<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
-------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
Commission File Number: 1-13049
CCA PRISON REALTY TRUST
(Exact name of Registrant as specified in its declaration of trust)
Maryland 62-1689525
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 Burton Hills Blvd., Suite 100, Nashville, Tennessee 37215
(Address and zip code of principal executive offices)
(615) 263-0200
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ----
21,576,000
(Outstanding shares of the issuer's common shares, $0.01 par value per share,
as of April 30, 1998)
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<PAGE> 2
CCA PRISON REALTY TRUST
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997
b) Consolidated Statement of Income
for the three months ended March 31, 1998
c) Consolidated Statement of Cash Flows
for the three months ended March 31, 1998
d) Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
CCA PRISON REALTY TRUST
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December
1998 31, 1997
(Unaudited)
<S> <C> <C>
ASSETS
Real Estate Properties, at Cost
Correctional and Detention Facilities $ 494,515 $ 458,360
Less - Accumulated Depreciation (9,218) (5,088)
--------- ---------
Net Real Estate Properties 485,297 453,272
Cash and Cash Equivalents 39,399 756
Other Assets 527 410
--------- ---------
TOTAL ASSETS $ 525,223 $ 454,438
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Distributions Payable $ 10,589 $ 9,170
Line of Credit -- 32,000
Accounts Payable and Accrued Expenses 319 519
--------- ---------
TOTAL LIABILITIES 10,908 41,689
--------- ---------
Commitments and Contingencies -- --
SHAREHOLDERS' EQUITY
Preferred Shares, $.01 par value; 10,000,000 shares
authorized; 4,300,000 and none outstanding, respectively 43 --
Common Shares, $.01 par value; 90,000,000 shares
authorized; 21,576,000 shares issued and outstanding 216 216
Capital in Excess of Par Value 518,226 414,841
Accumulated Distributions in Excess of Net Income (4,170) (2,308)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 514,315 412,749
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 525,223 $ 454,438
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
<PAGE> 4
CCA PRISON REALTY TRUST
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
REVENUES
Rental $ 13,465
Interest 436
--------
13,901
--------
EXPENSES
Depreciation 4,130
Interest 622
General and Administrative 423
--------
5,175
--------
Net Income 8,726
Dividends to Preferred Shareholders (1,419)
--------
Net Income Available for Common Shares $ 7,307
========
Net Income Available Per Common Share:
Basic $ 0.34
========
Diluted $ 0.33
========
Weighted Average Number of Shares Outstanding, Basic 21,576
========
Weighted Average Number of Shares Outstanding, Diluted 22,121
========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE> 5
CCA PRISON REALTY TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,726
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation of Real Estate Properties 4,130
Changes in Assets and Liabilities:
Increase in Other Assets (117)
Decrease in Accounts Payable and Accrued Expenses (200)
---------
Net Cash Provided by Operating Activities 12,539
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Real Estate Properties (36,155)
---------
Net Cash Used In Investing Activities (36,155)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Preferred Share Offering, net of Offering Costs 103,428
Borrowings under Line of Credit 40,700
Repayments under Line of Credit (72,700)
Distributions paid on Common Shares (9,170)
---------
Net Cash Provided by Financing Activities 62,259
---------
Net Increase in Cash and Cash Equivalents 38,643
Cash and Cash Equivalents, Beginning of Period 756
---------
Cash and Cash Equivalents, End of Period $ 39,399
=========
Supplemental Disclosure of Noncash Transactions:
Increase in Distributions Payable $ 10,589
Reduction in Shareholders' Equity through Distributions
to Shareholders (10,589)
=========
$ --
=========
Supplemental Disclosure of Cash Flow Information:
Cash paid for Interest $ 735
=========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE> 6
CCA PRISON REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. ORGANIZATION AND OPERATIONS
BACKGROUND AND FORMATION TRANSACTIONS
CCA Prison Realty Trust, a Maryland real estate investment trust (the
"Company"), was formed on April 23, 1997 to acquire, develop, and lease private
and public correctional and detention facilities. The Company has elected to
qualify as a real estate investment trust (a "REIT") under the Internal Revenue
Code of 1986, as amended (the "Code").
On July 18, 1997, the Company commenced operations after completing an initial
public offering (the "Initial Offering") of 21,275,000 of its common shares,
$.01 par value per share (the "Common Shares") (including 2,775,000 shares
issued as a result of the exercise of an over-allotment option by the
underwriters). The Common Shares were issued at an Initial Offering price of
$21.00 per share, generating gross proceeds to the Company of $446.8 million.
The aggregate proceeds to the Company, net of underwriters' discount and
offering costs, were approximately $412.1 million.
The Company immediately used the Initial Offering proceeds to acquire nine
correctional and detention facilities (the "Initial Facilities") from
Corrections Corporation of America, a Tennessee corporation, and certain of its
subsidiaries (collectively, "CCA") for an aggregate purchase price of $308.1
million, payable in cash. The Company entered into agreements with CCA to lease
the Initial Facilities back to CCA pursuant to long-term, non-cancellable
"triple net" leases (the "Leases") which require CCA to pay all operating
expenses, taxes, insurance and other costs. All of the Leases have primary terms
ranging from 10-12 years which may be extended at the fair market rental rates
for three additional five-year periods upon the mutual agreement of the Company
and CCA.
Simultaneously, the Company entered into option agreements with CCA (the "Option
Agreements") pursuant to which the Company was granted the option to acquire and
leaseback to CCA any or all of five correctional and/or detention facilities
from CCA at any time during the three-year period following the acquisition of
the Initial Facilities for a purchase price generally equal to CCA's costs of
developing, constructing and equipping such facilities, plus 5% of such costs.
As of March 31, 1998, the Company has acquired two facilities pursuant to the
Option Agreements. In addition, the Company entered into an agreement (the
"Right to Purchase Agreement") with CCA whereby CCA granted the Company an
option to acquire, at fair market value, and leaseback to CCA at fair market
rental rates, any correctional or detention facility acquired or developed and
owned by CCA in the future for a period of three years following the date CCA
first receives inmates at such facility. Facilities available for purchase by
the Company through the aforementioned agreements are collectively referred to
herein as the "Option Facilities." As of March 31, 1998, the Company has
purchased two facilities pursuant to the Right to Purchase Agreement.
<PAGE> 7
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company include all the accounts of
the Company and its wholly-owned management subsidiary Prison Realty Management,
Inc. a Tennessee corporation. All significant intercompany balances and
transactions have been eliminated.
The accompanying interim consolidated financial statements are unaudited. The
financial statements, however, have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting solely of normal
recurring matters) necessary for a fair presentation of the financial statements
for this interim period have been included. The results of operations for the
interim period are not necessarily indicative of the results to be obtained for
the full fiscal year. Reference is made to the audited financial statements of
the Company filed with the Company's Annual Report on Form 10-K for the period
from July 18, 1997 to December 31, 1997 with respect to significant accounting
and financial reporting policies as well as other pertinent information of the
Company.
3. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", effective for fiscal years beginning after
December 15, 1998. SFAS No. 130 requires that changes in the amounts of certain
items, including gains and losses on certain securities, be shown in the
Financial Statements. The Company adopted the provisions of SFAS No. 130 on
January 1, 1998. The Company's comprehensive income is equivalent to net income
for the three months ended March 31, 1998.
4. REAL ESTATE PROPERTIES
On January 5, 1998, the Company acquired from CCA the 960 bed Davis County
Correctional Center located in Holdenville, Oklahoma for a purchase price of
$36.1 million.
As of March 31, 1998, the Company had investments in 13 leased real estate
properties with an aggregate cost of $494.5 million. Each of these correctional
and detention facilities have been purchased from CCA and leased back to CCA
pursuant to leases containing terms substantially similar to the Leases entered
into with regard to the Initial Facilities, with initial terms of a minimum of
10 years each.
5. PREFERRED SHARE OFFERING
On January 30, 1998, pursuant to the Company's Registration Statement on Form
S-11 (File No. 333-43935) declared effective by the Commission on January 26,
1998, the Company completed an offering of 4,300,000 shares of 8.0% Series A
Cumulative Preferred Shares, $0.01 par value per share (the "Series A Preferred
Shares") (including 300,000 Series A Preferred Shares issued as a result of the
exercise of an over-allotment option by the underwriters), at a price of $25.00
per share. The Series A Preferred Shares are redeemable at any time on or after
January 30, 2003, at $25.00 per share, plus dividends accrued and unpaid to the
redemption date. The Series A Preferred Shares have no stated maturity, sinking
fund provision or mandatory redemption and are not convertible into any other
securities of the Company. Dividends on the Series A Preferred Shares are
cumulative from the date of original issue of such shares and are payable
quarterly in arrears on the fifteenth day of January, April, July and October of
each year, to shareholders of
<PAGE> 8
record on the last day of March, June, September and December of each year,
respectively, at a fixed annual rate of 8.0%. The shares are listed on the NYSE
under the symbol "PZN Pr A."
The gross proceeds from the sale of the Series A Preferred Shares were
approximately $107.5 million, generating net proceeds to the Company of
approximately $103.4 million after deduction of the underwriting discount and
estimated offering expenses. The Company used approximately $72.7 million of the
net proceeds to repay outstanding indebtedness under the the Company's bank
credit facility. The balance of the net proceeds was used in connection with the
Company's acquisition of U.S. Corrections Corporation hereinafter discussed.
6. DISTRIBUTIONS TO SHAREHOLDERS
On March 2, 1998, the Board of Trustees declared a distribution of $0.425 per
common share for the quarter ended March 31, 1998, to shareholders of record on
March 31, 1998. In addition, the Board of Trustees declared an initial prorated
quarterly dividend for the 8.0% Series A Cumulative Preferred Shares of $0.417
per share for the period from January 30, 1998 through the dividend payment date
of April 15, 1998. The aforementioned distributions were paid on April 15, 1998.
7. SUBSEQUENT EVENTS
ACQUISITION OF REAL ESTATE PROPERTIES
On April 17, 1998, the Company and its newly-formed, wholly-owned subsidiary
USCA Corporation ("USCA") and U.S. Corrections Corporation, a privately-held
owner and former operator of correctional and detention facilities ("USCC"),
entered into and consummated an Agreement of Merger, (the "USCC Merger
Agreement"), whereby USCA merged with and into USCC and the Company acquired all
of the outstanding capital stock and derivative securities of USCC (the "USCC
Merger"), in exchange for a cash payment to the shareholders of USCC of
approximately $157.0 million. As a result of the USCC Merger, the Company also
assumed certain liabilities of USCC consisting of a bank credit facility, two
subordinated loans, and obligations outstanding for convertible, redeemable
preferred stock totaling approximately $79.4 million. Immediately prior to the
USCC Merger, Corrections Corporation of America, a manager and operator of
correctional and detention facilities ("CCA"), purchased USCC's facility
management contracts and the corresponding enterprise value of operations from
USCC for $10 million in cash. Accordingly, as a result of the USCC Merger, the
Company acquired only real estate properties in substance.
By virtue of the USCC Merger, the Company acquired four correctional and
detention facilities in Kentucky, one in Ohio and two, which are currently under
construction, in North Carolina. Such facilities currently have an aggregate
design capacity of approximately 5,200 beds. The Company will not operate the
acquired facilities but has entered into leases for the Kentucky facilities
with, and expects to lease the North Carolina facilities to, CCA, who will
operate the facilities, pursuant to long-term "triple-net" operating leases
under the terms of that certain Master Agreement to Lease, dated July 18, 1997,
between the Company and CCA. The Company will continue to lease the Ohio
facility to Hamilton County pursuant to the terms of an existing lease.
MERGER WITH CORRECTIONS CORPORATION OF AMERICA
The Company has entered into an Agreement and Plan of Merger, dated as of April
18, 1998 (the "Merger Agreement"), with CCA, a Tennessee corporation. Pursuant
to and subject to the terms and conditions of the Merger Agreement, CCA will be
merged with and into the Company with each share of CCA common stock being
converted into the right to receive 0.875 Company common shares, $0.01 par value
per share. The Merger is subject to certain conditions, including approvals by
regulatory and governmental agencies, approval by Company shareholders, and
approval by CCA shareholders. The Company expects that the transaction will be
consummated on or about January 1, 1999.
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward-looking statements about the Company's
business, revenues, prospects, expenditures and operating and capital
requirements. In addition, forward-looking statements may be included in various
other Company documents to be issued in the future and in various oral
statements by Company representatives to securities analysts and potential
investors from time to time. Any such statements are subject to risks that could
cause the actual results to vary materially. The risks and uncertainties
associated with the forward-looking information include the strength of the real
estate markets in which the Company operates, competitive market conditions,
general economic growth, interest rates and capital market conditions. The
Company discusses such risks in detail in its Annual Report on Form 10-K for the
year ended December 31, 1997.
OVERVIEW.
The Company was formed on April 23, 1997, as a Maryland real estate investment
trust to capitalize on the opportunities created by the increased demand for
private correctional and detention facilities. The Company has elected to
qualify as a REIT for federal income tax purposes commencing with its taxable
year ending December 31, 1997.
On July 18, 1997, the Company commenced operations after completing an initial
public offering of 21,275,000 common shares (including 2,775,000 shares issued
as a result of the exercise of an over-allotment option by the underwriters)
(the "Initial Offering"). The 21,275,000 common shares were issued at the
Initial Offering price of $21.00, generating gross proceeds of $446.8 million.
The aggregate proceeds to the Company, net of the underwriters' discount and
offering costs, were approximately $412.1 million. Proceeds of the offering were
used to purchase correctional and detention facilities, as well as for initial
working capital.
The principal business strategy of the Company is to acquire correctional and
detention facilities that meet the Company's investment criteria, from both
private prison managers and government entities, to expand its existing
facilities, and to lease all such facilities under long-term leases to qualified
third-party operators, including affiliates of the sellers. The Company's
initial investments were privately-managed facilities that were owned and
operated by CCA. However, the Company is pursuing other opportunities, including
acquisitions and leasebacks of, or financings for, correctional facilities owned
and operated by various government entities and private operators other than
CCA. Substantially all of the Company's revenues are derived from: (i) rents
received under triple net leases of correctional and detention facilities; and
(ii) interest earned from the temporary investment of funds in short-term
investments.
The Company, together with its wholly-owned management subsidiary, Prison Realty
Management, Inc., a Tennessee corporation, incurs operating and administrative
expenses including, principally, compensation expense for its executive officers
and other employees, office rental and related occupancy costs and various
expenses incurred in the process of acquiring additional properties. The Company
is self-administered and managed by its executive officers and staff, and does
not engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company does engage legal, accounting, tax and
financial advisors from time to time. The primary non-cash expense of the
Company is depreciation of its correctional and detention facilities.
<PAGE> 10
The Company expects to leverage its portfolio of real estate equity investments
and will incur long and short-term indebtedness, and related interest expense,
from time to time.
The Company has made distributions to its shareholders in amounts not less than
the amounts required to maintain REIT status under the Code and, in general, in
amounts exceeding taxable income.
RESULTS OF OPERATIONS.
For the three months ended March 31, 1998, rental revenues of $13.5 million were
generated from the leasing of 13 correctional and detention facilities, with
interest income of $0.4 million earned during the same period through investment
of cash prior to purchase of the real estate properties. Lease rates for all
correctional and detention facilities were 11% based upon original acquisition
cost.
General and administrative expenses incurred for the three month period ended
March 31, 1998 were approximately $0.4 million, or 3.1% of lease revenues and
consisted primarily of management salaries and benefits, legal and other
administrative costs. Interest expense, including amortization of loan costs,
incurred for the same period was $0.6 million based on borrowings under the
Company's bank credit facility. Depreciation of real estate properties totaled
$4.1 million for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES.
Upon completion of the Initial Offering, the Company received approximately
$412.1 million in net proceeds. The Company used these funds, borrowings under
the Bank Credit Facility (as herein defined), and cash provided from operations
to purchase 13 correctional and detention facilities at an aggregate cost of
$491.5 million. Initially, cash on hand was invested by the Company in
interest-bearing accounts and other short-term, interest-bearing securities that
are consistent with the Company's election to seek qualification for taxation as
a REIT. After the Company began utilizing the Bank Credit Facility, cash
available was utilized to reduce outstanding borrowings.
The Company expects to meet its short-term liquidity requirements generally
through cash provided by operations and borrowings under the Bank Credit
Facility. The Company believes that its net cash provided by operations will be
sufficient to allow the Company to make distributions necessary to enable the
Company to maintain qualification as a REIT. All facilities owned by the Company
will be leased to third parties under triple net leases, which require the
lessee to pay substantially all expenses associated with the operation of such
facilities. As a result of these arrangements, the Company does not believe it
will be responsible for any significant expenses in connection with the
facilities during the terms of the Leases. The Company anticipates entering into
similar leases with respect to all properties acquired in the future.
On March 2, 1998, the Board of Trustees declared a distribution of $0.425 per
common share for the quarter ended March 31, 1998, to shareholders of record on
March 31, 1998. In addition, the Board of Trustees declared an initial prorated
quarterly dividend for the 8.0% Series A Cumulative Preferred Shares of $0.417
per share for the period from January 30,1998 through the dividend payment date
of April 15, 1998. The aforementioned distributions were paid on April 15, 1998.
The distributions to the Company's common shareholders are in accordance with
the Code's requirements for qualification as a REIT.
The Company closed on the $150.0 million "Bank Credit Facility"
contemporaneously with the closing of the Initial Offering. The Bank Credit
Facility is a three-year, revolving, secured acquisition credit facility that
expires in July 2000. Applicable interest rates for borrowings under the
facility are determined by adding 1.50% to the LIBOR rate for the interest
period selected by the Company. The Company may specify LIBOR rate loans of one,
two, three, or six month maturities. The Company may also borrow up to $5.0
million at the prime rate for working capital purposes and repay such loans at
any time. A commitment fee of 0.25% per annum accrues on the amount of the
unused available credit commitment. Any borrowings under the Bank Credit
Facility are secured by the pledge of each of the Facilities. The Company is
subject to
<PAGE> 11
ongoing compliance with a number of financial and other covenants under the Bank
Credit Facility, with which the Company is and has been in compliance.
On January 30, 1998, the Company received net proceeds of approximately $103.4
million through its offering of 4,300,000 8.0% Series A Cumulative Preferred
Shares, $0.01 par value per share (including 300,000 Series A Cumulative
Preferred Shares issued as a result of the exercise of an over-allotment option
by the Underwriters), at a price of $25 per share. The Company used
approximately $72.7 million of the preferred share offering proceeds to repay
outstanding indebtedness under the Bank Credit Facility, which included $40.7
million borrowed subsequent to December 31, 1997, to fund the January 5, 1998
acquisition of the Davis Correctional Facility and for working capital purposes.
There were no outstanding borrowings under the Bank Credit Facility at March 31,
1998. In April 1998, the Bank Credit Facility was increased to $225.0 million
and the entire amount of such facility, along with the remaining net proceeds of
the preferred share offering, were used to finance the acquisition of USCC as
discussed in the notes to the Company's consolidated financial statements.
As of March 31, 1998, the Company had no commitments with respect to other
capital expenditures. However, as a result of the Company's acquisition of USCC,
the Company expects to incur additional construction costs of approximately $28
million related to two facilities under construction in North Carolina. In
addition, the Company has options with varying terms to purchase any or all of
ten Option Facilities from CCA for CCA's costs of developing, constructing and
equipping the facilities, plus 5% of such costs, aggregating approximately
$461.4 million. The Company also has an option to acquire, at fair market value,
and lease back to CCA, any correctional or detention facility acquired or
developed and owned by CCA in the future for a period of three years following
the Service Commencement Date with respect to such facility.
The Company expects to meet its long-term liquidity requirements for the funding
of real estate property development and acquisitions by borrowing under the Bank
Credit Facility and by issuing in public or private transactions, equity or debt
securities. The Company anticipates that as a result of its initially low debt
to total capitalization ratio and its intention to maintain a debt to total
capitalization ratio of 50% or less, it will be able to obtain financing for its
long-term capital needs. However, there can be no assurance that such additional
financing or capital will be available on terms acceptable to the Company. The
Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of facilities, the acquisition of
additional properties, or as necessary, to meet certain distribution
requirements imposed on REITs under the Code.
YEAR 2000 COMPLIANCE.
While the Company has completed an assessment of its computer systems and
software applications and believes that both are "Year 2000" compliant, there
can be no assurance that coding errors or other defects will not be discovered
in the future. In addition, the Company has not initiated formal communications
with its lessee or with any of the entities which contract with its lessee to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issues. The Company expects to address
this issue with these parties in 1998, which is prior to any anticipated impact
from the issue. Any Year 2000 compliance problem of the Company, its lessee or
other third parties could result in a material adverse effect on the Company's
business, prospects, results of operations and financial condition.
FUNDS FROM OPERATIONS.
Management believes Funds from Operations is helpful to investors as a measure
of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes Funds from
Operations in accordance with standards established by the White Paper on Funds
from Operations approved by the Board of Governors of NAREIT in 1995, which may
differ from the methodology for calculating Funds from Operations utilized by
other equity REITs, and accordingly, may not be comparable to such other REITs.
The White Paper defines
<PAGE> 12
Funds from Operations as net income (loss), computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Further, Funds from Operations does not
represent amounts available for management's discretionary use because of needed
capital replacement or expansion, debt service obligations, or other commitments
and uncertainties. Funds from Operations should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make distributions. The Company believes that in
order to facilitate a clear understanding of the consolidated operating results
of the Company, Funds from Operations should be examined in conjunction with net
income as presented in the consolidated financial statements.
The following table presents the Company's Funds from Operations for the three
month period ended March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Funds from Operations:
Net Income $ 7,307
Add back real estate depreciation 4,130
-------
$11,437
=======
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a). Exhibits
10.1 Lease Agreement between the Company and CCA with respect to the Davis
Correctional Facility (previously filed as Exhibit 10.30 to the Company's
Registration Statement on Form S-11 (Commission File Number 333-43935) (Filed
January 9, 1998) and uncorporated herein by reference).
10.2 Exercise Agreement, dated as of January 5, 1998, by and between the Company
and CCA with respect to the Davis Correctional Facility (previously filed as
Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the period ended
December 31, 1997 and uncorporated herein by reference).
27 Financial Data Schedule. (For SEC use only)
(b). Reports on Form 8-K
None.
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CCA PRISON REALTY TRUST
/s/ Vida H. Carroll
- --------------------------
Vida H. Carroll
Chief Financial Officer
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF CCA PRISON REALTY TRUST AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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0
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