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Corrections Corporation of America Message Board

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    • I've crunched a few numbers and I think that
      Retired Paperman hit the nail right on the head when he
      said that all eyes will now turn to occupancy with the
      SI issue temporarily moved to the back burner. Why
      it took until now for these guys to realize that
      they could postpone their dividends until next year we
      will probably never know, but isn't Bob supposed to be
      an REIT expert?

      As I calculate it, if you
      combine PZN and OPCO, the actual free cash available to
      pay dividends was about 25 cents a share. The picture
      is not as bleak as that may sound, however, since
      growth is a huge cash user (which is why I agree this
      entity would work much better as a C Corp.). If the
      company were to simply stop adding beds and increase the
      margin per bed, I calculate they could support about a
      33 cent dividend, even if occupancy stayed at
      current levels. The current system filled up and at
      mature profit levels could support a dividend close to
      40 cents.

      And if Doc's dream of all the new
      beds being brought on in the fourth quarter were
      filled and brought up to mature margins, the company
      could pay a 55 cent dividend without financing, by my
      calculations.

      Bottom line, this is why I stay in this stock. Either
      they will be able to continue getting financing to
      expand and pay dividends, in which case FFO will
      continue to rise as long as the fundamentals of the
      industry hold up, or they will not be able to get
      financing in which case they will have to stop building,
      fill the beds and pay a dividend consistent with true
      operating cash flow. After the fourth quarter, I think this
      non-growth, "mature" dividend would be north of 50 cents per
      quarter or $2.00 per year, not a bad cash yield.

      • 2 Replies to Quadrophile
      • His no growth scenario, I believe, is similar to
        yours: "I think this non-growth, "mature" dividend would
        be north of 50 cents per quarter or $2.00 per year,
        not a bad cash yield."

        At that point, how
        would debt (prinicpal) be paid back? (I assume your
        cash flow available for dividends is after adding back
        depreciation). Even my bank gets tired of interest only payments
        after a while (especially lately).

      • As to Bob being a REIT expert and them not coming
        up with the "pay the dividend next year" strategy -
        necessity is the mother of invention. You don't look at
        something until your cash flow dictates that you do so. As
        much venom as has been thrown at these guys (and a lot
        of it deserved) you better start cheering for them.
        I think they are going to deliver on a lot of the
        occupancy issues outstanding, but you better hope and pray
        they negotiate a deal with the strategic investor that
        doesn't dilute us all straight to you know where. Their
        ability to convince an si to give them financing at a
        level that doesn't cripple the company's current
        shareholders is very, very important to all of us too stupid,
        stubborn, or optimistic to have sold this wonderful stock.

    • Got it. Actually I think I understood it earlier
      today, then tried to go from memory this evening and got
      things twisted around. Thanks for re-posting.

      The
      prospect of going through this another year is not sitting
      well with me. After today's non-conference "conference
      call", I can't believe any mainstream analyst can give
      this thing a rating above 3. Hopefully, ML will play
      ball and initiate coverage (I don't think they follow
      us) with a Buy after they take us to the cleaners.

    • If this method is legal, and I don't claim any
      knowledge beyond what I have read on this board, it has
      certain ramifications.

      If the REIT-required
      dividend for this year is deferred until next year, and
      next year's is deferred until the year thereafter, in
      effect PZN's shareholders will have made PZN a loan at
      no interest in the amount of a year's worth of
      dividends, perhaps in perpetuity. This method, regardless of
      its effects on shareholders, certainly would seem to
      relieve the need for PZN to raise money, or obtain a SI.
      OR, if the need for the SI is only a matter of
      financing growth, then the terms of that relationship may
      be much better than we were fearing.

      But one
      is given to wonder that, with all the financing
      problems various REITs are having, if this method IS legal
      why the hell haven't others heard about it and
      adopted it as standard practice?

      Next, if the
      dividends paid out this year were all special dividends,
      the tax status of those dividends for investors is
      suddenly changed. ALL of the dividends become taxable, as
      the special was to be! Another fine present for
      long-suffering PZN shareholders.

      One must also wonder
      about the change in status of the dividends being
      declared. The board has declared separate 'regular' and
      'special' dividends all year. They even post separately in
      my brokerage account. To change that status after
      the fact would seem to provide ample grist to the
      lawyers, should any be listening (should any understand
      the situation).

      Last year I got my final
      broker's statement in April, because REITs were still
      determining the tax status of dividends being paid. I wonder
      if IRS will understand PZN shareholders being unable
      to calculate their tax returns for a couple of
      years?

    • I don't know about the legality of the deferring
      of dividends, etc., as I am not a tax expert. I
      have, though, previously owned other investments in
      which the dividends were declared during the year as
      "regular" dividends, then the nature of the dividends was
      changed after the fact. For expample, in January of 1996,
      a portion of the dividend declared and paid as a
      regular dividend in 1995 would be reclassified as, say,
      return of capital. Even screwed up my year-end summary
      brokerage statement, as my broker had to prepare a new one.


      Presumably, the classification of a dividend can be changed
      prior to the date that taxes on that dividend are due,
      which is usually April 15th of the following year, of
      course.

      As to the legality of deferring
      dividends, like you, today on this board is the first that I
      have heard of it.

      By the way, it would appear
      that you and I have flip-flopped. Prior to today, you
      were generally negative and I was optimistic about our
      chances of working out of this mess. Your prior post this
      evening was actually positive, while I am now on the
      verge of getting out and trying to forget that I ever
      owned this.

    • there's usually some symmetry to tax
      laws.

      Even if the regular 1999 dividend is deferred as far
      as cash payment, I suspect it would be taxable to
      shareholders in 1999 in order for PZN to avoid paying tax in
      1999. Do you know?

    • You are right. It does change things.

      The
      effect is a free loan by the shareholders of a year's
      dividends. Other REITs don't adopt it because they are not
      in the financial straits of PZN. Why don't C corps
      withhold dividends on their preferred stocks when in
      financial straits? I don't know whether the IRS assesses
      penalties for this delay or not or if it can be done
      perpetually.

      Yes, I believe the dividends will all be ordinary, at
      least up to the amount of the Special. It's been so
      long that I forgot my calculation of that amount but
      someone said $1.82.

      The board declared separate
      special and regular dividends for reasons I never
      comprehended. They always said all amounts over the 95%
      required would be applied to the special. Perhaps they
      originally optimistically assumed the 95% regular would be
      in the neighborhood of of the $2.20.

      PZN's
      tax year(s) covered by the dividend would not be
      applicable to the shareholders. Only the calendar year in
      which they were received by the shareholder would
      matter.

      Once again, these are simply my educated
      opinions. I'm not a tax accountant or tax attorney.

    • I doubt the IRS would tax individuals for
      dividends they haven't received. I don't know what the
      ramifications to PZN might be. Just read a post however, that
      says they can postpone 1999 regular dividends until
      Jan. 31,
      2000 without penalty. That would open
      another cans of worms, I believe, as to when shareholders
      owe taxes on these dividends paid in 2000.

    • Switching to Merrill from Lehman may have been a
      necessity. I have to believe that Lehman felt that Doc
      sabotaged the May road show with his CC confessions (and
      omissions).

      It's a bit disconcerting that in less than a year, Doc
      has alienated First Union in favor of sole-sourcing
      with Lehman, and then Lehman in favor of ML. And who
      knows what HSBC, the last "SI" thinks of all this. And
      for whatever reason, PW has had it in for PZN since
      spring of last year. I also heard that Goldman got
      snubbed in the Lehman deal. I guess enough fees can
      always buy a new friend, but the possibilities are
      narrowing.

      Sorry to be so negative, but I haven't heard anything
      good today.

    • in the year in which they are received.Period.

    • My gut tells me that dividends deducted by PZN in 1999 will be taxed to shareholders in 1999, regardless of when paid. I'll try to check for sure tomorrow.

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