Prison REITs: Go Woke, Go Broke?
The United States has the largest prison population in the world. The swelling prison population, combined with limited state and federal resources, facilitated the rise of privately-owned prison facilities.
Undoubtedly the most controversial real estate sector, Prison REITs have been under assault from the hard-line “woke” culture that sees private prisons as conspirators in a powerful “prison industrial complex”.
Prison REITs haven’t been very effective conspirators. Prison ownership remains a challenging, low-margin business with poor historical investment returns. Prison REITs trade at deep discounts with dividend yields above 10%.
While the hard evidence debunks many of the claims made by the loudest critics, Prison REITs face a potential existential crisis if the political winds shift unfavorably in the 2020s.
Despite the “cancel culture,” we see opportunity for speculative investors willing to assume the political risk. Modernization of outdated public facilities would be a win-win for investors and inmates alike.