4.	PROPERTY AND EQUIPMENT

At December 31, 2015, CCA owned 68 real estate properties, including 66 correctional and detention facilities, six of which CCA leased to other operators, and two corporate office buildings. At December 31, 2015, CCA also managed 11 correctional and detention facilities owned by governmental agencies.

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


	December 31,
	2015			2014

Land and improvements	$	207,405		$	127,221
Buildings and improvements		3,443,791			3,048,836
Equipment and software		360,168			326,603
Office furniture and fixtures		35,018			30,884
Construction in progress		30,401			276,508

		4,076,783			3,810,052
Less: Accumulated depreciation		(1,193,723	)		(1,151,424	)


	$	2,883,060		$	2,658,628

Construction in progress primarily consists of correctional facilities under construction or expansion. Interest is capitalized on construction in progress and amounted to $5.5 million, $2.5 million, and $0.8 million in 2015, 2014, and 2013, respectively.

Depreciation expense was $151.4 million, $114.0 million, and $112.8 million for the years ended December 31, 2015, 2014, and 2013, 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, one facility, which is also subject to a purchase option, is constructed on land that CCA leases from a governmental agency under a ground lease. Under the terms of the ground lease, the facility becomes the property of the governmental agencies upon expiration of the ground lease in 2017. CCA depreciates this property over the shorter of the term of the applicable ground lease or the estimated useful life of the property.

CCA leases land and building at the Elizabeth Detention Center under operating leases that expire in June 2022. CCA leased portions of the land and building of the San Diego Correctional Facility under an operating lease that expired December 31, 2015 pursuant to amended lease terms executed between CCA and the County of San Diego in January 2010, as further discussed in Note 5. 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.

CCA leases the South Texas Family Residential Center and the site upon which it was constructed from a third-party lessor. CCA’s lease agreement with the lessor is over a base period co-terminus with an amended IGSA with ICE, as further described in Note 5, and includes two one-year renewal periods. However, under terms of the lease agreement, if ICE terminates the amended IGSA for convenience, CCA can terminate the agreement, without penalty, by providing the lessor with a 90-day notice. In the event ICE elects to terminate the amended IGSA due to a non-appropriation of funds, CCA must provide a 60-day notice period to the lessor. Although CCA expects that ICE would provide advance notice, if ICE terminates the IGSA due to non-appropriation of funds without notice to CCA, CCA may not be able to provide a timely termination notice to the lessor and could, therefore, be subject to, among other termination payments, a penalty the equivalent of up to two months of payments due to the lessor, which would currently amount to approximately $13.3 million.

CCA’s lease agreement with the third-party lessor required CCA to pay $70.0 million in September 2014, which resulted in CCA being deemed the owner of the constructed assets for accounting purposes, in accordance with ASC 840-40-55, formerly Emerging Issues Task Force No. 97-10, “The Effect of Lessee Involvement in Asset Construction”. Accordingly, CCA recorded an asset representing the costs incurred attributable to the building assets constructed by the third-party lessor and a related financing liability. CCA is depreciating the asset over the four-year term of the lease and is imputing interest on the financing liability. Additionally, CCA determined that the lease with the third-party lessor also included separate units of account for the land and pre-existing cottages as well as food services provided by the third-party lessor. The amount of consideration allocated to each of these separate deliverables was determined based on the relative selling price of the lessor-financing, the land lease, the lease of pre-existing cottages, and the food services. The operating lease term for the land is equivalent to the four-year term of the lease and is recognized on a straight-line basis over the lease term. The operating lease term for the pre-existing cottages was the four-month period in which CCA used the cottages for housing residents. The food services provided by the third-party lessor are recognized proportionally based on the number of beds available to ICE.

The expense incurred for the leases at these four facilities, inclusive of the expenses recognized for the South Texas lease, as described above, was $85.9 million, $9.1 million, and $5.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. Future minimum lease payments as of December 31, 2015 under these and other operating leases, inclusive of $206.7 million of payments expected to be made under the cancelable lease at the South Texas facility, are as follows (in thousands):


2016	$	80,109
2017		73,993
2018		54,337
2019		615
2020		563
Thereafter		864

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.