See 2757 for 1 & 2 (tax savings, access to capital)
#3: Invisibility of OPCO. When the REIT was announced, we were told that because OPCO would be private, it "could do so much more" (exactly what, I've never known). While I would rather have OPCO private than public (controlled v. independent), there will be no invisibility because of the recent bond terms. Of course, the invisibility of OPCO is what aggravated analysts so much from the start.
#4: Price stabilization. When CCA missed earnings in Q3 1997 because of ramp up problems (which were quickly fixed), the stock price dropped 25%. We were told that because OPCO's ups and downs would be taken out of the picture, PZN would have stable prices based on predictable revenues. CCA essentially missed earnings again because of temporary occupancy and ramp up issues. Attempts to keep these issues invisible (without forthright disclosure) has caused a bigger drop in market cap (from a less lofty price) than the 97Q3 problems did. And again, by popular demand, the invisibility is gone. The only thing worse than a cover-up is a blown cover-up.
#5: Widows, orphans and retirees. When PZN was first conceived, Doc thought it would be a tough sell to traditional REIT investors. It was suprisingly easy, and many growth investors scooped the IPO up (60% cross ownership between CCA and PZN). It was so successful, it led to where we are now. The growth investors have bailed, and traditional REIT investors want nothing to do with prisons. Some institutional money I manage, with Merrill Lynch's assistance, had the opportunity to buy preferred stocks around the time PZN's preferred stock was issued. I mentioned the 8% yield to the ML advisor, and he suggested big name preferreds at 7% (Citicorp, etc.), adding "prisons are too risky". I didn't argue. Those preferreds are at or above par 15 months later. PZN preferred went from 25 to under 15.
#6: Big dividends attract the money. PZN decided in Q1 of this year to bump the dividend significantly, apparently to show investors how great the stock was. They not only paid more operating dividend than required (even with the knowledge of OPCO's shortfall in revenues), but also began accelerating the special dividend. Why, oh why, was it necessary to distribute money before it was required? It almost worked, but retreating from that super dividend policy after Q2 will be tough, even if otherwise prudent. There is no cushion for maneuverability.
#7: The special dividend. This should always have been a non-issue, because the stock will decline by however much is paid. It's only required for tas purposes, and creates more financing difficulties. But many retail investors think it's a great thing. Wrong. And wrong about the amount, too. After special charges, fees, etc. and dilution, it'll be about a dollar a share less than originally estimated.
#8: Combining growth rates. Last year we were told that new PZN would grow at a rate equal to 80% of CCA's growth rate + 20% of PZN's growth rate, or roughly 30%. Oops. Forgot dilution. Some analysts' models now show FFO calculations based on issuing equity at $15 for half of next year's capital needs. Try 30% dilution instead of 30% growth.
#9: "You're the only one for me" and "we're in the big time now". Bad things happen to people who promote themselves above their old friends and acquaintances. PZN has effectively stiffed its old circle of analysts, commercial bankers and investment bankers. There may have been expedient reasons for going exclusively with Lehman, but at crunch time PZN suddenly looked like damaged goods. BTW, is that Lehman credit line finalized?