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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (34905)	7/23/2009 12:23:17 AM
From: E_K_S	3 Recommendations Read Replies (1) of 78750

Hi Spekulatius - It was a simple back of the envelope calculation and just another way to view total debt coverage under a worse case fireside sale scenario. I took the Total Gross Leasable Area (Square Feet) 70,780,259 (as of March 2009). Then I calculated the price per square foot to cover all their outstanding debt including their preferred series (around $2.7B). It comes out to be around $38.00/sq foot. (The information comes from First Industrial Realty supplemental report dated March 11, 2009 - See page 14. firstindustrial.com ) My observation was that based on their most recent sale of non leased industrial space in AZ, the market cash price was $55.00/sq foot. Remember that 85% of their industrial space is already leased and generating excellent cash flow. This space (about 57M sq.ft) would generate a much higher price than $55/sq foot. If there was a foreclosure fire sale at a net price of $38.00/sq foot (for both leased and non leased space), the net proceeds would cover all of their outstanding debt obligations. This includes the preferred series which would be paid off at their par value of $25.00/share. Common shares would be worthless. As long as the market price $/sq ft did not tank more than 44%, the risk/reward was acceptable especially with a yield on the discounted preferred stock approaching 17.5%. Furthermore with a liquidation, the preferred series gets paid off at $25.00/share (a premium of 138% from the current price of $10.50!). To me the issue is not a question of asset valuation but more of cash flow which appears they have covered w/o a problem through 2011. It seems like a compelling value buy to me. If they took on more long term debt which was superior to the preferred or the GAV significantly decreased, then it's not worth the risk. EKS P.S. Citigroup's analysis page -5- shows FR's Debt/GAV at 83%. I guess this implies that they have all the outstanding debt covered based on Citigroup's most recent estimate for GAV (Gross Asset Value).

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