Meridian Industrial REIT (MIR) — Senior Unsecured Notes 3.90%
Executive Summary
Demo purchase of $100M face of Senior Unsecured Notes 3.90% at 88.0 (cash investment $88.4M): current yield 4.4%, yield to maturity 6.8%. Recommendation: HOLD. Credit score 83/100 (Low risk). Base-case IRR 8.4%, downside 5.0%, severe -2.7%; probability-weighted IRR 5.9% vs a 12% hurdle; weighted P(default) 0%; severe-case valuation recovery 100%. HOLD (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%).
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?
Company Overview
Class-A logistics and light-industrial portfolio, 96% leased with a staggered lease expiry profile. HQ Dallas, TX; Real Estate / Industrial REIT. FY2025A revenue $520M, EBITDA $364M (70.0% margin); total debt $1.8B, cash $60M. DEMO DATA
Industry / Market
Industrial real estate has strong tenant demand but supply was elevated; unsecured creditors rely on unencumbered asset coverage.
Historical Financial Performance
| $M | FY2022A | FY2023A | FY2024A | FY2025A |
|---|---|---|---|---|
| Revenue | $440.0M | $470.0M | $495.0M | $520.0M |
| % growth | 6.8% | 5.3% | 5.1% | |
| Direct costs / COGS | $127.6M | $131.6M | $138.6M | $145.6M |
| Gross profit (NOI for real estate) | $312.4M | $338.4M | $356.4M | $374.4M |
| % margin | 71.0% | 72.0% | 72.0% | 72.0% |
| Operating expenses (cash, adjusted) | $8.8M | $9.4M | $9.9M | $10.4M |
| EBITDA (company-adjusted basis) | $303.6M | $329.0M | $346.5M | $364.0M |
| % margin | 69.0% | 70.0% | 70.0% | 70.0% |
| D&A | $132.0M | $141.0M | $148.5M | $156.0M |
| Share-based compensation | $0.0M | $0.0M | $0.0M | $0.0M |
| EBIT | $171.6M | $188.0M | $198.0M | $208.0M |
| Interest expense | $75.8M | $80.2M | $84.7M | $89.2M |
| EBT | $95.8M | $107.8M | $113.3M | $118.8M |
| Taxes | $24.0M | $26.9M | $28.3M | $29.7M |
| Net income (model basis) | $71.9M | $80.8M | $85.0M | $89.1M |
| Capex | $44.0M | $47.0M | $49.5M | $52.0M |
| Working capital & other cash items | $0.5M | $0.9M | $0.8M | $0.8M |
| Free cash flow | $159.4M | $173.9M | $183.2M | $192.4M |
Capital Structure
| Tranche | Rank | Secured | Face value | Rate | Maturity | Mark / price |
|---|---|---|---|---|---|---|
| Revolver | 1 | No | $150.0M | S+205bp | 2029-11-30 | — |
| Unsecured Term Loan | 1 | No | $400.0M | S+235bp | 2030-06-30 | 99.5 |
| Senior Unsecured Notes 3.90% | 1 | No | $700.0M | 3.90% | 2031-03-15 | 88.0 |
| Senior Unsecured Notes 5.20% | 1 | No | $500.0M | 5.20% | 2033-09-15 | 93.0 |
Total debt $1.8B (4.8x EBITDA); net debt $1.7B; liquidity $510M; loan-to-value through the target tranche 14%.
Credit Analysis
Net leverage 4.6x, EBITDA / interest 4.08x, FCF / debt 11.0%, DSCR 3.2x, liquidity ratio 5.7x. Score components: Leverage 7/15, Coverage 12/15, Liquidity 10/10, Free cash flow 9/10, Maturity risk 10/10, Margin stability 10/10, Revenue stability 8/8, Asset coverage 12/12, Industry risk 5/10. Score change vs FY2024A (same capital structure): 82 → 83 (Net leverage fell from 4.9x to 4.6x (+0.7 pts, positive); FCF / debt increased from 10.5% to 11.0% (+0.4 pts, positive)).
Debt Maturity Profile
| Period | Debt due | % of debt | Projected liquidity (Base) | Refinancing requirement |
|---|---|---|---|---|
| FY2029E | $150M | 9% | $1.4B | — |
| FY2030E | $400M | 23% | $1.7B | — |
| 2031 (beyond horizon) | $700M | 40% | $1.3B | — |
| 2033 (beyond horizon) | $500M | 29% | $1.3B | — |
| Tranche | Matures | Balance at maturity | Cash on hand | Net lev. (test ≤) | Pro-forma coverage (test ≥) | Refi rate | Interest burden after | Result | Resolution |
|---|---|---|---|---|---|---|---|---|---|
| Revolver | FY2029E | $0.0M | $571M | 2.4x (8.5x) | 5.53x (1.20x) | 6.2% | $0.0M | REFINANCING PASS | Repaid from cash |
| Unsecured Term Loan | FY2030E | $400.0M | $818M | 1.7x (8.5x) | 5.74x (1.20x) | 6.2% | $0.0M | REFINANCING PASS | Repaid from cash |
Base Case
Revenue CAGR 4.0%; FY2030E EBITDA $448M (70.8% margin); trough EBITDA $379M; peak net leverage 3.9x; minimum EBITDA / interest 4.25x; cumulative FCF $1.2B. No payment default modelled. IRR 8.4%, MOIC 1.26x.
Downside Case
Revenue CAGR -0.6%; FY2030E EBITDA $345M (68.3% margin); trough EBITDA $319M; peak net leverage 4.6x; minimum EBITDA / interest 3.42x; cumulative FCF $868M. No payment default modelled. IRR 5.0%, MOIC 1.15x.
Severe Downside
Revenue CAGR -5.4%; FY2030E EBITDA $259M (65.8% margin); trough EBITDA $245M; peak net leverage 5.9x; minimum EBITDA / interest 2.65x; cumulative FCF $594M. No payment default modelled. IRR -2.7%, MOIC 0.92x.
Covenant Analysis
No active covenants.
No active covenants.
Recovery Analysis
If the company defaults, recovery value is $3.7B (going concern) in the severe case → 100% recovery (0% LGD) on the target tranche; downside 100%. Recovery value = MAX(going concern $3.4B, liquidation $3.4B) + cash, less administrative costs; severe case struck at FY2028E.
| Claim (by seniority) | Rank | Claim | Recovery | Recovery % | Loss | Loss % |
|---|---|---|---|---|---|---|
| Recovery value | $3.7B | |||||
| Less: administrative / DIP costs | ($147.9M) | |||||
| Unsecured Term Loan | 1 | $409.1M | $409.1M | 100.0% | $0.0M | 0.0% |
| Senior Unsecured Notes 3.90% | 1 | $706.8M | $706.8M | 100.0% | $0.0M | 0.0% |
| Senior Unsecured Notes 5.20% | 1 | $506.5M | $506.5M | 100.0% | $0.0M | 0.0% |
| Total claims | $1.6B | $1.6B | $0.0M | |||
| Equity (residual) | $1.9B | In the money | ||||
Investment Returns
| Base Case | Downside | Severe Downside | |
|---|---|---|---|
| Face value / purchase price / cash investment | $100M / 88.0 / $88.4M UNDERWRITING ASSUMPTION | ||
| Cash interest + exit/recovery proceeds | $11.7M + $100.0M | $11.7M + $90.0M | $11.7M + $70.0M |
| Capital gain / (loss) vs purchase price | $12.0M | $2.0M | ($18.0M) |
| MOIC | 1.26x | 1.15x | 0.92x |
| IRR (hurdle 12%) | 8.4% | 5.0% | -2.7% |
Key Risks
- 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
- 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
Due Diligence Items
| Item | Status | Priority | Open question |
|---|---|---|---|
| Quality of earnings / EBITDA add-backs | Issue Identified | High | How much of adjusted EBITDA is add-backs? |
| Free cash flow conversion | Not Started | High | What is cash conversion after capex and working capital? |
| Working capital and capex needs | Not Started | Medium | Are capex and working capital run-rates sustainable? |
| Revenue and customer concentration | Not Started | Medium | Top-10 customer share and contract terms? |
| Supplier concentration | In Progress | Low | Any single-source dependencies? |
| Competitive position and management | In Progress | Medium | Share trend and management track record? |
| Debt documentation review | In Progress | High | Priming / drop-down protections and baskets? |
| Collateral and lien perfection | In Progress | Medium | What assets secure the instrument? |
| Macro and rate sensitivity | Issue Identified | Low | How does the credit behave at +300 bps? |
Recommendation
HOLD. HOLD (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 |
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.
Sources (3)
| Source | Document | Data type | Period | Accession | Doc date | Retrieved | Class |
|---|---|---|---|---|---|---|---|
| CreditIQ demo dataset | Meridian Industrial REIT — illustrative financial statements FY2022–FY2025 | Income statement / cash flow | FY2022–FY2025 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Meridian Industrial REIT — illustrative capital structure & covenants | Debt schedule | As of 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Illustrative indicative bid marks (% of par) | Market price | 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
Generated entirely from the structured model (inputs → analysis → memo): every figure reconciles to the Excel workbook (see Settings → Reconciliation). Hypothetical terms are underwriting assumptions. Not investment advice.