Of course there are ethical concerns -- that I'll ask you to leave out of this thread so we don't veer into politics.

But does any else see this as a potentially hugely profitable play?

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Sandtrap
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Re: Anyone here investing in Prison REITs?

Post by Sandtrap » Sat Jul 06, 2019 4:49 pm

Vanguard REIT Index.
Spread the risk out. :D

For comparisons and convenience, here's a list of REIT Funds at NAREIT.
https://www.reit.com/investing/reit-funds/table
Note that many of the funds that were "hot" last year, are cold now, and vs vs.
There's a strong case for Indexing.

An article on REIT's at "Seeking Alpha.com".
No mention of prison REITs.
https://seekingalpha.com/article/427074 ... ue-reitdom

The share value of a specific REIT can drop like a stone. I'd be careful of getting into a "white elephant".
j
Last edited by Sandtrap on Sat Jul 06, 2019 4:56 pm, edited 4 times in total.
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Wiggums
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Re: Anyone here investing in Prison REITs?

Post by Wiggums » Sat Jul 06, 2019 4:50 pm

I agree with sand trap...

Cpadave
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Re: Anyone here investing in Prison REITs?

Post by Cpadave » Sat Jul 06, 2019 5:00 pm

I recently bought Geo 2022 bond paying over 6%.

trueblueky
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Re: Anyone here investing in Prison REITs?

Post by trueblueky » Sat Jul 06, 2019 5:02 pm

mikemikemike wrote:
Sat Jul 06, 2019 4:48 pm
I was curious about the companies behind the private prisons. At least two of them are publicly traded REITs: GEO and CXW, and they return 8% and 9% dividends right now. That's insanely high. The market for prisons is also unlikely to dry up. Of course there are ethical concerns -- that I'll ask you to leave out of this thread so we don't veer into politics.

But does any else see this as a potentially hugely profitable play?
How much of the dividend is return of capital? Yahoo Finance shows GEO with EPS of $1.25 and dividend per share of $1.92. Likewise, it shows CXW with EPS of $1.43 and forward dividend of $1.76.

If you believe in efficient market, the price reflects all known risks, including the political ones.

I will pass. I don't do sector.

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David Jay
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Re: Anyone here investing in Prison REITs?

Post by David Jay » Sat Jul 06, 2019 5:03 pm

Hugely profitable? Don’t let the dividends get in your eye -

CXW is paying a 9% dividend but it has lost 45% of it’s value in the last 3 years. So total performance is negative for the last 3 years.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Cpadave
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Re: Anyone here investing in Prison REITs?

Post by Cpadave » Sat Jul 06, 2019 5:06 pm

trueblueky wrote:
Sat Jul 06, 2019 5:02 pm
mikemikemike wrote:
Sat Jul 06, 2019 4:48 pm
I was curious about the companies behind the private prisons. At least two of them are publicly traded REITs: GEO and CXW, and they return 8% and 9% dividends right now. That's insanely high. The market for prisons is also unlikely to dry up. Of course there are ethical concerns -- that I'll ask you to leave out of this thread so we don't veer into politics.

But does any else see this as a potentially hugely profitable play?
How much of the dividend is return of capital? Yahoo Finance shows GEO with EPS of $1.25 and dividend per share of $1.92. Likewise, it shows CXW with EPS of $1.43 and forward dividend of $1.76.

If you believe in efficient market, the price reflects all known risks, including the political ones.

I will pass. I don't do sector.
These are reits, so distribution is based on FFO which adds back depreciation.

Cpadave
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Re: Anyone here investing in Prison REITs?

Post by Cpadave » Sat Jul 06, 2019 5:08 pm

The issue with prison REIT is liability that is associated with the nature of business in addition to political environment. I would not buy the common but the short term bonds might be ok if you are willing to take the risk.

illumination
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Re: Anyone here investing in Prison REITs?

Post by illumination » Sat Jul 06, 2019 5:13 pm

Sky high political risk.

I don't like investments where a single law change can basically wipe out their entire business model, which is probably why they have such high dividends. And they only have one customer, the government.

You can't really say that about other REITs, I don't see industrial, retail, or office space ever being "outlawed". But private prisons have been outlawed in places.

I doubt the model ever really goes away, but I wouldn't have the stomach.

Mordoch
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Re: Anyone here investing in Prison REITs?

Post by Mordoch » Sat Jul 06, 2019 5:15 pm

mikemikemike wrote:
Sat Jul 06, 2019 4:48 pm
Of course there are ethical concerns -- that I'll ask you to leave out of this thread so we don't veer into politics.
While we can dodge discussing any ethical concerns or even what people think about proposed measures, I would point out that at least one serious potential Presidential candidate has proposed outright banning them.
https://www.cnn.com/2019/06/21/politics ... index.html

You also have three states which have stopped the use of private prisons at all, and the possibility that as this issue gets more prominence at least some key other states might end up doing the same.

This means that there are real major political risks which are basically directly behind dividends being so high (with those political risks a major reason at least one of the funds has already dropped so much) and a concentrated position in this area could mean a dramatic crash of those REITS if you guess the future politics wrong. By contrast as noted a broad reit fund has fairly minimal exposure to this political risk. In other words you are gambling on specific political and possible other risks in the sector, and the currently high dividends does not mean the sector is inherently safe.

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mikemikemike
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Re: Anyone here investing in Prison REITs?

Post by mikemikemike » Sat Jul 06, 2019 5:22 pm

Thanks for all the replies. This has been a really enlightening discussion.

Seems like -- ethics stuff aside -- this isn't that obviously good financial move it first seemed like.

My thought was that maybe other investors were shying away from these REITs due to ethics concerns, leading them to be undervalued and hence having very high yields. But the big business risks discussed seem also like a good reason for the low values, and would imply that these aren't necessarily undervalued despite the very high yields.

CommitmentDevice
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Re: Anyone here investing in Prison REITs?

Post by CommitmentDevice » Sat Jul 06, 2019 5:29 pm

mikemikemike wrote:
Sat Jul 06, 2019 4:48 pm
The market for prisons is also unlikely to dry up.
The U.S. incarceration rate is 655 per 100,000 compared to the global average of 145 per 100,000.
https://en.wikipedia.org/wiki/List_of_c ... ation_rate

A regression to the mean could reduce U.S. incarceration rates by 78%.

And, ethically, would you really want to be part of an interest group fighting against such a trend?

ronno2018
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Re: Anyone here investing in Prison REITs?

Post by ronno2018 » Sat Jul 06, 2019 5:37 pm

I would expect (and hope!) our incarceration rate will decline to global developed economy levels. So stay away from prison investing. Older convicts are dying off and decreasing lead levels are leading to less crime.

https://www.motherjones.com/kevin-drum/ ... -for-2018/

Perhaps drug legalization will reduce arrests as well.

barnaclebob
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Re: Anyone here investing in Prison REITs?

Post by barnaclebob » Sat Jul 06, 2019 5:40 pm

One big political risk might also be the legalizationg of marijuana. It will dry up their supply base.

CurlyDave
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Re: Anyone here investing in Prison REITs?

Post by CurlyDave » Sun Jul 07, 2019 7:01 am

In order to confidently invest in a specific sector I need to spend enough time to understand that sector.

I am not willing to put the time in on such a tiny fraction of the total market with such obvious risks, both political and other.

Rus In Urbe
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Re: Anyone here investing in Prison REITs?

Post by Rus In Urbe » Sun Jul 07, 2019 7:03 am

Absolutely not. For ethical reasons. That's enough for me.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

Trader Joe
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Re: Anyone here investing in Prison REITs?

Post by Trader Joe » Sun Jul 07, 2019 7:29 am

mikemikemike wrote:
Sat Jul 06, 2019 4:48 pm
I was curious about the companies behind the private prisons. At least two of them are publicly traded REITs: GEO and CXW, and they return 8% and 9% dividends right now. That's insanely high. The market for prisons is also unlikely to dry up. Of course there are ethical concerns -- that I'll ask you to leave out of this thread so we don't veer into politics.

But does any else see this as a potentially hugely profitable play?
No, I do not see this as a good investment for my portfolio. I invest in the Vanguard 500 Index Fund Admiral Shares (VFIAX) and I am very happy. Best of luck.

UpperNwGuy
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Re: Anyone here investing in Prison REITs?

Post by UpperNwGuy » Sun Jul 07, 2019 7:47 am

I agree with Sandtrap.

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Tamarind
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Re: Anyone here investing in Prison REITs?

Post by Tamarind » Sun Jul 07, 2019 7:58 am

I own them in exactly the proportion they make up in Vanguard Total Stock Market, and that's more than enough from my point of view. Their business model is ugly, and there is no reason to expect that they could sustain the sort of long term growth of income or profitability that one would want to see from a business, precisely because they are dependent on political conditions that are outside the scope of this forum.

Nowizard
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Re: Anyone here investing in Prison REITs?

Post by Nowizard » Sun Jul 07, 2019 8:04 am

When a company offers "insanely" high dividends, there is a reason, and each person evaluates that based on a variety of contributing factors of importance to them. Not interested, personally,

Tim

lostdog
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Re: Anyone here investing in Prison REITs?

Post by lostdog » Sun Jul 07, 2019 8:34 am

Sandtrap wrote:
Sat Jul 06, 2019 4:49 pm
Vanguard REIT Index.
Spread the risk out. :D

For comparisons and convenience, here's a list of REIT Funds at NAREIT.
https://www.reit.com/investing/reit-funds/table
Note that many of the funds that were "hot" last year, are cold now, and vs vs.
There's a strong case for Indexing.

An article on REIT's at "Seeking Alpha.com".
No mention of prison REITs.
https://seekingalpha.com/article/427074 ... ue-reitdom

The share value of a specific REIT can drop like a stone. I'd be careful of getting into a "white elephant".
j
+1

I'm also thinking if adding Vanguard International REIT.

50/50
VTWAX and chill.

GCD
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Re: Anyone here investing in Prison REITs?

Post by GCD » Mon Jul 08, 2019 8:10 pm

When something like this happens in a government prison, it's a scandal. Even if lawsuits come out of it, it's the taxpayers on the hook, not stockholders. When it happens in a private prison it's likely to lead to lost contracts or at least a costly lawsuit. And it will be stockholders that take the hit.

Texas used to use inmates, known as building tenders, to enforce the rules. That cost the State of Texas dearly. It seems the modern private companies running corporate prisons need to study that era of Texas corrections a little closer. This story reports a private company relying on gang leaders to enforce rules. I suspect this isn't going to end well.

https://www.usatoday.com/story/news/inv ... 552783001/

jibantik
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Re: Anyone here investing in Prison REITs?

Post by jibantik » Mon Jul 08, 2019 8:27 pm

If I own any part of them in VTWAX, that is one part of my portfolio I hope goes to 0.

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willthrill81
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Re: Anyone here investing in Prison REITs?

Post by willthrill81 » Mon Jul 08, 2019 8:46 pm

8-9%?? You need to set your sights higher. :wink: ORC and NYMT have both been yielding above 10% for years and are currently yielding 15% and 13%, respectively. But others that had similar yields just two years ago are already either bankrupt or have stopped paying dividends altogether.

I asked the forum about super high-yield REITs like these a couple of years ago. Basically, they're about equivalent to junk bonds (i.e. junk REITs). They might pay off well for you, but their high yield may and often does turn into a self-liquidating investment. All in all, I'd pass.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: Anyone here investing in Prison REITs?

Post by willthrill81 » Mon Jul 08, 2019 8:49 pm

CommitmentDevice wrote:
Sat Jul 06, 2019 5:29 pm
mikemikemike wrote:
Sat Jul 06, 2019 4:48 pm
The market for prisons is also unlikely to dry up.
The U.S. incarceration rate is 655 per 100,000 compared to the global average of 145 per 100,000.
https://en.wikipedia.org/wiki/List_of_c ... ation_rate

A regression to the mean could reduce U.S. incarceration rates by 78%.
Or else the global average could quadruple.

There's virtually no evidence that the U.S. incarceration rate will fall to that of the global average any time in the foreseeable future, although it's likely to fall from where it is now due to the population aging. It's hard to go carjacking with a walker.
Last edited by willthrill81 on Mon Jul 08, 2019 9:38 pm, edited 1 time in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Pacific
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Re: Anyone here investing in Prison REITs?

Post by Pacific » Mon Jul 08, 2019 9:01 pm

Jeffrey Epstein?

owenmia
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Re: Anyone here investing in Prison REITs?

Post by owenmia » Wed Jul 10, 2019 12:57 pm

Sandtrap wrote:
Sat Jul 06, 2019 4:49 pm
Vanguard REIT Index.
Spread the risk out. :D

For comparisons and convenience, here's a list of REIT Funds at NAREIT.
https://www.reit.com/investing/reit-funds/table
Note that many of the funds that were "hot" last year, are cold now, and vs vs.
There's a strong case for Indexing.

An article on REIT's at "Seeking Alpha.com".
No mention of prison REITs.
https://seekingalpha.com/article/427074 ... ue-reitdom

The share value of a specific REIT can drop like a stone. I'd be careful of getting into a "white elephant".
j
Exactly. What if there is a riot and they burn it down. :D

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oldzey
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Re: Anyone here investing in Prison REITs?

Post by oldzey » Wed Jul 10, 2019 6:07 pm

I never knew such a financial instrument even existed - what a captivating idea!
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Re: Anyone here investing in Prison REITs?

Post by ChinchillaWhiplash » Wed Jul 10, 2019 6:29 pm

David Jay wrote:
Sat Jul 06, 2019 5:03 pm
Hugely profitable? Don’t let the dividends get in your eye -

CXW is paying a 9% dividend but it has lost 45% of it’s value in the last 3 years. So total performance is negative for the last 3 years.
How about GEO since it's inception? 8-)

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UpsetRaptor
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Re: Anyone here investing in Prison REITs?

Post by UpsetRaptor » Wed Jul 10, 2019 8:24 pm

For the US incarceration/crime rates to revert to the world’s mean, our gun, drug, and income inequality rates would have to revert. I’d love to see it, but...

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Re: Anyone here investing in Prison REITs?

Post by jbranx » Wed Jul 10, 2019 10:25 pm

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