Meridian Industrial REIT · MIR
DEMO DATAUNDERWRITING ASSUMPTIONHOLDMeridian Industrial REIT — Senior Unsecured Notes 3.90%
Proposed investment
Returns
| Base IRR (p=55%) | 8.4% | FAIL |
| Downside IRR (p=30%) | 5.0% | PASS |
| Severe downside IRR (p=15%) | -2.7% | |
| Probability-weighted IRR (of expected cash flows) | 5.9% | FAIL |
| MOIC base / downside / severe | 1.26x / 1.15x / 0.92x | |
| Required IRR (hurdle) | 12% | |
Credit
| Net leverage (FY2025A) | 4.6x | max 6.0x |
| Interest coverage (EBITDA / interest) | 4.08x | |
| Liquidity | $510M | |
| Covenant headroom (base, minimum) | n/a | min 15% |
| Credit score | 83 / 100 | Low |
| Next maturity | 2029 | |
Downside
| Recovery (downside / severe) | 100% / 100% |
| Loss given default (severe) | 0% |
| Default period (downside / severe) | none / none |
| Probability of default (weighted) | 0% |
| Expected loss | 0.0% |
| Recovery needed for MOIC 1.0x | 77% of face |
Key risks (largest first)
- Unsecured, rank 1: $0M of debt ranks ahead.
- Elevated leverage: net debt / EBITDA 4.6x.
- Weakest credit-score factor: Leverage (7.1 of 15 points).
- Cap-rate expansion
- Development pipeline overhang
Key protections (strongest first)
- Severe-case valuation recovery of 100% covers the 88.0 purchase price (principal protected).
- Coverage of 4.08x EBITDA / interest; EBITDA can fall 76% before coverage reaches 1.0x.
- Liquidity of $510M (29% of total debt).
- Base-case refinancing tests pass for all 2 maturing tranche(s); 2 are repaid from cash.
- No covenant breach in the Downside case.
Catalysts
- Lease marks-to-market
- Potential investment-grade rating
Diligence — 3 unresolved high-priority item(s)
Tracker →- Quality of earnings / EBITDA add-backs — Issue IdentifiedHow much of adjusted EBITDA is add-backs?
- Free cash flow conversion — Not StartedWhat is cash conversion after capex and working capital?
- Debt documentation review — In ProgressPriming / drop-down protections and baskets?
Investment thesis
Low-coupon 2031 notes trade at 88 against a 3.5x asset-coverage cushion; pull-to-par plus coupon gives a high-single-digit return with limited loss potential even if industrial values fall 35%.
The question: Does a 6.8% yield on a rank-1 unsecured claim compensate for 0% probability-weighted default risk and 0% severe-case loss?
Recommendation rationale — evidence from the model
HOLDHOLD (do not size yet): Base-case IRR clears hurdle (8.4% vs ≥ 12.0%); Expected-cash-flow IRR (probability-weighted) clears hurdle (5.9% vs ≥ 12.0%); Entry yield meets minimum (6.8% vs ≥ 9.0%).
| Test | Actual | Required | Weight | |
|---|---|---|---|---|
| ✗ | Base-case IRR clears hurdle | 8.4% | ≥ 12.0% | core |
| ✗ | Expected-cash-flow IRR (probability-weighted) clears hurdle | 5.9% | ≥ 12.0% | core |
| ✓ | Downside IRR stays above floor | 5.0% | ≥ 0.0% | core |
| ✓ | Downside recovery meets minimum (valuation waterfall) | 100.0% | ≥ 60.0% | core |
| ✓ | Base-case refinancing succeeds | PASS | PASS | core |
| ✗ | Entry yield meets minimum | 6.8% | ≥ 9.0% | secondary |
| ✓ | Net leverage within maximum | 4.6x | ≤ 6.0x | secondary |
| ✓ | Covenant headroom (base case, minimum) | n/m | ≥ 15.0% | secondary |
| ✓ | Principal protected in severe case (recovery ≥ price) | 100 vs 88.0 | recovery ≥ price | secondary |
| ✗ | No unresolved high-priority diligence | 3 open | 0 open | secondary |
Rule: PROCEED if all five core tests pass and ≤ 2 secondary tests fail; PASS if the base case and the downside both fail, or ≥ 3 core tests fail; otherwise HOLD. Thresholds (hurdle 12%, min downside IRR 0%, min yield 9.0%, max leverage 6.0x, min recovery 60%, min covenant headroom 15%) are configurable per case. The Excel Investment Summary tab implements the same rule by formula.
What would change my mind?
- EBITDA declines more than 76% from FY2025A (coverage < 1.0x) — or more than n/m (first covenant breaks).
- The entry price is above 80.1: the base case no longer earns the 12% hurdle (assumed price 88.0).
- Severe-case recovery returns the purchase price only if the distressed valuation multiple is at least 0.0x EBITDA (the severe case assumes 14.0x); the question is how much cushion we want.
- Collateral / enterprise value falls more than 86% from the base-case valuation: the tranche starts to take losses.
- Market access weakens: base-case pro-forma coverage at refinancing is 5.53x vs the 1.20x test, at an assumed 6.2% refinancing rate — a higher spread or lower EBITDA flips the test.