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  • Quadrophile Quadrophile Nov 10, 1999 6:48 PM Flag

    PZN : quarterly

    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
    40 cents.

    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
    calculations.

    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.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • 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.

      • 3 Replies to gseay22
      • 1)get ready forward equity
        contract

        2)Capital expenses drop to $45mm for the quarter or $180mm
        annually. So much for $700m plus this structure was to
        provide.

        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.

        4)paying
        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
        more

        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.

        7)Get
        ready for lease rates in the CPV (10.50% range), it's
        the only way they're going to get money into
        Opco.

        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
        with him!

      • When I read the announcement this morning, my
        first inclination was to access my broker and
        BUY!

        It seemed like all our problems were solved, in
        priority order:

        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'.

        4) Management.
        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
        positive.

        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).

      • 2 Replies to newMK
      • Anyone know how they feel about the new Merrill relationship?

      • 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.

        Once the
        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
        (the economy).

 
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