Prison Realty (NYSE:PZN
- news) fell another $1.56 to $13.38 per share.
Prison Realty, is structured as a REIT and is the
nation's largest owner of prisons. Last Friday it reported
it is raising, by $50 million, the amount that it
will pay to Correction Corp., its closely-held
affiliate, to manage and rent prisons. Prison Realty will
now pay $4,000 per bed, a far cry from the $840 a bed
number previously announced. Jerry Doctrow, an analyst
with Legg Mason Wood Walker, says, 'That is a big
transfer of cash from public shareholders to a private
company.' Shares have fallen from $22, about 36% in the
past three trading days.
In the conference call Doc explained that the
additional $3,140 was being paid to adjust for the time from
which the Certificate of Occupancy was issued on the
new facility to the point of full occupancy. The
reason this was done was that the Lease payments begin
based on full occupancy when the certificates of
occupancy has been obtained. He said it was missed when
they did the analysis and set the original rate of
$840. He also said this was a very common practice in
the real estate industry. I would like to hear some
comments on that. I do not believe the money is paid or
due to the operating company until the new facilties
go online and only one in San Diego with 1,000 beds
was completed in 1st qtr. I dont Arthur Anderson
would allow the company to spread the payment over 12
years if it did not meet Generally Accepted Accounting
Principals. What I still do not understand an which was not
adequately explained was the $840 fee paid on the
beds that were not subject to the Tenant Allowance in
the 1st qtr. These facilities would all be running at
or near full occupancy so there would be no short
fall to cover with the lease paid at 100% occupancy?
Does anyone understand this? That number is about $18
and don't forget the new 4 1/2% "success fee".
Doc blew the conference call. He tried pooh-poohing
the whole thing and in the process created more
confusion. Doesn't make sense, because the reason for the
call was to head off misunderstanding. Not only did he
leave everyone confused, but there seems to be
widespread doubt about the fundamental business now,
although I'm sure it is overblown.
If you had
followed this thread (and CCA before it) you would know
that I have held Doc in the highest esteem through
thick and thin. He let us down on Friday. You can't
really blame the analysts and the market this time
around. Now he's stuck on the road trying to get the do
or die debt deal done, and can't address the market
noise. No wonder we're in a free fall.
Lehman Brothers is taking Doc and CFO around to
institutions that may buy the debentures, so he can tell the
story. The Lehman folks will say the things that Doc
can't in his story because of SEC rules. As I
understand it, Doc explains the past, Lehman explains the
Over a year ago, and before the merger
announcement, I wrote on this board, as CCA's share price was
slowly declining, that maybe it was time for an
ownership shift - to larger institutions. CCA was becoming
big enough that it needed to look more like a
"blue-chip" and attract the big pension funds etc., rather
than the growth & momentum funds.
is going on is all part of that shift, with some
bumps unitentionally provided by Doc.
Legg Masons and J. C. Bradfords fade away, will they
be replaced by the Lehman Brothers, Goldmans and
Won't happen overnight, but this is a
large REIT and will ultimately get some big name
Right now, they have one big firm covering them -
PaineWebber. PW's analyst (Jonathan Litt) has had it in for
this deal since day one, and he is, for some reason,
influential. Based on what I've seen of his track record (e.g.
PAH), he isn't worth listening to.
wants out, get out now; get it over with. We'll take
our chances without you. For those who stay, keep
reading Flipper's posts.
I was told yesterday that in Merrill Lynch's REIT
PZN was their largest holding @ 5% of total. He did
not know at this point whether they were buyers or
sellers during this fiasco but you're right, some large
institutions are still buying. I look for a bounce over the
next couple of days. Dr. p & co. will have to cover
their shorts which should drive the stock higher.