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Corrections Corporation of America Message Board

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  • newMK newMK Jun 2, 1999 8:20 PM Flag

    IS PZN A MOMENTUM STOCK??

    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.

 
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