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Corrections Corporation of America Message Board

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    • The point that jumped out was the pro-froma
      consolidated income statement shows a 1Q loss, but if you add
      back depreciation the company was break-even. These
      numbers were prepared on a different basis than the
      actual results and excluded some costs such as the
      default premium paid on the loan facility. But they still
      make the point that even in a difficult period the
      company was bruised, but not bleeding.

      Lawsuits
      not settled yet. The litigants may have been using
      the PL deal as leverage to force a settlement. Now
      the company has no incentive to do
      anything.

      No clear info on the failure to pay the break-up fee
      to BS.

      A competitor proposed a merger in late
      March.

      Rights offering still planned for this year.

    • The proxy statement said that the company will
      get around to paying the REIT dividend in the 4th
      quarter. IMO, that means December 31. So you get $2.50 per
      share equivalent, but you have to hold the stock till
      December to find out. If there isn't another deal before
      that time. Kind of reminds me of a girl I met back in
      the service. Promised to leave with me if I bought
      her one more drink. I decided it wasn't worth it.

    • Thanks for the clarification. It sounds as if you
      are saying that PZN has leases with contractual lease
      revenue at 40% of some valuation of the real estate, but
      that, of course, is unbelievable. In your example, 1/3
      of the lease revenue is net of services, which would
      be a 13.33% net lease rate.

      I assume that
      PZN has a contractual obligation to pay some amount
      intended to cover services to CCA.

      Suppose that a
      hypothetical facility has a monthly total lease payment of
      $100,000 from CCA to PZN, and PZN is obligated to pay
      $70,000 per month back to CCA for service expenses.
      Suppose further that the facility is completely vacant
      for a month. I assume that the contract still
      requires CCA to pay PZN the full $100,000. Does PZN still
      pay CCA the $70,000? Hence, CCA would lose $30,000 in
      that example?

      Surely the carry value of a
      prison on PZN's books is based on an appraisal that
      considers both the obligations of CCA to PZN and PZN's
      obligations to CCA, which in the above example would be
      $30,000 net revenue to PZN per month. If so, then it
      would seem to me that the valuation distortion is based
      on occupancy assumptions, rather than the fact that
      CCA pays a nominal lease rate that is more than
      triple the true net lease revenue. If that is correct,
      then the key question is what level of occupancy is
      really sustainable long-term.

      Doc's major blunder
      was to build prisons faster than he could fill them.
      If PZN stopped building (except whatever pipeline
      work is already committed), then how long would is
      take to reach 95% occupancy of existing facilities?
      And once 95% occupancy was reached, if PZN built
      nothing more, what would the company be worth?

    • Funny how you won't answer my questions but I'm
      supposed to answer your questions. Try some of these on
      for size. Inetgrated Health Services and Vencor both
      had substantial positive book value just months
      before filing for bankuptcy. Pillowtex has book value of
      $14 yet its bank debt trades at 80 cents on the
      dollar and many analsyst feel bankruptcy is likely later
      this year. Galey & Lord has a book value of $11.50 per
      share yet its bank debt trades in the 80 cent range and
      its stock can barely get above $2.00. AMF Bowling has
      a book value in excess of $10 yet its stock trades
      in drill-bit land - $11/16. Wyndham International, a
      hotel company that recently de-reited, had, and still
      has, a book value in excess of $10.00 yet was on the
      verge of bankruptcy several months ago and the stock
      still trades in the $2.50 range. US Office Products in
      1998 had a book value of $44, last year it was $11 and
      yet it stock trades at less than $1.00 and its bank
      debt trades below 70 cents on the dollar. How could
      these things happen when all of these companies had
      such ample book value of equity? Please re-read
      newMK's post. He was trying to break it to you in a
      polite manner. As far as my view on negative book
      equity, that alone would not scare me off if they had
      other more important, positive attributes like strong
      free cash flow, reasonable leverage (debt/cash flow),
      sound margins, strong market share, etc. Nextel (market
      cap of $45 Bln.), Cablevision Corporation (market cap
      of $1.2 Bln) and Adelphia Communications ($1 Bln)
      all have negative book equity, particularly the
      latter two who have substantial negative book equity.
      Finally, don't give me any BS how these companies are all
      not real estate companies because that is nonsense.
      Why is book value important for real estate concerns
      but not for non-real estate companies? Besides there
      are no shortage of health care REITs who had positive
      book equity that are now in the tank.

    • PZN shareholders could not ask for
      a better
      arbiter than
      Standard & Poor's to sit down
      with
      the new incoming management after
      the reorg is
      complete, to review
      it plans and strategies for
      the
      FUTURE. We just need patience until
      that review takes
      place, and they
      issue their report. I look
      forward
      to a good long-term capital gain
      on my shares 11
      months from now.

    • Don't twist my words to your benefit. I said the
      BALANCE SHEET not book value should be read in
      conjunction with the other financials. I'm not sure your
      listening but I'll say it again. I can show you many
      different companies that have negative book value but
      generate strong cash flow. These companies have huge
      market caps and all of their securities trade quite
      well. I can also show you companies with ample book
      value that are in bankruptcy. You refuse to answer the
      question of how book value enables a company to repay its
      loans. I've never heard of a company that upon declaring
      bankruptcy stated we have substantial cash flow but our
      negative book equity has caused us to seek bankruptcy
      protection. This is my last post on the matter as we're going
      around in circles.

    • Please read newMK's post #13861 which talks about
      the step-up assigned to PZN's prison facilities as a
      part of the 1998 merger. I'm nowhere near as bearish
      on PZN as some on this board but there is no way
      that PZN's facilities are worth what they are valued
      on the balance sheet at this time. Two little items
      have changed during the last two years. Interest rates
      have risen 200 bp making the cost to carry these
      facilities much higher. Second, a critical turnover problem
      with regard to prison personnel has led to rising
      operating expenses and the incurrence of fines due to
      understaffing below required regulations. Both these factors
      make the prisons worth less than what they're valued
      on the balance sheet. The prisons may be undervalued
      versus what it might cost to replace them but that does
      little to help PZN if they don't start generating the
      necessary cash flow to reduce their debt load.

    • Make up your mind. One post ago you said book
      value should be considered in conjunction with cash
      flow, income and other available information. Now you
      are are back to ignoring book value, calling it
      "inconsequential". If it is inconsequential, then a negative book
      value is not a problem. I would not lend to someone who
      thinks negative book value is fine, so long as your
      current cash flow is positive. I presume that negative
      income is also fine with you, as long as cash flow is
      positive.

      I doubt you really believe that book
      value is "inconequential". CCA is not a publicly listed
      company. Before those pro-formas came out, I was not sure
      how much debt this "merger" was going to put into
      PZN. I still fear that there may be hidden
      liabilities. When you pay $20mm for something with more
      liabilities than assets, you had better look at book value.

    • Please explain what the "40% leased rates"
      valuation procedure involves. That wording sounds to me
      like a valuation based on 40% occupancy, which would
      normally be conservative. Even if a building is vacant, it
      should not be valued at zero, unless you know it will
      remain vacant forever. However, I assume that there is
      something else going on here, judging from the context of
      your message.

      As I have said repeatedly here, I
      am not assuming that book value, cash flow, or
      income statements coming out of PZN management are
      accurate, but they are all we have to go on. Your
      information is useful and I appreciate your constructive
      input.

    • "I believe that REITs need only pay out earnings.
      That means they can use depreciation for new
      investments, to the extent not required for improvements,
      etc."

      Wrong. Let's think about this. To stay a REIT, you've
      got to pay out 95% of your earnings. Yes, you've got
      depreciation, but you've also
      got to remember that
      buildings really do wear down. You can't go on the building
      spree that PZN did on just 5% on your income and not
      rack up debt. This doesn't mean that management isn't
      to blame, but it doesn't help that they chose the
      least efficient structure to try to run as a growth
      stock.

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