4.	PROPERTY AND EQUIPMENT

At December 31, 2013, CCA owned 55 real estate properties, including 53 correctional and detention facilities, four of which CCA leased to other operators (one of which is currently vacant), and two corporate office buildings. At December 31, 2013, CCA also managed 16 correctional and detention facilities owned by governmental agencies.

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


	December 31,
	2013			2012
Land and improvements	$	127,246		$	121,209
Buildings and improvements		3,058,748			3,034,019
Equipment and software		316,696			315,391
Office furniture and fixtures		30,969			30,678
Construction in progress		93,187			60,492

		3,626,846			3,561,789
Less: Accumulated depreciation		(1,080,233	)		(995,307	)

	$	2,546,613		$	2,566,482

Construction in progress primarily consists of correctional facilities under construction or expansion. Interest is capitalized on construction in progress and amounted to $0.8 million, $1.1 million, and $1.6 million in 2013, 2012, and 2011, respectively.

Depreciation expense was $112.8 million, $113.2 million, and $107.8 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Eleven of the facilities owned by CCA are 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 in 2015 and 2017. 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. During December 2013, CCA elected to terminate the lease of land and building at the North Georgia Detention Center effective during the first quarter of 2014. The rental expense incurred for these leases was $5.9 million, $4.7 million, and $6.2 million for the years ended December 31, 2013, 2012, and 2011, respectively. Future minimum lease payments as of December 31, 2013 under these operating leases are as follows:


2014	$	4,929
2015		2,723
2016		—
2017		—
2018		—
Thereafter		—

In December 2009, CCA entered into an Economic Development Agreement (“EDA”) 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. In December 2009, Wheeler County issued bonds in a maximum principal amount of $30.0 million. Also, in December 2009, CCA entered into an EDA 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. In December 2009, Coffee County issued bonds in a maximum principal amount of $33.0 million. In June 2013, CCA also entered into an EDA with the Development Authority of Telfair County (“Telfair County”) in Telfair County, Georgia to implement a tax abatement plan related to CCA’s bed expansion project at its McRae Correctional Facility. The tax abatement plan provides for 90% abatement of real property taxes in the first year, decreasing by 10% over the subsequent nine years. In June 2013, Telfair County issued bonds in a maximum principal amount of $15.0 million.

According to each of the EDAs, legal title of CCA’s real property was transferred to the respective county. Pursuant to each EDA, the bonds were issued to CCA, so no cash exchanged hands. In each case, the applicable county authority 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 transactions, CCA has not recorded the bonds or the capital leases associated with sale lease-back transactions. The original cost of CCA’s property and equipment is recorded on the balance sheet and is being depreciated over its estimated useful life.