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Corrections Corporation of America Message Board

  • RetiredPaperman RetiredPaperman May 17, 1999 7:09 PM Flag

    A simple and elegant solution

    Doc, recombine PZN with Opco. The singular reason
    for creating the REIT was to enhance the entity's
    abilities to raise capital. For whatever reasons, and there
    are plenty, it isn't working as planned. That is a
    clear fact, not an opinion.

    Combining the co's
    takes away all the sideline issues that have grown into
    forefront issues. If you had done this when PZN was at 20,
    the stock would have temporarily dropped to 15 then
    climbed back. Now, such a move would most likely be
    greated with a move back to 20. HOT gave up REIT status
    and PAH toughed it out. Look at the comparative
    results. Is that a totally valid comparison to this
    situation? No, but a lesson can still be earned.

    I
    remain convinced that the initial plan made sense but
    things changed, some outside of PZN's control (Investor
    disdain for REITS) and some within PZN's control (The
    "mistake").

    It doesn't matter. That's all water under the
    bridge. Bring the company's back together before there's
    nothing left to merge.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • If you put the two businesses back together
      (which is potentially the fair way to value the entity
      anyway) the system generates substantially less reported
      economics. PZN is supposed to do $300mm of FFO this year,
      and it seems if OPCO is losing $40MM in cash after
      getting paid $80mm in additional fees from PZN, OPCO is
      really losing $120mm. So take $300MM of PZN FFO and
      subtract $120mm of OPCO losses, and you get $180mm of
      combined FFO (maybe accountants can monkey with this
      number and take some expense and ammortize it, but cash
      basis is fair way to look at economics). Divide $180MM
      of FFO by 117mm shares (although share count may go
      higher if they have to buy OPCO back in??), and you get
      $1.55 of FFO.

      At $1.55 of FFO, what multiple
      does the business deserve? I suspect the multiple it
      would get would likely be a discount to peer given the
      credibility issues that have arisen at the
      company.

      What do you think of this analysis, is it a fair way
      to value the company as a system. If so, I can get
      to a number for stock price of around $10 or $11
      using a 7x FFO number, which may be appropriate for a
      tarnished story w/ legal/other clouds hanging around. JMHO.
      Any thoughts??

      • 3 Replies to tryasyoumight
      • ...that he was comfortable with analysts'
        earnings estimates for the next quarter and remainder of
        the year, and that the various fees ($4000 included)
        were included as part of Q1; if such is the case, then
        FFOPS will present no surprises for the balance of this
        year.

      • Interesting thumbmail analysis. I'm away from my
        home office so I can't do the analysis I'd like to do
        but mine would go something like this...Pre-merger,
        CCA was supposed to make something like $1.20 a share
        (adjusting down for the drop in communicated growth from 40%
        to 20%). PZN was about 1/4 the size of CCA so you
        can almost exclude them from the equation but if you
        choose to include them, it probably doesn't hurt my
        case.

        Take $1.20 and give it a pe of 25 instead of the
        previous 40+. A pe of 25 on a 20% grower would be quite
        conservative for this market. I think the S&P pe is about 28
        and growing under 10%. $1.20 x 25 is 30.

        With
        that cursury analysis done, my argument is that it
        ("it" being the numbers) doesn't matter. PZN has no
        choice. They might have pulled off the REIT if they'd
        operated flawlessly but the "mistake" is the end of the
        great experiment. Regardless of the numbers, the market
        has spoken. The stock is at $15 and going lower. IF
        the debt deal goes through, they'll still need to
        issue stock early next year and it's going to be at
        horribly low prices.

        Fortunately, they've run the
        actual operations side of the business pretty well,
        except for Youngstown. Otherwise we'd be at 10 right
        now.

        In summary, the numbers don't matter anymore.
        Credibility is zero and it can only be fixed by making the
        whole entity a public corporation. Lose the REIT
        status, PZN pays taxes at the lower corporate rate, I
        stop paying at 46%, the stock goes higher than it
        would otherwise. I'm afraid you won't find the answer
        to this one on your calculator.

      • I they want to maintain their reit status. Reits
        can only own the real estate,not operate the
        business, unless they are a paired shared reit, which PZN
        is not. And can't become one. Not allowed anymore.

    • I figured that PZN cannot be going broke and that the FFO estimates are unchanged. On a happy ending note, the stock finally bounced off its lows to 13 1/4 at the close.

    • Sitt'in on the DOC of the bay, watch'in the tide drift away. Me thinks the fat lady has begun her song. Enjoyed the jousting on this thread though.

    • "Nobody is stupid" ha, ha...
      Stupid were buing
      at $20+.
      Smart are buing at $12 -
      17.
      Devidents could be cut to $2 next year and should be cut,
      this will make this $20 stock next year + $4 total
      devidents for 1999 for a total $24.

      It is looking
      very interesting at up to $17 today.

    • Prices are struggling to get back above $13. We should see some more sellers emerge shortly.

    • And to those that feel I always "blindly" follow
      management I invite you to read my posts on the Bell
      INdustries(BI)message board, I am the devils advocate there. A spinless
      board of directors and top mangement that's self
      selfing, mismanaged firm is plain as the nose on their
      faces. I can wear all hats.

      all the best

    • "Why, Doctor Crants, Why????
      by: avolster 27
      of 2502
      It totally amazes me that one man can
      screw up two perfectly fine companies in one day.



      --------------------------------------------------------------------------------
      Posted: 06/10/1998 11:47 am EDT as a reply to: Msg 1 by
      YahooFinance

    • Try Tennessee networks,unknown if web site
      esist.ill try to locate and report.wbbj tv,in jackson
      tenn.carried the news.jackson sun news paper in sackson
      tn.carried the story,so did the commerical appeal news paper
      in memphis carry the story/

    • Flipper: I was referring to the stock being like
      a junk bond at this state. Not the actual rating
      from folks like Moody's etc. Why like a junk bond?
      Because management has been less than forthcoming and
      that the future of the company is under question.
      Thus, the stock drops creating an abnormally large
      yield that is like a junk bond. That's all I meant.
      Regards,

      Stephen Reitmeister
      Editor of the Reitmeister
      Investment
      Newsletter
      http://shrike.depaul.edu/~sreitmei/start.html

    • cxc was at $90/share and flying high...and then
      Doc had to take care of "baby doc" (form
      PZN)????...and then merge the two???? What has happened with
      each move??? from $90 to $12!!! and there are still
      people on this board defending him?????? He and the
      Board should reside with those they are supposedly
      housing. If there was ever an example of fiduciary
      irresponsibility and nepotism this is it!!! The financials are
      only part of this company's problems...look underneath
      the numbers and I promise you the problems aren't
      half over.

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