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  • newMK newMK May 14, 1999 6:26 PM Flag

    You can hear it now. 2

    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.

    In the
    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.

    The
    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
    numbers.

    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).

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • 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
      potentially 15%
      transfer to OPCO; pretty expensive agent,
      IMO.

      2. Could you provide the source of your assertion,
      that DOC was buying shares today!!

      • 2 Replies to cleonew
      • 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
        each year.

      • 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
        said yes.

        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
      is
      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
      of
      center stage and let some professional public relations
      people
      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
      humble opinion.

      • 2 Replies to olddaddygram
      • just want brigade to know that there's another
        brilliant, erudite, sophisticated,
        and incisive poster on
        this thread.

        The one thing I don't agree with
        is "...and OPCO into remarkable companies."
        That
        may be---make that 'is"---a little
        beyond the pale
        at this point, and probably for a long time to
        come.

        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
        him.

        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
        knee-jerking
        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,
        opinion-maker relations.
        Now it looks like some accounting
        help might be in order, as well.

        Fear not,
        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
        tonight.

        This little hiccup here, though, is sort of like a
        wart in a delicate place....
        painful, but not
        life-threatening. Embarrassing, but not transmittable.
        Hard to
        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
        dividend rate.
        Sleep then comes easily, a fact I intend
        to take advantage of right now.

        Good luck to
        all. Nic

      • The market hasn't liked this deal since day one.
        Unfortunately you are right, perception is more important than
        numbers sometimes.

        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
        or snafus.

        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
      so.

 
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