If you put the two businesses back together (which is potentially the fair way to value the entity anyway) the system generates substantially less reported economics. PZN is supposed to do $300mm of FFO this year, and it seems if OPCO is losing $40MM in cash after getting paid $80mm in additional fees from PZN, OPCO is really losing $120mm. So take $300MM of PZN FFO and subtract $120mm of OPCO losses, and you get $180mm of combined FFO (maybe accountants can monkey with this number and take some expense and ammortize it, but cash basis is fair way to look at economics). Divide $180MM of FFO by 117mm shares (although share count may go higher if they have to buy OPCO back in??), and you get $1.55 of FFO.
At $1.55 of FFO, what multiple does the business deserve? I suspect the multiple it would get would likely be a discount to peer given the credibility issues that have arisen at the company.
What do you think of this analysis, is it a fair way to value the company as a system. If so, I can get to a number for stock price of around $10 or $11 using a 7x FFO number, which may be appropriate for a tarnished story w/ legal/other clouds hanging around. JMHO. Any thoughts??
...that he was comfortable with analysts' earnings estimates for the next quarter and remainder of the year, and that the various fees ($4000 included) were included as part of Q1; if such is the case, then FFOPS will present no surprises for the balance of this year.
We hope!!! Unfortunately, the "stupid accounting mistake" raises anxiety about the company's ability to convince underwriters, investors, etc., that they have a competently run ship. Stock was down to 13 this AM, that speaks volumes about credibility -- also raises questions which make Doc's roadshow pretty uncomfortable for him and us. Are there other "accounting mistakes" which have yet to be discovered. Happy to say, I bought puts yesterday, but I'd like to see them expire worthless. I've seen too much money disappear this week due to Doc's "surprise". Should have bailed out of this stock last year.
I they want to maintain their reit status. Reits can only own the real estate,not operate the business, unless they are a paired shared reit, which PZN is not. And can't become one. Not allowed anymore.
Interesting thumbmail analysis. I'm away from my home office so I can't do the analysis I'd like to do but mine would go something like this...Pre-merger, CCA was supposed to make something like $1.20 a share (adjusting down for the drop in communicated growth from 40% to 20%). PZN was about 1/4 the size of CCA so you can almost exclude them from the equation but if you choose to include them, it probably doesn't hurt my case.
Take $1.20 and give it a pe of 25 instead of the previous 40+. A pe of 25 on a 20% grower would be quite conservative for this market. I think the S&P pe is about 28 and growing under 10%. $1.20 x 25 is 30.
With that cursury analysis done, my argument is that it ("it" being the numbers) doesn't matter. PZN has no choice. They might have pulled off the REIT if they'd operated flawlessly but the "mistake" is the end of the great experiment. Regardless of the numbers, the market has spoken. The stock is at $15 and going lower. IF the debt deal goes through, they'll still need to issue stock early next year and it's going to be at horribly low prices.
Fortunately, they've run the actual operations side of the business pretty well, except for Youngstown. Otherwise we'd be at 10 right now.
In summary, the numbers don't matter anymore. Credibility is zero and it can only be fixed by making the whole entity a public corporation. Lose the REIT status, PZN pays taxes at the lower corporate rate, I stop paying at 46%, the stock goes higher than it would otherwise. I'm afraid you won't find the answer to this one on your calculator.
These new payments to Opco started on January 1. Not only the company did not tell shareholders and analysts then, it DID NOT EVEN MENTIONED IT DURING CONFERENCE CALL ON Q1 JUST A FEW DAYS AGO!!! Only the fact, they are going on the road peddling bond deal, has made them to come clean. HOW CAN YOU TRUST THIS MANAGE- MENT, THEN??!! And, after this all, Crants has the gall to give a lecture on the conference call. Have you heard the CONDESENDING MANNER IN WHICH HE LECTURED ANALYSTS ON WHAT IS FFO AND HOW IT IS COMPUTED? Another issue is Opco: where else can lessee renegotiate a bad deal so easily. Ops, we forgot to charge you for the start-up costs!! NOBODY TRUSTS THIS MANAGEMENT TEAM ANYMORE! And this "INDEPENDENT" BOARD, THAT FEEDS AT THE COMPANY TROUGH IS NO BETTER, IMO. And the most upsetting thing is, that this is very good business. It's a shame, that all these unscrupulous people are allowed to destroy good company. Many of you mentioned Litt today. I do not know, why are you fixated so much on him; after all, he and Cleo were THE ONLY TWO PEOPLE WHO WERE DEAD RIGHT ON THE FACT THAT THIS CONVOLUTED STRUCTURE IS WROUGHT WITH HUGE CONFLICTS OF INTERESTS! But, today Bradford downgraded(will they return IB fees), Legg, NBMO, FTU, all the BIG SUPPORTERS OF THE COMPANY THRU OUT THIS 12 MONTHS ORDEAL. AND ORDEAL IT WAS!!! There are no easy solutions. Management credibility is shot. But, to start: 1. Reduce Doc salary to $1 and give him incentive options with strikes WELL ABOVE