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  • tryasyoumight tryasyoumight May 17, 1999 7:19 PM Flag

    A simple and elegant solution

    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??

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    • ...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.

      • 1 Reply to crosswindlandings
      • 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.

      • 1 Reply to RetiredPaperman
      • 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

 
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