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The GEO Group, Inc. Message Board

  • flipper_58 flipper_58 Dec 19, 1999 5:14 PM Flag

    rainguage....CPV

    The reason CPV has so few employess is they are
    not an operating business in a true sense you
    normally thing of. The people there deal with paper work
    and finances. They lease their prison in a triple net
    lease form to WHC which means the tenant is responsible
    for everything, almost. Since the lease range 10-15
    years there really is not a lot to do in
    meanwhile.

    Your question on PZN is much more complicated. The
    situation has become much, much more speculative. If you
    bought PZN orginally years ago for income the merger
    with CCA changed the stucture dramacically. The leases
    with a now private CCA are very loose. CCA had
    occupancy problems and thus PZN had to "kick" money back to
    CCA in a strange set of inventive fees arrangements.
    With that move last May Doc lost a huge amount of
    creditability with Wall Street, not good for a "growth
    REIT".

    Not really knowing your personal situation on why you
    bought PZN I really can't advise you. I think PZN will
    de-REIT next year because of VERY important series of
    announcements expected this week. THis relates to PZN being
    forced to bring in an outside investor. Is PZN a sell?
    If you can live with it to $4-$5 I think it's a
    hold. If they de-REIT they will create a series of
    sellers that wanted the income. Long term PZN controls
    over 50% of the market share, size matters when the
    cost of doing business now is $50-$100mm to build or
    buy a prison. PZN pays 400 basis points over LIBOR
    for short debt vesus 200 for CPV. In a few years if
    PZN gets it s+++ together they should have access to
    the unsecured debt market too as well as bring their
    debt costs down. THis could be VERY important if REIT
    equity prices continue to stuggle. It allows the REIT to
    lever it's balance sheet, in a more accretive way then
    low priced stock. For example I figure CPV, assuming
    50% debt on a new purchase, doesn't have accretive
    stock till almost $15.75/share including rough
    underwriting fees. CPV Book Value is stated at $18.45, most
    definitely higher, so getting back to $16 certainly isn't an
    off the wall prospect. Next round of equity I'm sure
    will be a big one as I think they under did it in the
    IPO. But they did their IPO the WEEK CCA/PZN announced
    their bomb to merge. Still went to a premium
    though.

    The reason the CPV story works is because running
    prisons is good money and there is new business as far as
    the eye can see. You can't say that always about
    hotels, office buildings, factory malls, shopping
    centers....and on and on. The key to CPV is WHC, it's single
    tenant. WHen investors get concerned about "the Gov't"
    changing it's mind they forget there is Federal, State and
    Local, just because one politican is getting "greased"
    (CA.governor)by the unions doesn't mean the Feds won't take the
    beds. Bottom line, with an 8 year economic boom and the
    Feds, State and Local Gov't's swimming in our tax
    dollars the private correction field is maintaining it's
    6-7% of new beds coming on line of the total. This
    will increase I'm sure.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Since I'm retired, PZN serves as an income stock.
      If dividends are not safe, that's a problem. Are the
      dividends for CPV "safe?" I printed all the info you gave
      me so that I can study it carefully. I do appreciate
      this.

      • 1 Reply to rainguage
      • The fact that CPV yields 12.50% is telling
        something. Use cautious if you are not able to replace your
        principle.

        When I worked in the brokerage business I always tried
        to get people to use strategies like buying treasury
        zero's for principle protection and high yield to gamble
        a bit. Getting an extra 4-5% annual yield and
        losing 20% of your principle to do it won't work long.
        Segregate your assets, IMO make sure you have a definite
        plan to make sure you have 100% of your assets within
        short intervals. Your base principle should be in Bank
        CD's, T-bills...period. Forget everything else. Then
        gamble a little with the rest, good luck.

    • I have a few worries that could mess up the
      story. Sure you could say Janet Reno gets her way and
      legalizes drugs, but I think that's a really lond shot.
      Buying CPV at 65%(min), book value (also 65% of some at
      CONSTRUCTION COST too) I'm not to worried about the asset
      values. Wht I am worried about is a possible take over of
      WHC, in a LBO or something. Sure WHC shareholders
      might like it, but "my" tenant would be debt ridden at
      that point, not what I want. I don't think WHC would
      even consider a sale at these crazy low prices though,
      so it's a far off issue I hope.

      THe large
      REIT buyers have failed to latch onto the prison REiT
      story. PZN or CPV never has many of the needed big REIT
      advisors buying them, Cohen and Steers, Green Street,
      etc..critical names if you want to be accepted IMO. Most of
      those guys won't touch REIT's unless they see the stock
      price is accretive and there is true growth in the
      works. NOt many REIT's, out of the whole, fall into that
      catagory I guess these days.

      Sorry to be so
      "windy".

 
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