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.
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
No clear info on the failure to pay the break-up fee
A competitor proposed a merger in late
Rights offering still planned for this year.
Not only does management claim to break-even
before depreciation in Q1, but they claim to have a book
value of $1.26 billion. They show 128mm shares
outstanding. The $20mm share issuance to CCA shareholders
might cause issuance of 7mm more shares (roughly). This
would result in a book value of a little mor than $9
Problem is, you can't really
believe these numbers yet.
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.
Your response on book value is meaningless in
relation to my statements, because you include non-REITs.
All I am saying is that book value should not be
ignored when looking at REITs. You are saying that the
book value of a REIT should be completely ignored. You
Regarding "Sources and Uses of
Cash", if you work on Wall Street, you should know that
a statements of cash flow can be finagled. All
financial statements are can be finagled. The reason that
Income Statements are produced is that Cash Flow
statements can be misleading, in that expenses can be
deferred and revenues can be accelerated. So you need to
look at cash flow, income, and the balance
You are saying we should ignore the balance sheet.
That is always foolish to some degree, but it is
especially foolish with respect to a REIT.
But aren't we going to de-reit?
should take a look at debt coverage and cash flow
numbers to get an idea of where we're going. Also, won't
the merger make the
current book value numbers
Yes we are going to de-REIT (but we haven't yet).
Even so, this will be a company with a lot of real
estate assets. I do not see how the re-merger makes book
value meaningless. I think it makes book value all the
more interesting. Remember, we are remerging (at a
cost of $20mm) with a bankrupt company. CCA owes far
more than it owns. You and brendy may think that is
meaningless, but I do not. (Please do not ask me for a loan!)
I would consider it very meaningful if the
re-merged company, with real estate at cost less
depreciation, owns more than it owes. Whether we can get an
honest statement of that is another matter. Still, it is
something to want to know.
Regarding debt coverage
and cash flow numbers, of course they are of
interest. We should be looking at everything.
is based on the post merger balance
constructed by the accountants
on a pro-forma basis. In
what the first quarters balance
and income statement would have
looked like if
the merger had taken
place at the end of 1999.
also a pro forma Balance Sheet
Income statement in the proxy for
the entire year of
that it made a strategic error in
REIT in the first place.
It forced all Reit
assiume to include depreciation
generated cash flow?) to be paid
out as dividends.
Therefor it had
to incur high interest expense
building new prisons instead of
generated and retained cash. It states for this
it lost credibility on Wall
street and could not
get new equity
financing. With Pac Life out of
way. They only need under this
agreement to raise
the proposed new rights
After the merger and 3d and 4th
earnings are posted
PZN will once again be a growth
But I guess like many, you prefer
people's posts to say what
you pretend them to say. I
said the merger would make the "current" BV numbers
But, again, it is far less
relevant to a c-corp
than to a
REIT. If you doubt this, why don't you
spend some of your abundant
and clearly misused
time looking at REITS that have de-REITED. Cash
flow and EPS are what drives
their shares, not BV.
Absolutely right. This is exactly what the
Yieldseeker mentalities don't grasp. PZN tried to use the
REIT structure as a growth structure. They and
everyone else who have tried this have failed
look at the paired share craze, for
REITS are primarily income instruments and are not
really, growth vehicles, though some achieve marginal,
single digit growth over
the longer term.
reason REITS aren't suited for growth is because their
tax structure allows for little or no retained
earnings because it all has to be paid out in dividends.
In other words, anyone trying to use a REIT as a
growth structure is highly reliant on outside capital.
evident when PZN loaded up on debt to pay
for its building binge.
Once the C-corp
brought back, PZN will be able to use its
cash flow to pay down debt and maintain a sane,
planned growth strategy, provided we get good management.
This is why so many of the REIT measures (BV, FFO,
NAV) aren't so relevant to the future valuation of
PZN. Look to EPS and
debt coverage. That will
ultimately tell the tale.
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,
We have been told for a long time on this board that
the REIT creation was an error. I doubt that. Many
REITs are well-run, able to reinvest some FOF, and
grow. I believe that PZN (and CCA) have failed because
they were not well run. As a REIT you can not expand
rapidly unless the market for REIT-issued securities is
strong. PZN became a REIT just as the REIT market went
into a sharp decline, AND PZN EXPANDED ANYWAY.
Well-run REITs change plans as needed. PZN did
We are getting new management, so we are told. The
question is, will they be smarter than the old management?