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I also listened to CC. This wasn't a gift, it is
correcting a simple, but in hindsight stupid, accounting
mistake. Has to be viewed in overall context of what's
going on with this business.
PZN is designed to
capture all the income of old PZN and old CCA in a single
entity (PZN). OPCO exists because PZN can't manage its
real estate for tax reasons. It was carefully planned
so that OPCO wouldn't even break even for 5 years.
The two companies have to appear independent, but
really aren't. It's a brilliant plan (if you accept the
assertion that REITs can raise capital more efficiently),
but appears shady to the market.
careful planning, various fees were set up to be paid to
OPCO by PZN to cover OPCOs start-up expenses (payroll,
ramp-up, marketing, etc.) connected with new facilities.
The decision was made that OPCO should start paying
it's high lease payments the day a new facility was
ready to accept prisoners. But it takes four months to
ramp up to full occupancy, so they did a ten-year
study and calculated that on average this negative cash
flow was $840/bed. But, oops, they forgot to include
the lease payments that they didn't used to have to
pay. So they had to bump it to $4,000/bed.
money is just going in a circle, and brings them to
where they had intended to be. Trouble is, they had
included day 1 lease income in PZN's projections, but not
the outgo. Doc's right - it doesn't even directly
affect FFO. But it affects cash, and means there is $40
million less in the pot than they had expected. Large as
that number seems, it really isn't that much and
doesn't impact much of anything. The trouble is the
timing of the "confession"; and it never helps when you
have to tell Wall Street you screwed up the
If this was an arms' length arrangement between OPCO
and PZN, PZN's revenues would be much, much less
(check lease rates between CPV and WHC).
1. DOC did not answer directly, whether this was
the last of fees to OPCO from PZN. This left an
impression, that the TRANSFER OF VALUE FROM PZN TO OPCO IS
NOT OVER, YET. This was one of the issues, that
worried investors from the very beginning. Between
marketing fee, success fee, per bed fee, there is
transfer to OPCO; pretty expensive agent,
2. Could you provide the source of your assertion,
that DOC was buying shares today!!
All these fees are no more than what CCA was
paying anyway in pre-merger days to start a facility.
They have to be paid up front by OPCO. OPCO will lose
$40 million (cash) this year. How can anyone say that
PZN is lining somebody's pockets with these payments.
The main thing is that OPCO is paying 20%+ to PZN
believe it or not. I didn't enjoy the CC. I still
don't believe anything underhanded is going on, but it
just looks sooooo bad.
One of the questioners
asked Doc about his stock holdings, then said something
like "so I assume it was accurate that I saw on my
Bloomberg that you were buying shares this morning' and Doc
And by the way, Doc did answer the
question about future fee changes very directly: "OPCO and
PZN are both on plan; there is no need to pay more
fees to OPCO or make other changes, aside from
correcting this mistake."
I agree, not a big
confidence builder in light of the CC subject. Then again,
what can they do? They screwed up on a basic
calculation. There's not really much more to it.
than facts in this erratic stock market we have
to deal with. We
are under the influence of very
nervous buyers. Public relations could be greatly
improved at PZN. We are stockholders in a great company,
but we don't hold the respect of the marketplace. Doc
a brilliant man,and he has built CCA,PZN,and
OPCO into remarkable
companies. But, the truth is,
the price of the stock does not reflect it's value. I
definitely feel if we can quell the opinion
that there is
something shifty going on, the stock price will improve.
Even though Doc IS the company, he needs to get off
center stage and let some professional public relations
present the company. He is defending what he has done and
why he did it. We need to get past that and focus on
positive outcomes that will excite buyers. I hope the Road
Show accomplishes that,but I have my doubts. Just my
just want brigade to know that there's another
brilliant, erudite, sophisticated,
and incisive poster on
The one thing I don't agree with
is "...and OPCO into remarkable companies."
may be---make that 'is"---a little
beyond the pale
at this point, and probably for a long time to
Like you, I hope the road show is successful. If not
for last two days, it
certainly would be. Outcome
in doubt now.
Glad he's still doing it, though.
The more exposure Crants has to Joe and Myrtle
Investor, as well as to the opinion-makers he used to
enchant but who now see him as a self-dealer, (which he
is certainly not, BTW) the more he's likely to
understand that this company does, indeed, have a perception
problem of very high magnitude. Quicker he sees and fixes
it, the better off we'll all be....specially
Highs and lows (momentum-wise) in last
2 wks are
incredible. Turns out to be pretty much "zero-sum" though,
after today. Irony is that the "negs" weren't
prepared for this screw-up, and have been very slow to
ramp-up their spew.
Look for volume and intensity from
that corner to start its play over wknd and early next
wk. By that time, however, the initial hairball of
this mishandled misstep should have been put in
perspective by all who understand it, and
should be down to a tic.
Like you, I hope---and
have hoped for over a year---that the company might
buy some advice from a firm capable of producing
better public, investor, and most importantly,
Now it looks like some accounting
help might be in order, as well.
though. Just swallow hard (again) and buy some more (I
did) and if it goes to $10 again (it won't) rejoice in
the astrofreakingnomical dividend rate you will
calculate maybe 10 times a day.
To the brigade:
daddy-o-gram here may well get old Doc's "Nicster." Requires
thought, but damm, I sure 'nuff like the way he's thinking
This little hiccup here, though, is sort of like a
wart in a delicate place....
painful, but not
life-threatening. Embarrassing, but not transmittable.
explain, 'specially to a skittish
new partner. Good
topic for laughter after you've both gone "ah," but
only if it was good for her, too.
If you need
comfort, like MK says, just go and re-calculate your
Sleep then comes easily, a fact I intend
to take advantage of right now.
Good luck to
The market hasn't liked this deal since day one.
Unfortunately you are right, perception is more important than
We're talking about .03 per
share that was "cushioned" in the estimates, but the
penalty is a loss of over $300 million of market cap.
Same thing happened with Youngstown last year. Reduced
census maybe cost a penny a share (temporarily), but the
publicity knocked off $600 million of market value (which
hasn't come back yet).
Good news won't help the
stock price. Bad news is magnified out of all
proportion. The only good thing that can happen is the
passage of time (a long time) without any more bad news
Meantime, the company's booming
and we will get our dividends, which is why we all
hold this stock at this point.
REIT buyers, IMO, institutional ones for sure,
always are nervous of any cross dealings. As they should
be. A lot of REITs do a lot of questionable things.
Like sticking the crappy properities from their
private portfolios, getting shareholders to take the tax
hit on property gains, etc.. I'm not surprized to see
the carnage today. And I think this would happen
again in the future, it's just part of the REIT game I
guess. Doesn't feel good though. I'll probably add after
it looks like a bottom has hit in the next day or