Taxable income isn't subjective - it is defined by law; it's what is reported on the tax return.
FFO (Funds From Operations)is a REIT term defined by the industry, designed to approximate operating cash flow (net income plus depreciation and amortization of real estate capital costs).
FAD (Funds Available for Distribution) is an analyst's/investor's concept - how much is available to pay dividends. The point of contention between PZN and some analysts centers on how this number is affected by the special fees being paid to OPCO. Put simply, some analysts have taken the position that the fees reduce the amount of cash available for dividends. PZN's contention is that the fees are properly considered part of the lease or building costs and should only reduce FAD to the extent of debt service.
To the accountant in me, PZN's position is correct. Why should the tenant inducement fees be treated differently than the architect's fees, or zoning fees or legal fees, or the cost of bricks?
Yes, when you add up all the costs, a prison now will cost PZN $40,000 per bed instead of $35,000 that everyone expected. And yes, that will increase the amount being borrowed and interest costs. But if they are getting 20% lease income (instead of 22%), it's still a good deal.
Some analysts are still steamed by the fact that the lessee who is getting these fees is a private company. If it were a public company, though, PZN would not be getting 20% lease income.