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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
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
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.
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.
1)get ready forward equity
2)Capital expenses drop to $45mm for the quarter or $180mm
annually. So much for $700m plus this structure was to
3)As Quad said the combined cash flow number is bad.
Opco has lost $82mm and PZN's available earnings(not
including incentive fees kick back) is $79mm....not a
pretty picture, that spells LOSS to me.
an average of 11.40% on your $895mm in debt is
INSANE, but they have no choice since the structure blew
up in their faces.
5) the IRS....I won't say
6)NOW they find out about the treatment of the special
dividend is FIFO versus the regular dividend. I'm in total
amazement. Something smells there. I have to feeling it's
gone over everyones heads at this point.
ready for lease rates in the CPV (10.50% range), it's
the only way they're going to get money into
This structure will not allow PZN to grow until the
next REIT cycle...5 years...10 years?
Junior has never been considered an expert on
REITS. He is smart as hell, but an arogant little s**t.
But that doesn't make him an expert on REITS. Reality
is that if anyone other than Baby Doc had come up
with the REIT idea for old CCA, Doc would have ignored
it. But that doesn't make jr an expert--it only
exposes the evils of nepotism. This was nothing more than
a half baked idea that has just about ruined a damn
good company and only got heard because DAD was the
Chairman. I don't subscribe to the "Doc has to go" chorus,
but I do believe Baby Doc has to go and take Devlin
When I read the announcement this morning, my
first inclination was to access my broker and
It seemed like all our problems were solved, in
1) The special dividend. The
company has found a way to defer it to next year, thus
removing the one roadblock to fiscal health PZN faces.
2) The SI. If you don't need to pay the special
dividend in December, you don't need to borrow money to
pay it, and you don't need to dilute the hell out of
shareholders for that purpose.
3) Occupancy. Improving,
and the Wisconsin announcement would seem to increase
occupancy by 2 1/2 % !!! This alone would seem so favorable
as to make PZN a 'buy'.
Getting some people who maybe know something about
finance (Merrill) has to be reassuring to those who get
queasy thinking about all the financial misteps this
company has made in the past. The past can't be changed,
buy if investors can anticipate only good decisions
in the future, that is certainly a
Well, somedays you're the windshield and somedays
you're the bug, and when I logged-on to find PZN under
$9, it scared me. I missed an opportunity, but if it
repeats itself tomorrow, I will NOT miss it again.
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).
I hope I am not falling into a Doc trap. True,
the no-growth, $2.00 dividend scenario does not
incorporate return of principal, but as long as there are
credit markets and PZN has sufficient fixed charge
coverage, someone will be willing to lend the company money
at some rate. Obviously, the cost of that money will
depend on interest rates and credit spreads, but by my
calculations the fixed charge coverage for PZN/OPCO at the
mature stage would be over three times.
dividend issue is out of the way, this company should have
a lot of appeal to potential lenders. It is
acyclical or countercyclical, less levered than many
REIT's, has tenants with close to zero credit risk, and
is in a business with large potential for growth. In
short, it is a very interesting diversifying holding in
a loan portfolio. The risks involved (success of
privatization generally, violent incidents, PZN gaining or
losing share, etc.) are quite different and presumably
lowly correlated with the risks most companies face