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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
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.
...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
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
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.
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
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
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?
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,
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!!!
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