4.	PROPERTY AND EQUIPMENT

At December 31, 2012, CCA owned 51 real estate properties, including 49 correctional and detention facilities, two of which CCA leased to other operators (one of which is currently vacant), and two corporate office buildings. At December 31, 2012, CCA also managed 20 correctional and detention facilities owned by governmental agencies.

Property and equipment, at cost, consists of the following (in thousands):


	December 31,
	2012			2011
Land and improvements	$	122,258		$	119,171
Buildings and improvements		3,036,018			2,958,044
Equipment and software		318,314			301,786
Office furniture and fixtures		30,805			30,251
Construction in progress		60,572			99,408

		3,567,967			3,508,660
Less: Accumulated depreciation		(999,176	)		(899,920	)

	$	2,568,791		$	2,608,740

Construction in progress primarily consists of correctional facilities under construction or expansion. Interest is capitalized on construction in progress and amounted to $1.1 million, $1.6 million, and $3.9 million in 2012, 2011, and 2010, respectively.

Depreciation expense was $114.1 million, $108.4 million, and $106.1 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Eleven of the facilities owned by CCA are or will be subject to options that allow various governmental agencies to purchase those facilities. Certain of these options to purchase are based on a depreciated book value while others are based on a fair market value calculation. In addition, two facilities, one of which is also subject to a purchase option, are constructed on land that CCA leases from governmental agencies under ground leases. Under the terms of those ground leases, the facilities become the property of the governmental agencies upon expiration of the ground leases. CCA depreciates these properties over the shorter of the term of the applicable ground lease or the estimated useful life of the property.

CCA leases portions of the land and building of the San Diego Correctional Facility under an operating lease that expires December 2015 pursuant to amended lease terms executed between CCA and the County of San Diego in January 2010. CCA also leases land and building at the Elizabeth Detention Center under operating leases that expire June 2015. CCA also leases the land and building at the North Georgia Detention Center under an operating lease that was recently amended in June 2012 and expires in 2027. The rental expense incurred for these leases was $4.7 million, $6.2 million, and $6.2 million for the years ended December 31, 2012, 2011, and 2010, respectively. Future minimum lease payments as of December 31, 2012 under these operating leases are as follows:


2013	$	4,919
2014		4,929
2015		3,547
2016		825
2017		825
Thereafter		7,425

In December 2009, CCA entered into an Economic Development Agreement with the Wheeler County Development Authority (“Wheeler County”) in Wheeler County, Georgia to implement a tax abatement plan related to CCA’s bed expansion project at its Wheeler Correctional Facility. The tax abatement plan provides for 50% abatement of real property taxes for six years. Under the plan, legal title of CCA’s real property was transferred to Wheeler County. In December 2009, Wheeler County issued bonds in a maximum principal amount of $30.0 million. The bonds were issued to CCA, so no cash exchanged hands. Wheeler County then leased the real property back to CCA. The lease payments are equal to the amount of the payments on the bonds. At any time, CCA has the option to purchase the real property by paying off the bonds, plus $100. Due to the form of the transaction, CCA has not recorded the bond or the capital lease associated with sale lease-back transaction. The original cost of CCA’s property and equipment is recorded on the balance sheet and is being depreciated over its estimated useful life.

In December 2009, CCA also entered into an Economic Development Agreement with the Douglas-Coffee County Industrial Authority (“Coffee County”) in Coffee County, Georgia to implement a tax abatement plan related to CCA’s bed expansion project at its Coffee Correctional Facility. The tax abatement plan provides for 100% abatement of real property taxes for five years. Under the plan, legal title of CCA’s real property was transferred to Coffee County. In December 2009, Coffee County issued bonds in a maximum principal amount of $33.0 million. The bonds were issued to CCA, so no cash exchanged hands. Coffee County then leased the real property back to CCA. The lease payments are equal to the amount of the payments on the bonds. At any time, CCA has the option to purchase the real property by paying off the bonds, plus $100. Due to the form of the transaction, CCA has not recorded the bond or the capital lease associated with sale lease-back transaction. The original cost of CCA’s property and equipment is recorded on the balance sheet and is being depreciated over its estimated useful life.