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Corrections Corporation of America Message Board

  • sagittal1 sagittal1 Jun 1, 1999 8:00 PM Flag

    May I make a donation...

    when you go to the great temple in the sky I will donate my capital loss carryforwards in your memorium!

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    • Generally most like the idea of a REIT exept for
      one critical thing, the need for outside capital.
      It's fine when you adding 10-20% new business in a
      year like many other REIT's, it can be a problem when
      your doubling your business and spending your net
      worth in a year like PZN. This has been a perceived
      problem with PZN too. The "problem" can be self-filling.
      If your blended(debt and equity)cost of capital is
      12% and your share price drops, this increases your
      costs and lowers your profit margin. So the analysts
      start lowering their estimates to cover the higher
      cost. Investors see lower estimates and the cycle
      continues. It sounds simple to stop but if the REIT's profit
      margins are the usual 4-5% they go from having a growth
      component to zip.

      I think Congress is starting to
      get the message, it's very difficult to run a very
      capital intensive business this way. They MUST loosen up
      the retained earnings aspect of the business if they
      want REIT's to survive, IMO.

      What people are
      forgetting that the way things are going, PZN and CCA could
      hit "normal" ratios, to be combined REIT, in the
      distant future and not have to have an "Opco". Wouldn't
      that blow everyone away? But the laws are pointing
      that way.

      The key will be getting through the
      next 12 months for PZN, IMO. If we can get the stock
      back north of $15 then new equity shares are in the
      solidly accertive zone. By mid 2000 there will be enough
      beds on line to be producing 20% more cash flow. The
      new fees will begin to drop as a percent of revenue.
      By 2001, IMO , cash flow numbers will really be
      hitting full steam.

      This company is not going
      belly-up. They are in a strong growth mode and the REIT
      guys are like a deer in the headlights, IMO.
      Unfortunately they do have a effect here, they can certainly
      put a large damper on raising outside capital. And
      here I do agree with the bears, sometimes you have to
      shallow hard and kiss a few rear ends for the good of the
      company. If DOc can not do it, they need someone who can.
      Not that I blame him.

      • 1 Reply to flipper_58
      • The price of the stock has no impact on the
        profit margin.The price of the stock does have a
        significant impact on the ability to grow equity, as any new
        stock issue will be dilutive to the extent the stock
        price is less than book value, and hence not in the
        shareholders interest. Aside from equity the only other way to
        raise capitalization is by debt, which PZN is now
        attempting. In the event PZN is not successful then the only
        growth in ffo is from managment and enhancement of
        exisitng assets. It appears to me that debt service
        coverage is adequate (3-1) and that the company's ffo
        relative to the stock price is a bargain even if there is
        no or diminished growth in revenues.
        Basically
        the company is selling at about 5 times cash flow.
        I'd take that even with no prospects for growth.

 
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