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Corrections Corporation of America Message Board

  • Daniel_Raider Daniel_Raider Nov 2, 1999 1:55 PM Flag

    Another PZN Insider Purchase

    30-Sep-99
    MOORE JACKSON W (Director)
    Bought (P)
    1,269 Common 10.75 $13,641

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    • I just got an e-mail saying the four officers
      indicted at Corcoran were acquitted today. However, I
      don't see how this acquittal will cause any problems
      for the company in filling Cal City or San Diego.
      FWIW

    • indicate the post # that indicated phone #'s and times etc. for the conference call Wed AM.

      THANKS IN ADVANCE!!

    • The Preferred has also gotten my attention in the
      past, but I used my dividends to buy more common. My
      biggest concern with the Preferred has to do with the
      impact we'd see if additional preferred is issued in
      conjunction with the upcoming Strategic Investor/Special
      Dividend mess. In short, I would expect the price of the
      existing Preferred to drop if additional Preferred shares
      are issued, which seems possible.

      Don't put
      too much emphasis on the insider purchases. Those
      purchases were not that large, as a % of their existing
      holdings.

      I'm guessing that you've read alot of the messages on
      this board. If so, you've seen alot of energy expended
      on guessing about the outcome of the Strategic
      Investor and the composition of the Special Dividend.
      While those have been interesting topics to discuss,
      the real issue is occupancy.

      When it's all
      said and done, occupancy between 95%-100% will exert a
      strong positive push to the stock price. Occupancy
      around the present 90% places the company in a difficult
      cash flow position.

      It's difficult to put a
      true financial profile together for this entity (CCA
      and PZN) as evidenced by the fact that some very
      sophisticated individuals here cannot reach consensus on a cash
      flow statement. If you think about it, that alone is
      very scary and probably a singularly good reason not
      to invest.

      To put new money into PZN at this
      time is merely a crap shoot. I'm not saying it's the
      wrong thing to do, I'm just saying you are basically
      guessing that this whole jumble of issues will work out
      well. That jumble will work out if, and only if,
      CCA/PZN are able to get occupancy up. Despite the
      numerous issues flying around, it's that simple.

      At
      these prices, I think the potential gains outweigh the
      downside but you should realize what you are getting into.
      And that's a difficult thing to do with this company.

    • It is confusing because I should not have used
      the term "earn". What I meant is that by my estimates
      PZN/OPCO only generated somewhere in the area of $0.40 in
      cash flow that is freely available to be paid out in
      dividends. The other $0.20 (to get to the $0.60 total
      payout) was financed in some fashion. When all the
      amortizatons, deferrals, and other accounting alterations are
      done, I'm sure they will show an FFO number in line
      with estimates.

      One of the problems this
      company faces is that the structure of the agreements
      between PZN and OPCO makes it so that the FFO and taxable
      net income that PZN shows significantly exceed the
      actual spendable cash that the combined entities are
      generating (I believe this was done so that OPCO would lose
      money during the first few years post-merger so critics
      of the merger couldn't point to profits at OPCO as a
      give-away to management of the private
      company).

      When occupancy fell late last year, OPCO ended up
      losing a lot more than intended which, in addition to an
      expense "oversight", required PZN to increase the fees
      payed to OPCO to keep them from hemorrhaging too badly.
      This additional layer of fees and the way they are
      accounted for, along with the lack of disclosure on the
      timing of certificates of occupancy on new facilities,
      leads me to be very uncomfortable trying to estimate
      FFO and taxable net income figures. I rely on the
      analysts (who I'm sure rely heavily on the company) for
      these numbers.

      In my mind the accounting issues
      make FFO much less important for valuing PZN than it
      is with most other REIT's. That is why I keep going
      back to trying to figure out what sort of cash returns
      this company is generating.

    • I was talking about the tenant incentive (and
      similar) fees. PZN borrows, earns or somehow raises the
      cash. When they pay the cash to OPCO, they credit cash
      and debit not expense but prepaid expenses, which are
      then amortized as expense over 12 years or
      whatever.

      When OPCO receives the money from PZN, they debit cash
      (which will be or has been spent on various operating
      expenses) and credit deferred revenue or unearned fees or
      something like that (appears on balance sheet as a
      liability). This amount is amortized over the lease term as a
      reduction of rent expense (same effect as
      income).

      No customers involved.

    • I find myself getting confused by your
      post.

      <<<I do not think they will be able to get next year's
      dividend below about $1.80 on the current share base, a
      dividend level they will not earn in Q3.
      >>>

      Are you saying the FFO (Cash Flow) estimate of $.57
      is incorrect or that 95% of taxable net income is
      less than about $.475?

      Could you please
      elaborate on your estimates for Taxable Net Income (that
      PZN has to pay 95% of for REIT status) versus their
      FFO (Cash Flow) for the following:

      3rd Qtr.
      1999: TNI=? FFO=?

      4th Qtr. 1999: TNI=? FFO=?


      Year 1999: TNI=? FFO=?

      Year 2000: TNI=?
      FFO=?

      Thanks,
      NHY

    • I seem to be forgetting these days more than I'm remembering. THx for your numbers update.

    • When I look at the issue of when PZN/OPCO taken
      as one entity will have sufficient cash flow to
      cover PZN's dividend, I find that there is insufficient
      disclosure on how the various fees are being accounted for
      to back out an accurate number from the financial
      statements.

      Largely because of this, I took some time and built a
      model "from the ground up" that looks at the number of
      CCA beds, the margin per bed, overhead expenses,
      interest expenses, contribution from the service
      companies, etc. to come at cash flow from a different
      angle.

      Obviously, this process involves a lot of assumptions and I
      will readily admit it is probably no more accurate
      than an educated guess on how the accounting works
      within the financial statements, but for what it is
      worth it showed that even with the poor occupancy at
      CCA in Q2, there was enough cash to support a $1.40
      annual dividend. If occupancy in Q3 turns out to be
      around 90% at CCA, then I think the numbers will show
      that a $1.60 dividend could be supported with no
      external financing.

      Unless PZN becomes extremely
      creative with its accounting, I do not think they will be
      able to get next year's dividend below about $1.80 on
      the current share base, a dividend level they will
      not earn in Q3. If PZN gets the FBOP beds and
      approaches 100% occupancy by early next year, then I think
      they will produce enough cash flow to pay next year's
      dividend, whatever it may turn out to be on a per share
      basis following potential dilution from an SI. If
      occupancy stays in the 90% range, then I think PZN will be
      generating enough cash flow to support the REIT minimum
      mandated dividend by the third or fourth quarter of next
      year.

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